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TRANSCRIPT
Chapter 3Chapter 3Multichannel Retailing
McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
The Multi-Channel RetailerThe Multi-Channel Retailer
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.
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Retailer
Digital Vision / Getty Images
Steve Cole/Getty Images
The McGraw-Hill Companies, Inc./Andrew Resek, photographer
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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
Dollars spent at different channels:Dollars spent at different channels:
Average annual dollars spent by J.C. PennyAverage annual dollars spent by J.C. Penny’’s s
customerscustomers
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Benefits Provided by Benefits Provided by Different ChannelsDifferent Channels
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Unique Benefits Provided by Unique Benefits Provided by
Store ChannelStore Channel• Browsing• Touching and feeling• Personal service• Cash and credit payment • Entertainment and social interaction• Immediate gratification• Risk Reduction
3-6Royalty-Free/CORBIS
(c) Brand X Pictures/PunchStock
Benefits Provided by Benefits Provided by
Catalog ChannelCatalog Channel
ConvenienceInformation
Safety
3-7Hoby Finn/Getty Images
• $2.5 Trillion US Retail Sales• $200 Billion Catalog and Direct
Sales• $4 Billion TV Home Shopping• $100 to 150 Billion Internet Retail
Sales• Just a drop in the bucket, but
growing fast!
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What’s the Big Deal About Shopping on the Internet?
Source: Forrester, State of Consumers and Technology, 2006
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What’s the Big Deal About Shopping on the Internet?
Virtual CommunitiesVirtual Communities
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People 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 experience
Royalty-Free/CORBIS
Virtual CommunitiesVirtual Communities• Virtual community is a network of members sharing
common interests that interact with each other electronically.
• Examples:o IVillage – Womeno Pricegrabbers.com; Epinion.com–product
comparisons and reviewso Flypaper.com – talks about fashiono ThisNext.com, Kaboodle.com, Wists.com,
StyleHive.com – social shopping that combines shopping and social networking
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What People Buy Over the What People Buy Over the
InternetInternet
TravelPC/Electronics/ToysBooks/SoftwareApparelHome & GardenJewelry & Watches
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• “Look and See” attributes vs. “Touch and Feel” attributes (?)
• Degree to which information can be used to predict satisfaction prior to purchaseo Giftso Services
• Might not need to “Touch and Feel”o “Touch and Feel” not useful - Giftso Superior presentation of “Touch and Feel”o Branding
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What Merchandise Will Be Sold Successfully Through Electronic Channel?
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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?
How Can the Electronic Channel Overcome How Can the Electronic Channel Overcome
Limitations?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
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Technology increases conversion rates
My Virtual Model: Try It OnMy Virtual Model: Try It OnLink to My Virtual Model H & M
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How Can the Electronic Channel How Can the Electronic Channel
Overcome Limitations?Overcome Limitations?
GIFTS• Saves time• Saves effort in packing• Saves effort in delivery
SERVICES• No Shipping Problems• Examples
o Travel websiteso Bankingo Newspapers
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Janis Christie/Getty Images
The Electronic Channel Provides Superior Benefits for
How Can the Electronic Channel How Can the Electronic Channel
Overcome Limitations?Overcome Limitations?
• Use the Internet to Improve Multichannel shopping experience
o Instantaneous and easy data collection on how and why customers shop, and how they’re dissatisfied or satisfied with their electronic shopping
o Store and website layout design tailored to customers’ buying habits
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Perceived Risks of Perceived Risks of
Electronic ShoppingElectronic Shopping
Security of credit card transaction – security problems have not arisen in actual usage
Potential privacy violations – consumers are concerned about retailers collecting their personal information
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Don Farrall/Getty Images
Evolution Toward Evolution Toward
Multichannel RetailingMultichannel Retailing
• Traditional store-based and catalog retailers are placing more emphasis on their electronic channels and evolving into multichannel retailers.
o E-channel gives a way to overcome limitations of existing format
o With electronic channel, retailers can reach out to new markets
o Builds share of walleto E-channel enables retailers to give insights into
customers’ shopping behaviors
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Capabilities for Multi-Channel Capabilities for Multi-Channel
RetailingRetailing
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
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Capabilities for Capabilities for
Multi-Channel RetailingMulti-Channel Retailing
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Why Did Internet Retail Why Did Internet Retail
Entrepreneurs Fail?Entrepreneurs Fail?
• Lack of Skills to Succeed in Internet Retailing• Consumers Prefer Multi-Channel Retailers (Bricks
and Clicks)
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Why did Electronic-only Why did Electronic-only
Retailers Fail?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 3-24
Digital Vision/Getty Images
They had skills in web designThey had skills in systems to manage transactions
Catalog Retailers can Catalog Retailers can
Add Electronic Channel EasilyAdd 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
3-25Steve Cole/Getty Images
Why are store-based retailers evolving Why are store-based retailers evolving
into multi-channel retailers?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
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Impact of Internet Shopping Impact of Internet Shopping
on Store Saleson Store Sales
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Ecommerce MythsEcommerce Myths
• Low Cost of Entry• Overestimate Importance of
Technology, Under Estimated Need for Traditional Resources
• First Mover Wins• Gets Rid of the Middleman
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Which Channel Is the Which Channel Is the
Most Profitable?Most Profitable?
Cost Drivers in Stores and Electronic RetailersCost Drivers in Stores and Electronic Retailers
• Bricks and Mortar, Salespeople
• Attracting Customers to Store
• Distribution Centers• Restocking Returned
Merchandise
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• 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
Will Manufacturers Bypass Retailers Will Manufacturers Bypass Retailers
and Sell Directly to Consumers?and Sell Directly to Consumers?
Advantages of Retailers vs. Manufacturers
• Distribute Merchandise Directly to Customers
• Provide Assortments• Collect and Use Information
about Customers
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Widespread Disintermediation Unlikely
Issues in Multi-Channel RetailingIssues in Multi-Channel Retailing
• Integrated Shopping Experienceo Communicate with customers anytime,
anywhere through multiple channelso Website, Store, Kiosks, Handheld
Deviceso Integrating legacy systems for seamless
customer interface• Brand Image
o Consistent brand image across different channels
• Merchandise assortment offered in each channel
• Pricing across channels
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Customer
Web & Email • 24x7 • Visual
Call Center • Convenient • Immediate
Kiosks • Visual • Convenient
Handheld Devices • Immediate • 24x7
Brick & Mortar • Touch/Feel • Experience driven
Consumers buy what they want, when they want, wherever they want
Channels Offer Channels Offer
Complementary BenefitsComplementary BenefitsStores 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
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Multichannel ShoppingMultichannel Shopping
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Illustration of Illustration of
Multi-Channel IntegrationMulti-Channel Integration
3-35Source: 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 product
Kiosk links to chain’s web-site allowing consumers to find and purchase item
Consumer places order online for home delivery or store pick-up at a later time
Opportunities to Opportunities to
Enhance Multi-Channel ExperienceEnhance 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
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Shopping Experience:Shopping Experience:
Personalization Potential Personalization Potential
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Integration – Key to Integration – Key to
Multi-Channel RetailingMulti-Channel Retailing
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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