1. Multichannel Retailing
Chapter 3
Multichannel Retailing
McGraw-Hill/Irwin
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

2. Benefits Provided by Different Channels

3. 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

4. Dollars spent at different channels: Average annual dollars spent by JCPenny’s customers

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

6. Benefits Provided by Catalog Channel
Convenience
Information
Safety
Hoby Finn/Getty Images

7. 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.

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

9. 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
Customized Information -- Side By Side Comparisons, Full Motion Video
Try It On Virtually
Information for Solving Problems, Not Just Merchandise Characteristics
Virtual Communities

10. What People Buy Over the Internet
Travel
PC/Electronics/Toys
Books/Software
Apparel
Home & Garden
Jewelry & Watches

11. 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

12. How to Sell Over the Internet …and eliminate returns
How Can the Electronic Channel Overcome Limitations?
Branding:
National brands provide a consistent experience for customers to overcome not being able to touch and feel.
How to Sell Over the Internet …and eliminate returns

13. 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

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

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-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

16. 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.

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
Present merchandise in catalogs
Present merchandise on websites
Process orders electronically
Efficient distribution of individual orders to homes
Operate information systems for all channels

18. Who Has These Critical Resources
Who Has These Critical Resources? Capabilities for Multi-Channel Retailing

19. 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!

20. 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
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

21. 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

22. 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

23. 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

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

25. 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
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
Few e-tailers are profitable

26. 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

27. 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

28. 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

29. Channels Offer Complementary Benefits
Stores
Internet
Catalog
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

30. Multichannel Shopping

31. 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

32. Integration – Key to Multi-Channel Retailing
Shopping Experience