Chapter 3

Chapter 3Multi-Channel Retailing

3-* The World of RetailingIntroduction to RetailingTypes of RetailersMulti-Channel RetailingCustomer Buying Behavior

3-*QuestionsWhat are the unique customer benefits offered by the three retail channels stores, catalogs, and the Internet?Why are retailers moving toward using all three channels?How do multichannel retailers provide more value to their customers?What are the key success factors in multichannel retailing?How might technology affect the future shopping experience?

3-* The Multi-Channel RetailerRetailerDigital Vision / Getty Images Steve Cole/Getty Images The McGraw-Hill Companies, Inc./Andrew Resek, photographer A retailer that sells merchandise or service through more than one channel. By using a combination of channels, retailers can exploit the unique benefits provided by each channel.

3-*Why are Retailers Using Multiple Channels to Interact with Customers?Customer wants to interact in different ways

Each channel offers a unique set of benefits for Customers

3-*Why are Retailers Using Multiple Channels to Interact with Customers?customerConsumers buy what they want,When they want,Wherever they wantstorekioskcatalogCall centerWeb/E-mailmobile

3-*More Reasons for Becoming a Multi-Channel Retailer - Increase Share of WalletExample: 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-*Dollars spent at different channels:Average annual dollars spent by JCPennys customers

3-*Benefits Provided by Different Channels

3-* Unique Benefits Provided by Store ChannelBrowsingTouching and feelingPersonal serviceCash and credit payment Entertainment and social interactionImmediate gratificationRisk ReductionRoyalty-Free/CORBIS (c) Brand X Pictures/PunchStock

3-* Benefits Provided by Catalog ChannelConvenienceInformationSafetyHoby Finn/Getty Images

3-*Whats the Big Deal About Shopping on the Internet?$2.5 Trillion US Retail Sales$200 Billion Catalog and Direct Sales$ 4 Billion TV Home Shopping$ 100 to 150 Billion Internet Retail SalesJust a drop in the bucket, but growing fast!

3-*Whats 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-*Source: Forrester, State of Consumers and Technology, 2006Whats the Big Deal About Shopping on the Internet?

3-*Impediments to Shopping On-Line Technological concerns are becoming less importantAccess to InternetBroadband ConnectionsPrivacy, Security concerns

Are the benefits of shopping on-line greater than the benefits of going to a store?

3-*Internet ChannelBroader SelectionMore and Better Information to Evaluate MerchandiseDrill Down as Much as You WantFull motion VideoPersonalizationInformation is tailored to Individual consumers to help them make quicker and better purchase decisionsFred is a Super Retail SalespersonCustomized Information -- Side By Side Comparisons, Full Motion VideoTry It On VirtuallyInformation for Solving Problems, Not Just Merchandise CharacteristicsVirtual Communities

3-*More and better information to evaluate merchandise

3-*Side-by-Side Comparison

3-*Personalized Customer Service

3-*Using an Agent to Locate Merchandise

3-*Problem Solution BenefitsOffered By Internet ChannelBundling Information, Services, and ProductsExamplesiVillageThe Wedding ChannelGarden.com

3-* Virtual CommunitiesPeople who seek information, products and services communicate with each other regarding specific issuesSocial shoppers: seek not just information but also an enhanced emotional connection to others participants in the shopping experienceRoyalty-Free/CORBIS

3-*Virtual CommunitiesVirtual community is a network of members sharing common interests that interact with each other electronically.Examples:IVillage WomenPricegrabbers.com; Epinion.comproduct comparisons and reviewsFlypaper.com talks about fashionThisNext.com, Kaboodle.com, Wists.com, StyleHive.com social shopping that combines shopping and social networking

3-*Virtual communitiesSource. Future Trends in Microelectronics and IT, IBM Research from http://www-05.ibm.com/cz/events/power6/pdf/Ton%20Engbersen_Trends%20in%20microelectronics.pdf

3-*What People Buy Over the Internet

TravelPC/Electronics/ToysBooks/SoftwareApparelHome & GardenJewelry & Watches

3-*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 ServicesMight not need to Touch and Feel Touch and Feel not useful - Gifts Superior presentation of Touch and Feel Branding

3-*How to Sell Over the Internetand eliminate returns

Branding:National brands provide a consistent experience for customers to overcome not being able to touch and feel.The McGraw-Hill Companies, Inc./Jill Braaten, photographer How Can the Electronic Channel Overcome Limitations?

