1. Multichannel and “Omnichannel” Retailing
Chapter 3
Multichannel and
“Omnichannel” 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.

2. 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? What are the key success factors?
How do multichannel retailers provide more value to their customers?
What is “omnichannel” retail?
How might mobile technology affect the future online AND in-store shopping experience?
And how has “smartphone” and social networking technology affected virtual retailing?

3. The Multi-Channel Retailer (OMNICHANNEL)
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.

4. Why are Retailers Using Multiple Channels to Interact with Customers?
Customer wants to interact in different ways, and 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”)…not just to sell product (“FLASH SALE” events)
E-commerce provides data to drive decision-making
DISCUSS: Other reasons from the class – esp. website as a marketing tool to drive bricks & mortar

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

6. What’s the Big Deal About Shopping on the Internet?
$3+ Trillion US Retail Sales
$200 Billion Catalog/Direct Sales (falling)
$4 Billion TV Home Shopping
$175 Billion Internet Retail Sales in ‘10*
Just a drop in the bucket, but growing fast!
*ONLINE & MOBILE SALES
ESTIMATED AT $325 Billion BY 2016
Doesn’t even reflect the amount of “info search” that happens online before shopping in bricks & mortar

7. What’s the Big Deal About Shopping on the Internet?
Nearing 12% of total retail sales
Growing very fast (about 25% annually)
Furthermore, it has an important impact on other channels (drawing sales from bricks & mortar but also capable of driving traffic to stores)
Some retailers’ e-commerce growing 40-50% annually (Macy’s, Kohl’s) .
Probably closer to 10% share today

8. Any Impediments to Shopping Online?
Technological concerns are becoming less important
Access to Internet in at least 90% of homes
Broadband Connections, WiFi
Privacy, Security concerns
E-commerce continues to “migrate” from PC’s 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?
What is “SHOWROOMING”?

9. Internet Channel becoming Omnichannel
Broader Selection (Variety AND Assortment…Amazon)
More and Better Information to Evaluate Merchandise
Drill Down as Much as You Want
Full motion Video, other customized information
Personalization
Information is tailored to Individual consumers to help them make quicker and better purchase decisions
Stores can target merchandise offers based on past purchase behavior (Amazon, Netflix, now Macy’s)
Information for Solving Problems, Not Just Merchandise Characteristics
Virtual Communities, Social networking sites
CONSUMER IN CONTROL
Ties into “consumer behavior” trends of personalization, search for solutions, “consumer in control”

10. 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

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

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

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

14. What Merchandise Will Be Sold Successfully
Through E-commerce? Is it changing?
“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” anymore
“Touch and Feel” not useful - Gifts
Superior presentation of “Touch and Feel”
WHY DO PEOPLE SHOP ONLINE FOR
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?

15. Evolution Toward Multichannel Retailing
Traditional store-based and catalog retailers are placing more emphasis on their electronic channels and evolving into multichannel retailers.
E-commerce gives a way to overcome limitations of existing format
With electronic channel, retailers can reach out to new markets (including new regions)
Builds share of wallet
E-commerce enables retailers to give insights into customers’ shopping behaviors
TARGET TESTING 6 NEW WEB-ONLY BRANDS…WHY?
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.

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

17. 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
…just like a brick & mortar retailer!
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

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

19. It works for multi-channel retail too!
Customer Service
Retail
Format/Mix
Store Design and Display
Merchandise Assortment
Critical slide, page 21, ex 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

20. Why wouldn’t any store-based retailers evolve 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
Growth of sales in stores is declining
Trend toward leveraging in-store
inventories to fill online orders (MACY)
CAN YOU THINK OF A VIABLE
STORE-ONLY RETAILER WITHOUT
A WEBSITE? (What took H&M so long?)
It’s about gaining market share and about using e-commerce to reinforce bricks & mortar, overcome geographic limitations too

21. Which Channel Is the Most Profitable
Which Channel Is the Most Profitable? Different 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?

22. More Key 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 channels
Merchandise assortment offered in each channel
Pricing across channels (BEST BUY)…is it
essential to be consistent?
CONSISTENCY ACROSS CHANNELS MAY BE CRITICAL TO SUCCESS
SO IS MASTERY OF “SPEED” (Same Day delivery)
Being in sync with store’s overall customer service profile is essential – CONSISTENT (example: return policy, web to store)

23. Challenges of Effective Multichannel and Mobile e-commerce
Supporting M-Commerce
Organizing for Multichannel Retailing
Centralized Customer Database
Brand Image
Merchandise assortment
Pricing
Reduction of Channel Migration

24. Illustration of Multi-Channel Integration (Don’t forget role of mobile technology)
Consumer does not find desired item in the store.
Consumer searches at kiosk for product
Kiosk links to 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.

25. 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

26. Personalization Potential of online and mobile commerce
DISCUSS growing importance of personalization to drive e-commerce, e.g. Groupon demographic targeted offers

27. 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.