Multi-Channel Retailing

RETAIL MANAGEMENT

Chapter 3 - Multi-Channel Retailing

Today’s empowered consumers live in a multi-channel world -- Research products online, buy offline, and demand service everywhere.

Multi-channel Retailers are those retailers that sell merchandise or services through more than one channel. By using a combination of channels, retailers can leverage the unique benefits provided by each to attract and satisfy more customers. Each of the channels (stores, catalogs, Web sites) offers unique benefits to customers.

STORE CHANNEL

Stores offer a number of benefits to customers that they cannot get when shopping through catalogs or the Internet.

Unique Benefits Provided by Store Channel

· Browsing – customers go to a store to see what is available before deciding what to buy.

· Touching and Feeling Products - the greatest benefit offered by stores is the opportunity to use the five senses  when examining products.

· Persona Service -  sales personnel have the capability of providing meaningful, personalized information about the products.

· Cash Payment – stores are the only channel that accepts cash payments. Many customers prefer to pay in cash because it is easy, resolves the transaction immediately, and does not result in potential interest payments.

· Entertainment and Social Experience – store shopping can be stimulating experience for some people , providing a break in their daily routine and enabling them to interact with friends.

· Immediate Gratification -  store have the advantage allowing customers to get the merchandise immediately after they buy it. You are not going to wait for a day or two for the delivery of the merchandise.

· Risk reduction – the physical presence of the store assures the customers that any problems with the merchandise will be corrected. The store will be there to receive defective or unsuitable merchandise and issue you a credit for it.

CATALOG CHANNEL

The catalog channel provides some benefits to customers that are not available from the store or Internet channels.

Benefits Provided by Catalog Channel

· Convenience – catalogs, like all non-store formats, offer the convenience of looking at the merchandise and placing an order on any day at anytime from almost anywhere (on the beach, in bed, in a coffee shop). The development of magalogs, catalogs with magazine-type additional  editorial content, enhances customers’ desire to keep catalogs readily available.

· Portability and accessibility – can easily be carried and accessed anywhere.

· Visual Presentation –  The photographs in catalogs, while not as useful as in-store presentations, are superior to the visual information.

· Safety – catalogs enable customers to review merchandise and place orders from a safe environment – their homes.

INTERNET CHANNEL

The Internet, has the potential to offer greater selection of products and more personalized information about products and services.

Unique Benefits Provided by Internet Channel

· Broader Selection – one benefit of the internet is the vast number of alternatives available to customers. The consumers can easily “visit” and select merchandise from a broader array of retailers.

     Retail Web sites typically offer deeper assortments of merchandise ( more colors, brands, and sized) than are available in stores.

· More Information to Evaluate Merchandise – an important service by retailers is the provision of information to help customers make better purchase decisions.  Retaining and training knowledgeable sales associates is difficult and not cost effective

     Using the internet channel, retailers have the capability to provide as much information as each customer wants and more information than they can get through other channels. In addition, customers can format information so that they can effectively use it in evaluating products.

     The internet channel  also offers retailers an opportunity to go beyond the traditional product information t provide tools and information for solving customers problems. Virtual communities  are examples of these problem solving sites. A virtual community is a network of members sharing common interests that interact with each other electronically.

·  Personalization – the most significant benefit of the internet channel is its ability to personalize the information for each customer economically. The internet offers an opportunity to provide “personal” service at low cost.

- Personalized Customer Service: Traditional Internet channel approaches for responding to customer questions – such as FAQ (frequently ask questions) pages and offering 800 number or e-mail address to ask questions – do not provide timely information customers are seeking. To improve, many retailers are offering live, online chats. An online chat provides customers with the opportunity to click a button at any time and have instant messaging e-mail or voice conversation with a customer service representative.

- Personalized Offering:  At many Web sites, you can create a personal home page, like my Yahoo, that is tailored to your individual needs.

                    Using a cookie (a small computer program that provides identifying information installed in

               your hard drive. Example Amazon.com  serves you a personalized home page with information

               about books and other products of interest based on your past purchases. Amazon.com will also

               send customers who are interested customized e-mail messages that notify them that their

               favorite author  or recording artist has a new book or new CD. Also, online retailers are able to

               present to customers recommendations of complimentary merchandise.

- Personalization in the Future: 

FRED – is an electronic agent, a computer program that locates and selects alternatives on the basis on some predetermined characteristics.

Futuristic Retailing Electronic Device

· In the future, electronic agents may be computer software programs bought by consumers  or offered as a service to customers by retailers or third parties.

· The agent could learn about a consumers’ tastes by asking questions when it is installed on the consumer’s computer or when a consumer goes to the retailer’s Web site.

· Electronic agents like FRED unleash the interactive benefits of Internet shopping.

· FRED also can search through wide range of alternatives, select a small set for a customer to look at in detail, and provide the information that the customer typically considers.

· FRED is never in a bad mood, is not paid to do its job, and is always available.

Internet Channel Limitations

· Selling Merchandise With “Touch And Feel” Attributes:  “Touch and feel”  attributes are like how the shirt fits, the ice cream flavor tastes, or the perfume smells, The internet channel has problems of providing touch-and-feel information.

Role of Brands:  

     Brands provide a consistent experience for customers that helps overcome the difficulty of not being able to touch and feel the merchandise prior to purchase online. The retailer’s brand can also provide information about the consistency and quality of the merchandise.