3-*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 itTechnology increases conversion rates

3-*My Virtual Model: Try It OnLink to My Virtual Model H & M

3-*GIFTSSaves timeSaves effort in packingSaves effort in delivery

SERVICESNo Shipping ProblemsExamplesTravel websitesBankingNewspapersJanis Christie/Getty Images The Electronic Channel Provides Superior Benefits forHow Can the Electronic Channel Overcome Limitations?

3-*Use the Internet to Improve Multichannel shopping experience

Instantaneous and easy data collection on how and why customers shop, and how theyre dissatisfied or satisfied with their electronic shopping

Store and website layout design tailored to customers buying habitsHow Can the Electronic Channel Overcome Limitations?

3-*Perceived Risks of Electronic ShoppingSecurity of credit card transaction security problems have not arisen in actual usage

Potential privacy violations consumers are concerned about retailers collecting their personal informationDon Farrall/Getty Images

3-*Evolution Toward Multichannel RetailingTraditional 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 formatWith electronic channel, retailers can reach out to new marketsBuilds share of walletE-channel enables retailers to give insights into customers shopping behaviors

3-*Recreation Equipment Inc. (REI) A Leader in Multichannel Retailing

3-*Overcoming Existing FormatSize of the store is the greatest constraint for storesBy blending store with internet-enabled kiosks, retailers expand assortments offered to shoppers.

Store based retailers face inconsistent executionKiosks can be used by both sales associates and customers for up-to-date product information, stock information and price reduction on clearances.

3-*Percentage of Cross Channel Shoppers

3-*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 inventoryManaging employees in distant locationsDistribute merchandise efficiently from DCs to storesPresent merchandise in catalogsPresent merchandise on websitesProcess orders electronicallyEfficient distribution of individual orders to homesOperate information systems for all channels

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

3-*Resources Possessed by Different Firm Types

Sheet1

E OnlyCatalogStore-BasedManufacturers

Website SystemsExcellentPoorPoorPoor

Retailing SkillsPoorGood/ExcelExcellentPoor

FulfillmentPoorExcellentPoorPoor

Brand ReputationPoorGood/ExcelExcellentGood/Excel

AssortmentsGoodGood/ExcelExcellentPoor

Customer DataPoorExcellentGood/ExcelPoor

Sheet2

Sheet3

3-*Resources Needed to Compete Effectively in Internet RetailingExciting and easy to use the websiteManagement Information SystemsOrder processing and statusCustomer databasePersonalization software

But these resources were not enough!

3-*Resources Needed to Compete Effectively in Internet RetailingRetailing SkillsManaging inventoryEditing assortmentEfficient Fulfillment SystemsSignificant costs - last milePicking and packing individual ordersHandling returns - reverse distribution

3-*Resources Needed to Compete Effectively in Internet RetailingStrong Brand Name and Image Build traffic Reduce customer perceived riskComplementary MerchandiseOne stop shoppingLower shipping costs Availability of Customer InformationTailored presentations - personalization

3-*Why Did Internet Retail Entrepreneurs Fail?Lack of Skills to Succeed in Internet RetailingConsumers Prefer Multi-Channel Retailers (Bricks and Clicks)

3-*Why did Electronic-only Retailers Fail?They did not have skills in brand recognitionThey did not have skills necessary to build consumer trustThey did not have skills to build assortments, manage inventory and fulfill small orders to homesThey did not posses sufficient resources to evolve into multichannel retailers

Digital Vision/Getty Images They had skills in web designThey had skills in systems to manage transactions

3-*Catalog Retailers can Add Electronic Channel EasilyReady to take ordersAble to pack merchandiseAble to deliverAble to handle returned merchandiseAlready have a databaseVisual merchandise for catalog is the same for electronicSteve Cole/Getty Images

3-*Why are store-based retailers evolving into multi-channel retailers? Sales through an electronic channel are growing at over 20% per yearAdding an electronic channel creates immediate possession utilityMulti-channel retailers can attract more customers and satisfy existing customers betterThe growth of sales in stores is declining

