Chapter 3

Multichannel Retailing

McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

3-2

Benefits Provided by Different Channels

3-3

More Reasons for Becoming a Multi-Channel Retailer

- Increase Share of Wallet

Example: Eddie Bauer, single-channel customers spend $100-$200

per year, dual-channel customers spend $300-$500 per year, tri-channel customers spend $800-$1000 per year

- Overcome Limitations of Existing Format - Expand Market - Provide services more cost-efficiently - Leverage Existing Assets

- Brand Name, Inventory, Customer Database

- Develop Insights in Customer Shopping Behavior

3-4

Dollars spent at different channels:Average annual dollars spent by JCPenny’s customers

3-5

Unique Benefits Provided by Store Channel

■ Browsing■ Touching and feeling■ Personal service■ Cash and credit payment ■ Entertainment and social interaction■ Immediate gratification■ Risk Reduction

Royalty-Free/CORBIS

(c) Brand X Pictures/PunchStock

3-6

Benefits Provided by Catalog Channel

Convenience

Information

Safety

Hoby Finn/Getty Images

3-7

What’s the Big Deal About Shopping on the Internet?

Just 6% of total retail sales,

but is growing very fast (about 25% annually)

Furthermore, it has an important impact on other

channels

75% of US consumers say they sometimes get information or shop online prior to visiting a regular store 49% purchase from a different retailer offline than researched online 61% of US auto consumers use the Web to research their car purchases.

3-8

Source: Forrester, State of Consumers and Technology, 2006

What’s the Big Deal About Shopping on the Internet?

3-9

Internet Channel

■ Broader Selection■ More and Better Information to Evaluate Merchandise

Drill Down as Much as You Want Full motion Video

■ Personalization Information is tailored to Individual consumers to help them

make quicker and better purchase decisions Customized Information -- Side By Side Comparisons, Full

Motion Video Try It On Virtually

■ Information for Solving Problems, Not Just Merchandise Characteristics

Virtual Communities

3-10

What People Buy Over the Internet

Travel

PC/Electronics/Toys

Books/Software

Apparel

Home & Garden

Jewelry & Watches

3-11

What Merchandise Will Be Sold Successfully Through Electronic Channel?

■ “Look and See” attributes vs. “Touch and Feel” attributes (?)■ Degree to which information can be used to predict

satisfaction prior to purchase Gifts Services

■ Might not need to “Touch and Feel” “Touch and Feel” not useful - Gifts Superior presentation of “Touch and Feel” Branding

3-12

How to Sell Over the Internet…and eliminate returns Branding:

National brands provide a consistent experience for customers to overcome not being able to touch and feel.

How Can the Electronic Channel Overcome Limitations?

3-13

How Can the Electronic Channel Overcome Limitations?

Use technology to convert “touch and feel” information into “look and see” information

■ 3-D Imaging■ Zoom Technology■ Live Chat■ 360 Degree Viewing■ Virtual Models

conversion rates: % of consumers who buy the product after viewing it

Technology increases conversion rates

3-14

GIFTS■ Saves time■ Saves effort in packing■ Saves effort in delivery

SERVICES■ No Shipping Problems■ Examples

Travel websites Banking Newspapers

Janis Christie/Getty Images

The Electronic Channel Provides Superior Benefits for

How Can the Electronic Channel Overcome Limitations?

3-15

Evolution Toward Multichannel Retailing

■ Traditional store-based and catalog retailers are placing more emphasis on their electronic channels and evolving into multichannel retailers.

E-channel gives a way to overcome limitations of existing format

With electronic channel, retailers can reach out to new markets

Builds share of wallet E-channel enables retailers to give insights into

customers’ shopping behaviors

3-16

Overcoming Existing Format

Size of the store is the greatest constraint for stores■ By blending store with internet-enabled kiosks,

retailers expand assortments offered to shoppers.

Store based retailers face inconsistent execution■ Kiosks can be used by both sales associates and

customers for up-to-date product information, stock information and price reduction on clearances.

3-17

Capabilities for Multi-Channel Retailing

To effectively operate and realize the benefits of multi-channel retailing, firms need to have skills in:

■ Developing assortments and managing inventory■ Managing employees in distant locations■ Distribute merchandise efficiently from DCs to stores■ Present merchandise in catalogs■ Present merchandise on websites■ Process orders electronically■ Efficient distribution of individual orders to homes■ Operate information systems for all channels

3-18

Who Has These Critical Resources?Capabilities for Multi-Channel Retailing

3-19

Resources Needed to Compete Effectively in Internet Retailing

■ Exciting and easy to use the website■ Management Information Systems

Order processing and status Customer database Personalization software

But these resources were not enough!

