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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?

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chapter 3

Chapter 3

Multi-Channel Retailing

the world of retailing
The World of Retailing

Introduction to Retailing

Types of Retailers

Multi-Channel Retailing

Customer Buying Behavior

  • 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
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.


Steve Cole/Getty Images

The McGraw-Hill Companies, Inc./Andrew Resek, photographer

Digital Vision / Getty Images

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

Why are Retailers Using Multiple Channels to Interact with Customers?
why are retailers using multiple channels to interact with customers1
Why are Retailers Using Multiple Channels to Interact with Customers?

Consumers buy what they want,

When they want,

Wherever they want





Call center




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

unique benefits provided by store channel

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


benefits provided by catalog channel



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
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
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 benefits offered by internet channel
Problem Solution BenefitsOffered By Internet Channel
  • Bundling Information, Services, and Products
  • Examples
    • iVillage
    • The Wedding Channel
virtual communities
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


virtual communities1
Virtual Communities
  • Virtual community is a network of members sharing common interests that interact with each other electronically.
  • Examples:
    • IVillage – Women
    •;–product comparisons and reviews
    • – talks about fashion
    •,,, – social shopping that combines shopping and social networking
virtual communities2
Virtual communities

Source. Future Trends in Microelectronics and IT, IBM Research from

what people buy over the internet
What People Buy Over the Internet





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 to Sell Over the Internet…and eliminate returns

How Can the Electronic Channel Overcome Limitations?


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 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
My Virtual Model: Try It On

Link to My Virtual Model H & M

how can the electronic channel overcome limitations1
How Can the Electronic Channel Overcome Limitations?

The Electronic Channel Provides Superior Benefits for


  • Saves time
  • Saves effort in packing
  • Saves effort in delivery


  • No Shipping Problems
  • Examples
    • Travel websites
    • Banking
    • Newspapers

Janis Christie/Getty Images

how can the electronic channel overcome limitations2
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
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
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
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
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
resources needed to compete effectively in internet 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 retailing1
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 retailing2
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
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
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
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
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
ecommerce myths
Ecommerce Myths
  • Low Cost of Entry
  • Overestimate Importance of Technology, Under Estimated Need for Traditional Resources
  • First Mover Wins
  • Gets Rid of the Middleman
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

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


Electronic Retailers

Few e-tailers are profitable

will electronic channel s low search cost increase price competition
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
will manufacturers bypass retailers and sell directly to consumers
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

Widespread Disintermediation Unlikely

issues in multi channel retailing
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
Today’s empowered consumers live in a multi-channel world – research products online, buy offline, and demand service everywhere

Web & Email

• 24x7

• Visual

Consumers buy what they want, when they want, wherever they want

Call Center

• Convenient

• Immediate

Brick & Mortar

• Touch/Feel

• Experience driven


• Visual

• Convenient


Handheld Devices

• Immediate

• 24x7

illustration of multi channel integration
Illustration of Multi-Channel Integration
  • 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

Source: Progressive Grocer, 01 Feb 00; Grocery Headquarters, 01 Feb 00.

opportunities to enhance multi channel experience
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