Chapter 3 Multi-Channel Retailing
The World of Retailing Introduction to Retailing Types of Retailers Multi-Channel Retailing Customer Buying Behavior
Questions • What 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?
The 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. Retailer Steve Cole/Getty Images The McGraw-Hill Companies, Inc./Andrew Resek, photographer Digital Vision / Getty Images
Customer wants 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?
Why are Retailers Using Multiple Channels to Interact with Customers? Consumers buy what they want, When they want, Wherever they want customer store kiosk catalog Call center mobile Web/E-mail
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:Average annual dollars spent by JCPenny’s customers
Browsing Touching and feeling Personal service Cash and credit payment Entertainment and social interaction Immediate gratification Risk Reduction Unique Benefits Provided by Store Channel (c) Brand X Pictures/PunchStock Royalty-Free/CORBIS
Convenience Information Safety Benefits Provided by Catalog Channel Hoby Finn/Getty Images
What’s 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 Sales • Just a drop in the bucket, but growing fast!
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 offlinethan researched online • 61% of US auto consumers use the Web to research their car purchases.
What’s the Big Deal About Shopping on the Internet? Source: Forrester, State of Consumers and Technology, 2006
Impediments to Shopping On-Line Technological concerns are becoming less important • Access to Internet • Broadband Connections • Privacy, Security concerns Are the benefits of shopping on-line greater than the benefits of going to a store?
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 • Fred is a Super Retail Salesperson • Customized Information -- Side By Side Comparisons, Full Motion Video • Try It On Virtually • Information for Solving Problems, Not Just Merchandise Characteristics • Virtual Communities
Problem Solution BenefitsOffered By Internet Channel • Bundling Information, Services, and Products • Examples • iVillage • The Wedding Channel • Garden.com
Virtual Communities People who seek information, products and services communicate with each other regarding specific issues Social shoppers: seek not just information but also an enhanced emotional connection to others participants in the shopping experience Royalty-Free/CORBIS
Virtual Communities • Virtual community is a network of members sharing common interests that interact with each other electronically. • Examples: • IVillage – Women • Pricegrabbers.com; Epinion.com–product comparisons and reviews • Flypaper.com – talks about fashion • ThisNext.com, Kaboodle.com, Wists.com, StyleHive.com – social shopping that combines shopping and social networking
Virtual communities Source. Future Trends in Microelectronics and IT, IBM Research from http://www-05.ibm.com/cz/events/power6/pdf/Ton%20Engbersen_Trends%20in%20microelectronics.pdf
What People Buy Over the Internet Travel PC/Electronics/Toys Books/Software Apparel Home & Garden Jewelry & Watches
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
How to Sell Over the Internet…and eliminate returns How Can the Electronic Channel Overcome Limitations? 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? 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
My Virtual Model: Try It On Link to My Virtual Model H & M
How Can the Electronic Channel Overcome Limitations? The Electronic Channel Provides Superior Benefits for GIFTS • Saves time • Saves effort in packing • Saves effort in delivery SERVICES • No Shipping Problems • Examples • Travel websites • Banking • Newspapers Janis Christie/Getty Images
How Can the Electronic Channel Overcome Limitations? • Use the Internet to Improve Multichannel shopping experience • Instantaneous and easy data collection on how and why customers shop, and how they’re dissatisfied or satisfied with their electronic shopping • Store and website layout design tailored to customers’ buying habits
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
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
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.
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
Who Has These Critical Resources?Capabilities for Multi-Channel Retailing
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!
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
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
Why Did Internet Retail Entrepreneurs Fail? • Lack of Skills to Succeed in Internet Retailing • Consumers Prefer Multi-Channel Retailers (Bricks and Clicks)
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 • They did not posses sufficient resources to evolve into multichannel retailers Digital Vision/Getty Images
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
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