Using Technology:  

     Retailers with electronic channels use technology to convert touch-and-feel information into look-and-see information that can be communicated through the Internet.

     Web sites are going beyond offering the basic image to giving customers the opportunity to view the merchandise from different angles and perspectives using 3D imaging and/or zoom technology.

     To overcome limitations for trying to on clothing, apparel retailers have started using virtual models on their Web sites. These models enable consumers to see how selected merchandise looks on an image with similar proportions to their own and then rotate the model so the “fit” can be evaluated from all angles.

Gifts: In some situations, touch-and-feel information might be important, but the information in a store is not much better than the information provided electronically.  Buying gifts electronically offers the benefit of saving you the time and effort of packing and sending your gift.

Services: Some services can be presented very effectively online. For example in travel planning, after you go the Internet site and fill in an online form indicating your destination and preferred departure time, the electronic agent locates the lowest cost fare for that flight, purchase ticket, locate hotels on a map. Chat rooms provide an opportunity for travelers o share their experiences in hotels and restaurants – a benefit they cannot get through other channels. Now, many banks are making major investments to provide banking services online.

· Perceived Risks in Electronic Shopping:

Ø the security of credit card transactions in the internet

Ø potential privacy violations

EVOLUTION TOWARDS MULTICHANNEL RETAILING

          Traditional store-based and catalog retailers are adding electronic channels and evolving into integrated, customer-centric, multichannel retailers. This evolution toward multichannel retailing has been driven by the increasing desire of customers to communicate with retailers anytime and anywhere.

Reasons for Evolution of Multichannel Retailing

· Overcoming Limitations of an Existing Format:

Size of Store: The amount of merchandise that can be displayed and offered for sale is limited. By blending stores with Internet-enabled kiosks, retailers can dramatically expand the assortment offered to their customers.

Inconsistent Execution:  The availability and knowledge of sales associates can vary across stores or even within stores at different times during the day.

Updates: In catalogs, once it is printed it can’t be updated with the price changes and new merchandise. Therefore, the internet is used to provide customers with real-time information about stock availability and price reductions on clearance merchandise.

· Expanding Market Presence:

Adding an electronic channel is particularly attractive to firms with strong brand names but limited locations and distribution. Most of the store-based retailers currently are multichannel retailers.

· Increasing Share of Wallet:

Share of wallet is the percentage of total purchases made by a customer from a retailer. Using the multichannel can result in customers making more purchases from a retailer.

· Insights into Customer Buying Behavior :

An electronic channel enables retailers to gain valuable insights into customer’s buying behavior. It can provide how and why customers shop and are dissatisfied or satisfied with their experiences.

An electronic channel can be used to get both positive and negative feedback from customers.

Capabilities Needed For Multichannel Retailing

     To effectively operate and realize the benefits of multichannel retailing, firms needed to have skills in:

Ø Developing assortments and managing inventory – the basic merchandise management activities; managing store operations.

Ø Managing employees in distant locations

Ø Distributing merchandise efficiently from distribution centers to stores; undertaking non-store retail activities.

Ø Presenting merchandise in catalogs.

Ø Presenting merchandise in Web sites.

Ø Processing orders electronically.

Ø Efficiently distributing individual orders to home.

Ø Operating communications and information systems that provide a seamless interface with customers throughout the channels.

DISINTERMEDIATION

     

     Disintermediation occurs when manufacturers when a manufacturer sells directly to consumers, by-passing retailers. Retailers are concerned about his because manufacturers can get direct access to their customers by establishing a retail site on the Internet.

     But, manufacturers lack many of the critical skills needed to sell merchandise electronically, and retailers are more efficient in dealing with customers directly then manufacturers.

Which Channel Is The Most Profitable?

     Many people thought that the electronic channel would enable retailers to sell products at a lower price because they would not have to incur the costs of building and operating stores and compensating sales associates working those stores. But, the electronic channel involves significant costs to design, maintain, and refresh a Web site; attract customers at the site; maintain distribution systems and warehouses  dedicated to selling to individual customers; and deal with a high level of returns.

     These costs associated with operating an electronic channel may even be greater than the costs of operating physical stores.

ISSUES IN MULTICHANNEL RETAILING

     In addition to information system issues, other critical issues facing retailers using multichannel:

• Integrated Shopping Experience:

    When retailers initially went online, they simply displayed products for sale on their Web sites. Now, to get ahead of the competition, multichannel retailers need to provide features and services that enhance the customer’s experience across channels.

     One is giving customers the ability to visit stores to return items purchased online. Once is the store, they are more likely to buy something than they would be if they only saw an item on the Web. 

• Brand Image:

     Multichannel retailers need to project the same image t their customers across all channels.

• Merchandise Assortment:

     Customers expect that everything they see in a retailer’s store will also be available on its Web site. A significant product overlap across channels reinforces the brand image in the customer’s mind.

     The dot-com boom resulted in uncoordinated merchandise offerings. The trend now is to integrate merchandise offerings across channels.

      Many multichannel retailers have tailored the assortments sold on their Web site to include only products their customers are likely to buy over the Internet. For example, Wlamrt.com, discontinued offering low-priced cosmetics and apparel items because shipping costs were greater than the value of the merchandise.

• Pricing:

     Customers expect pricing consistency across channels. However, in some case, retailers need to adjust their pricing strategy because of the competition they face in different channels.