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

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

Benefits Provided by Different Channels

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

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

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

Problem Solution Benefits Offered By Electronic Channel Bundling Information, Services, and Products Examples iVillage The Wedding Channel, The Knot What are the benefits consumers get from shopping on the net? First convenience and security -- but all non store retail format offer this. Second, consumers can shop the world from their homes and see a lot more alternatives. But this is really not that great a benefit. Its like giving a buyer more data in computer print out. The benefit is converting the data into a limited amount of information that the consumer or manager can use. The internet in conjunctions with agents like FRED has the capability of doing this conversion of data into information better than other retail formats. If Fred was a retailer’s agent, he would be like my aunt molly. Bonwit Teller, designer dress salon in Clevelend. Knew the what each for her clients wanted to hide and show off, what colors and styles, like. New shipment came in take to their home. Another example would be providing consumers with Consumer Report like side by side comparisons. But the rows in the table would be the attributes important ot the specific consumer and the columns would be items considered Conclusion internet can provide important benefits 11

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

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

Personalization Potential Of Electronic Channel

Customization Benefits Offered 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 What are the benefits consumers get from shopping on the net? First convenience and security -- but all non store retail format offer this. Second, consumers can shop the world from their homes and see a lot more alternatives. But this is really not that great a benefit. Its like giving a buyer more data in computer print out. The benefit is converting the data into a limited amount of information that the consumer or manager can use. The internet in conjunctions with agents like FRED has the capability of doing this conversion of data into information better than other retail formats. If Fred was a retailer’s agent, he would be like my aunt molly. Bonwit Teller, designer dress salon in Clevelend. Knew the what each for her clients wanted to hide and show off, what colors and styles, like. New shipment came in take to their home. Another example would be providing consumers with Consumer Report like side by side comparisons. But the rows in the table would be the attributes important ot the specific consumer and the columns would be items considered Conclusion internet can provide important benefits 11

Does The Electronic Channel Have Lower Costs Than 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

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

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

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)

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

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

Perceived Risks of Electronic Shopping Don Farrall/Getty Images 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

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

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!

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

Resources Possessed by Different Firm Types

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

Resources Possessed by Different Firm Types

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

Resources Possessed by Different Firm Types

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

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

Resources Possessed by Different Firm Types

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

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

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

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.

Percentage of Cross Channel Shoppers

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

Capabilities for Multi-Channel Retailing

Multi-channel Services and Features

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

Shopping in the Future

Integration – Key to Multi-Channel Retailing