McGraw-Hill/Irwin Retailing Management, 7/e Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 3 Multi-Channel Retailing

3-2 The World of Retailing Introduction to Retailing Types of Retailers Multi-Channel Retailing Customer Buying Behavior

3-3 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?

3-4 The Multi-Channel Retailer Retailer Digital Vision / Getty Images Steve Cole/Getty Images The McGraw-Hill Companies, Inc./Andrew Resek, photographer 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.

3-5 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

3-6 Why are Retailers Using Multiple Channels to Interact with Customers? customer Consumers buy what they want, When they want, Wherever they want storekioskcatalogCall center Web/ mobile

3-7 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

3-8 Dollars spent at different channels: Average annual dollars spent by JCPenny’s customers

3-9 Benefits Provided by Different Channels

3-10 Unique Benefits Provided by Store Channel ■Browsing ■Touching and feeling ■Personal service ■Cash and credit payment ■Entertainment and social interaction ■Immediate gratification ■Risk Reduction Royalty-Free/CORBIS (c) Brand X Pictures/PunchStock

3-11 Benefits Provided by Catalog Channel Convenience Information Safety Hoby Finn/Getty Images

3-12 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!

3-13 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 offline than researched online  61% of US auto consumers use the Web to research their car purchases.

3-14 Source: Forrester, State of Consumers and Technology, 2006 What’s the Big Deal About Shopping on the Internet ?

3-15 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?

3-16 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

3-17 More and better information to evaluate merchandise

3-18 Side-by-Side Comparison

3-19 Personalized Customer Service

3-20 Using an Agent to Locate Merchandise

3-21 Problem Solution Benefits Offered By Internet Channel ■Bundling Information, Services, and Products ■Examples iVillage The Wedding Channel The Wedding Channel Garden.com

3-22 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

3-23 Virtual Communities ■Virtual community is a network of members sharing common interests that interact with each other electronically. ■Examples: IVillage – Women IVillage Pricegrabbers.com; Epinion.com–product comparisons and reviews Pricegrabbers.comEpinion.com Flypaper.com – talks about fashion Flypaper.com ThisNext.com, Kaboodle.com, Wists.com, StyleHive.com – social shopping that combines shopping and social networking ThisNext.comKaboodle.comWists.comStyleHive.com

3-24

3-25 Virtual communities Source. Future Trends in Microelectronics and IT, IBM Research from 05.ibm.com/cz/events/power6/pdf/Ton%20Engbersen_Trends%20in%20microelectro nics.pdfhttp://www- 05.ibm.com/cz/events/power6/pdf/Ton%20Engbersen_Trends%20in%20microelectro nics.pdf

3-26 What People Buy Over the Internet Travel PC/Electronics/Toys Books/Software Apparel Home & Garden Jewelry & Watches

3-27 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

3-28 How to Sell Over the Internet …and eliminate returns 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?

3-29 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

3-30 My Virtual Model: Try It On Link to My Virtual Model H & M

3-31 GIFTS ■Saves time ■Saves effort in packing ■Saves effort in delivery SERVICES ■No Shipping Problems ■Examples Travel websites Banking Newspapers Janis Christie/Getty Images The Electronic Channel Provides Superior Benefits for How Can the Electronic Channel Overcome Limitations?

3-32 ■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 How Can the Electronic Channel Overcome Limitations?

3-33 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

3-34 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

3-35 Recreation Equipment Inc. (REI) – A Leader in Multichannel Retailing

3-36 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.

3-37 Percentage of Cross Channel Shoppers

3-38 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

3-39 Who Has These Critical Resources? Capabilities for Multi-Channel Retailing

3-40 Resources Possessed by Different Firm Types

3-41 Resources Possessed by Different Firm Types

3-42 Resources Possessed by Different Firm Types

3-43 Resources Possessed by Different Firm Types

3-44 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!

3-45 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

3-46 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

3-47 Why Did Internet Retail Entrepreneurs Fail? ■Lack of Skills to Succeed in Internet Retailing ■Consumers Prefer Multi-Channel Retailers (Bricks and Clicks)

3-48 Why did Electronic-only Retailers Fail? ■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 They had skills in web design They had skills in systems to manage transactions

3-49 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

3-50 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

3-51 Impact of Internet Shopping on Store Sales

3-52 Ecommerce Myths ■Low Cost of Entry ■Overestimate Importance of Technology, Under Estimated Need for Traditional Resources ■First Mover Wins ■Gets Rid of the Middleman

3-53 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 Stores Electronic Retailers Few e-tailers are profitable

3-54 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

3-55 Widespread Disintermediation Unlikely 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

3-56 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

3-57 Customer Today’s empowered consumers live in a multi-channel world – research products online, buy offline, and demand service everywhere Web & 24x7 Visual Call Center Convenient Immediate Kiosks Visual Convenient Handheld Devices Immediate 24x7 Brick & Mortar Touch/Feel Experience driven Consumers buy what they want, when they want, wherever they want

3-58 Channels Offer Complementary Benefits StoresInternetCatalog ■Known Entity ■Entertaining/ Social Experience ■Easy Checkout and Returns ■Personal Assistance ■Product Trial- Complementary Merchandise ■Immediate Gratification ■Location Convenience ■Speed ■Greater Selection ■Personalized Presentation ■Community ■Portability ■High Quality Visual Presentation

3-59 Multichannel Shopping

3-60 Source: Progressive Grocer, 01 Feb 00; Grocery Headquarters, 01 Feb 00.  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 Illustration of Multi-Channel Integration

3-61 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

3-62 Shopping in the Future

3-63 Shopping Experience: Personalization Potential

3-64 Integration – Key to Multi-Channel Retailing Shopping Experience