Multichannel Retailing Chapter 3 Multichannel Retailing Plan to review material pretty quickly, spend most of 2nd half looking at actual websites chosen by class members McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

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? And how has “smartphone” and social networking technology affected virtual retailing?

The Multi-Channel Retailer Steve Cole/Getty Images The McGraw-Hill Companies, Inc./Andrew Resek, photographer Chapter focused on multichannel but obviously a lot of key web-only players like Amazon, Ebay (discuss Netflix after break) Digital Vision / Getty Images 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.

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 Essential way to gain market share when today’s consumer is attuned to online and mobile shopping and information search Websites are great marketing tools to drive traffic to physical locations (“Black Friday”) DISCUSS: Other reasons from the class – esp. website as a marketing tool to drive bricks & mortar

Benefits Provided by Different Channels How can “social networking” overcome lack of socialization appeal of going to a store and interacting with people?

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! Doesn’t even reflect the amount of “info search” that happens online before shopping in bricks & mortar

What’s the Big Deal About Shopping on the Internet? Nearing 10% of total retail sales 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 offline than researched online 61% of US auto consumers use the Web to research their car purchases. Probably closer to 10% share today

Impediments to Shopping On-Line Technological concerns are becoming less important Access to Internet Broadband Connections, WiFi Privacy, Security concerns E-commerce continues to “migrate” to mobile devices, which are truly multi-channel Web on the go (smartphones, iPads etc.) makes this even more powerful – mobile apps as sales driver Are the benefits of shopping on-line greater than the benefits of going to a store? Why or why not?

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, Social networking sites CONSUMER IN CONTROL Ties into “consumer behavoir” trends of personalization, search for solutions, “consumer in control”

More information to evaluate merchandise: EXTENDED PROBLEM SOLVING Next few slides illustrate how online shopping has evolved and improved in the past few years…starting with product knowledge

Side-by-Side Comparison Easier to do comparison shopping, e.g. compare TV models before going to Best Buy

Personalized Customer Service Online chat function growing rapidly – does it help?

What People Buy Over the Internet Travel PC/Electronics/Toys Books/Software Apparel & shoes Home & Garden Jewelry & Watches THE LIST HAS GROWN LONGER What other categories? What DON’T you buy online, and why not? Is the only limitation technological?

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” WHY DO PEOPLE BUY PRODUCTS LIKE SHOES THAT YOU WOULD WANT TO “TRY ON” IN THE PAST? Why do you feel safer buying shoes w/o trying them on? Because of return policy? Ability to return them to a nearby store?

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 Most retailers being studied this semester have e-commerce on their sites – also helps as a predictor of what’s going to sell in their stores without much inventory investment.

Benefits of Multichannel Retailing Overcoming the Limitations of an Existing Format Increased Assortments Low-Cost, Consistent Execution Current Information

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, and to homes Present merchandise in websites and catalogs Process orders electronically Operate information systems for all channels In other words, you need to be STRATEGIC, CONSISTENT, RESPONSIVE and RELEVANT just as with any other store – next two slides detail some of the areas of expertise that stores have needed to develop to sell online

Resources Needed to Compete Effectively in Multichannel Retailing Efficient Fulfillment Systems Picking and packing individual orders Handling returns - reverse distribution Merchandising skills: Variety, assortment Complementary “one stop shopping” Brand-building: More traffic, less risk Service: Offering personalization, information and cost-efficient shipping Talk through points on these slides, not all that different from what makes any successful retailer

It works for multi-channel retail too! Customer Service Retail Strategy Store Design and Display Merchandise Assortment Critical slide, page 21, ex. 1-5. Focus of the class is how retailers put together game plans that are STRATEGIC, CONSISTENT, RELEVANT and RESPONSIVE. (Define) In particular, are the elements of the strategy consistent with each other? Pricing Location Communication Mix 1-19 19

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 CAN YOU THINK OF A VIABLE STORE-ONLY RETAILER WITHOUT A WEBSITE? It’s about gaining market share and about using e-commerce to reinforce bricks & mortar, overcome geographic limitations too

Which Channel Is the Most Profitable Which Channel Is the Most Profitable? Cost Drivers in Stores and Electronic Retailers Stores Electronic Retailers Bricks and Mortar, Salespeople Attracting Customers to Store Distribution Centers Restocking Returned Merchandise from the website 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 Pointless to venture into web retailing unless you can justify the investment over time just as if you were expanding geographically or making another major investment in your future. Haven’t talked about financial strategies yet… Can e-tailers shift the inventory risk?

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 (BEST BUY) CONSISTENCY ACROSS CHANNELS IS CRITICAL TO SUCCESS Being in sync with store’s overall customer service profile is essential – CONSISTENT (example: return policy, web to store)

Challenges of Effective Multichannel Retailing Supporting M-Commerce Organizing for Multichannel Retailing Centralized Customer Database Brand Image Merchandise assortment Pricing Reduction of Channel Migration

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 This sort of in-store problem-solving maturing rapidly from its infancy – example, kiosks in all Kohl’s stores this fall allowing you to buy online if something in store is out of stock 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.

Integration – Key to Multi-Channel Retailing Shopping Experience Good summary slide, reinforces issue of consistency DISCUSS: assigned project to identify new/unfamiliar websites in class

Shopping Experience: Personalization Potential DISCUSS growing importance of personalization to drive e-commerce, e.g. Groupon demographic targeted offers

Keywords catalog retailing Nonstore retail format in which the retail offering is communicated to a customer through a catalog. channel migration When consumers’ collect information about products on one company’s channel and then buys the product from another competitor. direct selling A retail format in which a salesperson, frequently an independent distributor, contacts a customer directly in a convenient location (either at a customer’s home or at work), demonstrates merchandise benefits, takes an order, and delivers the merchandise to the customer. disintermediation When a manufacturer sells directly to consumers, thus competing directly with its retailers. electronic retailing A retail format in which the retailers communicate with customers and offer products and services for sale over the Internet. Internet channel, Internet retailing, E-channel See electronic retailing. multichannel retailer Retailer that sells merchandise or services through more than one channel.