3-20

Resources Needed to Compete Effectively in Internet Retailing

■ Retailing Skills Managing inventory Editing assortment

■ Efficient Fulfillment Systems Significant costs - last mile Picking and packing individual orders Handling returns - reverse distribution

■ Strong Brand Name and Image Build traffic Reduce customer perceived risk

■ Complementary Merchandise One stop shopping Lower shipping costs

■ Availability of Customer Information Tailored presentations - personalization

3-21

Why did Electronic-only Retailers Fail?

■ They did not have skills in brand recognition■ They did not have skills necessary to build consumer trust■ They did not have skills to build assortments, manage

inventory and fulfill small orders to homes■ They did not posses sufficient resources to evolve into

multichannel retailers

They had skills in web designThey had skills in systems to manage transactions

3-22

Catalog Retailers can Add Electronic Channel Easily

■ Ready to take orders■ Able to pack merchandise■ Able to deliver■ Able to handle returned

merchandise■ Already have a database■ Visual merchandise for catalog

is the same for electronic

Steve Cole/Getty Images

3-23

Why are store-based retailers evolving into multi-channel retailers?

■ Sales through an electronic channel are growing at over 20% per year

■ Adding an electronic channel creates immediate possession utility

■ Multi-channel retailers can attract more customers and satisfy existing customers better

■ The growth of sales in stores is declining

3-24

Ecommerce Myths

■ Low Cost of Entry

■ Overestimate Importance of Technology, Under Estimated Need for Traditional Resources

■ First Mover Wins

■ Gets Rid of the Middleman

3-25

Which Channel Is the Most Profitable?Cost Drivers in Stores and Electronic Retailers

■ Bricks and Mortar, Salespeople■ Attracting Customers to Store■ Distribution Centers■ Restocking Returned

Merchandise

■ Building,Refreshing Web Site■ Attracting Customers to Web

Site: “Customer-Acquisition Costs” are huge but “Customers’ switching costs” are tiny.

■ Picking, Packing, Mailing Small Orders to Home

■ Restocking Returned Merchandise

Stores Electronic Retailers

Few e-tailers are profitable

3-26

Will Electronic Channel’s Low Search Cost Increase Price Competition?

■ Conventional Wisdom Greater Comparison Shopping Offerings Easily Compared on Price Lower Search Costs => More Emphasis on

Price■ Empirical Evidence

Substantial Price Dispersion Lower Search Costs for Quality Information=>

Less Price Sensitivity Lower Search Costs Lead to Better Decisions

3-27

Widespread Disintermediation Unlikely

Will Manufacturers Bypass Retailers and Sell Directly to Consumers?

Advantages of Retailers vs. Manufacturers

■ Distribute Merchandise Directly to Customers

■ Provide Assortments■ Collect and Use Information

about Customers

3-28

Issues in Multi-Channel Retailing

■ Integrated Shopping Experience Communicate with customers anytime, anywhere through multiple

channels Website, Store, Kiosks, Handheld Devices Integrating legacy systems for seamless customer interface

■ Brand Image Consistent brand image across different channels

■ Merchandise assortment offered in each channel■ Pricing across channels

3-29

Channels Offer Complementary Benefits

Stores Internet Catalog

■Known Entity

■Entertaining/ Social Experience

■Easy Checkout and Returns

■Personal Assistance

■Product Trial- Complementary Merchandise

■Immediate Gratification

■Location Convenience

■Speed

■Greater Selection

■Personalized Presentation

■Community

■Portability

■High Quality Visual Presentation

3-30

Multichannel Shopping

3-31

Opportunities to Enhance Multi-Channel Experience

■ Order on Internet, Pick-Up in Store■ Promote Web Site on Receipts, Shopping Bags■ Product Availability in Stores Available on Website■ Kiosk in Stores to Order Merchandise Not Available in

Stores■ Plan Purchases (Shopping List) on Website■ In-Store Events Promoted on Website■ Ad Curricular on Website

3-32

Integration – Key to Multi-Channel Retailing

Create a Seamless Experience

Make it Easy Provide Support

Know thy Customer

• Ordering • Returns• Refunds

• Call Center• Shopping

Advice• Customer

Service

• Needs andpreferences

• One to OneMarketing

• Synchronized &consistent serviceregardlessof channel

Shopping Experience