3-*Impact of Internet Shopping on Store Sales

3-*Ecommerce MythsLow Cost of EntryOverestimate Importance of Technology, Under Estimated Need for Traditional ResourcesFirst Mover WinsGets Rid of the Middleman

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

Bricks and Mortar, SalespeopleAttracting Customers to StoreDistribution CentersRestocking Returned Merchandise

Building,Refreshing Web SiteAttracting Customers to Web Site: Customer-Acquisition Costs are huge but Customers switching costs are tiny.Picking, Packing, Mailing Small Orders to HomeRestocking Returned MerchandiseStoresElectronic RetailersFew e-tailers are profitable

3-*Will Electronic Channels Low Search Cost Increase Price Competition?Conventional WisdomGreater Comparison Shopping Offerings Easily Compared on PriceLower Search Costs => More Emphasis on PriceEmpirical EvidenceSubstantial Price DispersionLower Search Costs for Quality Information=> Less Price SensitivityLower Search Costs Lead to Better Decisions

3-*Widespread Disintermediation UnlikelyWill Manufacturers Bypass Retailers and Sell Directly to Consumers?Advantages of Retailers vs. ManufacturersDistribute Merchandise Directly to CustomersProvide AssortmentsCollect and Use Information about Customers

3-*Issues in Multi-Channel RetailingIntegrated Shopping ExperienceCommunicate with customers anytime, anywhere through multiple channelsWebsite, Store, Kiosks, Handheld DevicesIntegrating legacy systems for seamless customer interfaceBrand ImageConsistent brand image across different channelsMerchandise assortment offered in each channelPricing across channels

3-*CustomerTodays empowered consumers live in a multi-channel world research products online, buy offline, and demand service everywhereWeb & Email 24x7 VisualCall Center Convenient ImmediateKiosks Visual ConvenientHandheld Devices Immediate 24x7Brick & Mortar Touch/Feel Experience drivenConsumers buy what they want, when they want, wherever they want

3-*Channels Offer Complementary Benefits

StoresInternetCatalogKnown EntityEntertaining/ Social ExperienceEasy Checkout and ReturnsPersonal AssistanceProduct Trial- Complementary MerchandiseImmediate GratificationLocation ConvenienceSpeedGreater SelectionPersonalized PresentationCommunityPortabilityHigh Quality Visual Presentation

3-*Multichannel Shopping

3-*Source: Progressive Grocer, 01 Feb 00; Grocery Headquarters, 01 Feb 00.Consumer does not find desired item in the store.Consumer goes to kiosk to search for productKiosk links to chains web-site allowing consumers to find and purchase itemConsumer places order online for home delivery or store pick-up at a later timeIllustration of Multi-Channel Integration

3-*Opportunities to Enhance Multi-Channel ExperienceOrder on Internet, Pick-Up in StorePromote Web Site on Receipts, Shopping BagsProduct Availability in Stores Available on WebsiteKiosk in Stores to Order Merchandise Not Available in StoresPlan Purchases (Shopping List) on WebsiteIn-Store Events Promoted on WebsiteAd Curricular on Website

3-*Shopping in the Future

3-*Shopping Experience:Personalization Potential

3-*Integration Key to Multi-Channel RetailingShopping Experience

*********************11What are the benefits consumers get from shopping on the net? First convenience and security -- but all non store retail format offer this. Second, consumers can shop the world from their homes and see a lot more alternatives. But this is really not that great a benefit. Its like giving a buyer more data in computer print out. The benefit is converting the data into a limited amount of information that the consumer or manager can use. The internet in conjunctions with agents like FRED has the capability of doing this conversion of data into information better than other retail formats.

If Fred was a retailers agent, he would be like my aunt molly.Bonwit Teller, designer dress salon in Clevelend. Knew the what each for her clients wanted to hide and show off, what colors and styles, like. New shipment came in take to their home.

Another example would be providing consumers with Consumer Report like side by side comparisons. But the rows in the table would be the attributes important ot the specific consumer and the columns would be items consideredConclusion internet can provide important benefits************************************First, there are major changes in customer buying behavior.

I may want to buy a product at 10pm, through my Web browser, or you may want to buy through a call center, or you may want to buy by visiting with a field sales professional or local reseller.

I also may want to work across multiple channels, to start my purchase over the Web, then later contact the call center, and finally close the deal with a field sales representatives in my office.

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Chapter 3