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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
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