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Chapter 3

Chapter 3. Multi-Channel Retailing. The World of Retailing. Introduction to Retailing. Types of Retailers. Customer Buying Behavior. Multi-Channel Retailing. The Multi-Channel Retailer. Steve Cole/Getty Images. Retailer. Digital Vision / Getty Images.

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Chapter 3

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  1. Chapter 3 Multi-Channel Retailing

  2. The World of Retailing Introduction to Retailing Types of Retailers Customer Buying Behavior Multi-Channel Retailing

  3. The Multi-Channel Retailer Steve Cole/Getty Images Retailer Digital Vision / Getty Images The McGraw-Hill Companies, Inc./Andrew Resek, photographer

  4. Customer Want to interact in different ways Each channel offers a unique set of benefits for Customers Why are Retailers Using Multiple Channels to Interact with Customers?

  5. Benefits Provided by Different Channels

  6. Browsing Touch and feel products Personal service Cash payment Immediate gratification Entertainment and social interaction Risk Reduction Unique Benefits Provided by Store Channel (c) Brand X Pictures/PunchStock Royalty-Free/CORBIS

  7. Convenience Portability, easily accessible Visual presentation Safety Benefits Provided by Catalog Channel Hoby Finn/Getty Images

  8. Convenience Safety Broad selection Detailed information Personalization Virtual communities Problem-solving information More info to evaluate merchandise Unique Benefits Provided by Internet Channel The McGraw-Hill Companies, Inc./Jill Braaten, photographer

  9. Problem Solution BenefitsOffered By Electronic Channel • Bundling Information, Services, and Products • Examples • iVillage • The Wedding Channel, The Knot

  10. Virtual Communities People who seek information, products and services communicate with each other regarding specific issues Royalty-Free/CORBIS

  11. Virtual Communities • Virtual community is a network of members sharing common interests that interact with each other electronically. • Examples: • IVillage - Women • Garden.Com - Gardeners • Flypaper.com – talks about fashion • Cafeutne.org – social issues

  12. Personalization Potential Of Electronic Channel

  13. Customization BenefitsOffered By Electronic Channel • Information Tailored to Individual Consumers to Help Them Make Quicker and Better Purchase Decisions • Fred is a Super Retail Salesperson • Customized Information -- Side By Side Comparisons, Full Motion Video

  14. Stores Bricks and Mortar, Salespeople Attracting Customers to Store Distribution Centers Restocking Returned Merchandise Electronic Retailers Building,Refreshing Web Site Attracting Customers to Web Site Picking, Packing, Mailing Small Orders to Home Restocking Returned Merchandise Does The Electronic Channel Have Lower Costs Than Stores?

  15. 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

  16. What People Buy Over the Internet Travel PC/Electronics/Toys Books/Software Apparel Home & Garden Jewelry & Watches

  17. 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

  18. Types of Attributes • Search: Can be determined prior to purchase, consumption. (e.g., price, brand) • Experience: Cannot determine prior to purchase, consumption. (e.g., taste, comfort) • Credence: Cannot be directly determined by the average consumer. (e.g., health benefits, technical specifications)

  19. How to Sell Over the Internet…and eliminate returns Even when retailers provide “touch and feel information” retailers still experience 10% returns of purchases …20% on the electronic channel. 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

  20. 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 Technology increases sales

  21. Perceived Risks of Electronic 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 Don Farrall/Getty Images

  22. When The Electronic Channel Provides Superior Benefits GIFTS • Saves time • Saves effort in packing • Saves effort in delivery SERVICES • No Shipping Problems • Examples • Travel websites • Banking • Newspapers Janis Christie/Getty Images

  23. Resources Needed to Compete Effectively in Internet Retailing • Exciting, Easy to Use Web Site • Management Information Systems • Order processing and status • Customer database • Personalization software But These Resources Were Not Enough!

  24. 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

  25. Resources Needed to Compete Effectively in Internet Retailing • 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

  26. Resources Possessed by Different Firm Types

  27. Why did Electronic-only Retailers Fail? They had skills in web design They had skills in systems to manage transactions • 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 Digital Vision/Getty Images

  28. Resources Possessed by Different Firm Types

  29. 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

  30. Resources Possessed by Different Firm Types

  31. Store-based Retailers vs. Electronic Retail Entrepreneurs • Knowledge of Retailing • Assortment Planning • Distribution Systems • Reputation • Customer Database • Convenient Location for Picking Up, Returning Merchandise, Warranty Service and Installation • Vendor Relationships Royalty-Free/CORBIS

  32. Why did Walgreens Beat Out The Electronic Drugstore Chains? • Three thousand conveniently located stores in the US with drive-through windows for picking up prescriptions and merchandise • A distribution system in place for picking, packing and shipping prescription pharmaceuticals and merchandise presently ordered by phone • A strong brand reputation for being trustworthy and helping customers on health-related decisions • Agreements in places with third-party payers (HMOs and insurance companies) to accept and provide pharmaceutical benefits for its customers

  33. Resources Possessed by Different Firm Types

  34. Advantages of Retailers vs. Manufacturers Distribute Merchandise Directly to Customers Provide Assortments Collect and Use Information about Customers Widespread Disintermediation Unlikely

  35. Ecommerce Myths • Low Cost of Entry • Overestimate Importance of Technology, Under Estimated Need for Traditional Resources • First Mover Wins • Gets Rid of the Middleman

  36. Evolution Toward Multi-channel Retailing • Electronic 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

  37. 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.

  38. Percentage of Cross Channel Shoppers

  39. 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

  40. Capabilities for Multi-Channel Retailing

  41. Multi-channel Services and Features

  42. Issues Confronting a Multi-Channel Retailer • Maintaining Brand Image Across Channels • Merchandise Assortment Offered in Each Channel • Pricing Across Channels

  43. Shopping in the Future

  44. Integration – Key to Multi-Channel Retailing

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