Chapter 3 Multi-Channel Retailing McGraw-Hill/Irwin Retailing Management, 7/e Copyright © 2008 by The McGraw-Hill Companies, Inc.
Download ReportTranscript Chapter 3 Multi-Channel Retailing McGraw-Hill/Irwin Retailing Management, 7/e Copyright © 2008 by The McGraw-Hill Companies, Inc.
Chapter 3 Multi-Channel Retailing McGraw-Hill/Irwin Retailing Management, 7/e Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved. The World of Retailing Introduction to Retailing Types of Retailers Multi-Channel Retailing Customer Buying Behavior 3-2 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? ■ 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? 3-3 The Multi-Channel Retailer Retailer Steve Cole/Getty Images The McGraw-Hill Companies, Inc./Andrew Resek, photographer 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. 3-4 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 3-5 Why are Retailers Using Multiple Channels to Interact with Customers? customer store kiosk catalog Consumers buy what they want, When they want, Wherever they want Call center Web/E-mail mobile 3-6 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 3-7 Dollars spent at different channels: Average annual dollars spent by JCPenny’s customers 3-8 Benefits Provided by Different Channels 3-9 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 3-10 Benefits Provided by Catalog Channel Convenience Information Safety Hoby Finn/Getty Images 3-11 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! 3-12 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. 3-13 What’s the Big Deal About Shopping on the Internet? Source: Forrester, State of Consumers and Technology, 2006 3-14 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? 3-15 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 3-16 More and better information to evaluate merchandise 3-17 Side-by-Side Comparison 3-18 Personalized Customer Service 3-19 Using an Agent to Locate Merchandise 3-20 Problem Solution Benefits Offered By Internet Channel ■ Bundling Information, Services, and Products ■ Examples iVillage The Wedding Channel Garden.com 3-21 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 3-22 Virtual Communities ■ Virtual community is a network of members sharing common interests that interact with each other electronically. ■ Examples: IVillage – Women Pricegrabbers.com; Epinion.com–product comparisons and reviews Flypaper.com – talks about fashion ThisNext.com, Kaboodle.com, Wists.com, StyleHive.com – social shopping that combines shopping and social networking 3-23 3-24 Virtual communities Source. Future Trends in Microelectronics and IT, IBM Research from http://www05.ibm.com/cz/events/power6/pdf/Ton%20Engbersen_Trends%20in%20microelectro nics.pdf 3-25 What People Buy Over the Internet Travel PC/Electronics/Toys Books/Software Apparel Home & Garden Jewelry & Watches 3-26 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 3-27 How Can the Electronic Channel Overcome Limitations? How to Sell Over the Internet Branding: …and eliminate returns 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 3-28 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 Technology increases conversion rates conversion rates: % of consumers who buy the product after viewing it 3-29 My Virtual Model: Try It On Link to My Virtual Model H & M 3-30 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 3-31 How Can the Electronic Channel Overcome Limitations? ■ 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 3-32 Perceived Risks of Electronic Shopping Don Farrall/Getty Images 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 3-33 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 3-34 Recreation Equipment Inc. (REI) – A Leader in Multichannel Retailing 3-35 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. 3-36 Percentage of Cross Channel Shoppers 3-37 Capabilities for Multi-Channel Retailing To effectively operate and realize the benefits of multichannel 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 3-38 Who Has These Critical Resources? Capabilities for Multi-Channel Retailing 3-39 Resources Possessed by Different Firm Types E Only Website Systems Excellent Retailing Skills Poor Fulfillment Poor Brand Reputation Poor Assortments Good Customer Data Poor Catalog Poor Good/Excel Excellent Good/Excel Good/Excel Excellent Store-Based Poor Excellent Poor Excellent Excellent Good/Excel Manufacturers Poor Poor Poor Good/Excel Poor Poor 3-40 Resources Possessed by Different Firm Types E Only Website Systems Excellent Retailing Skills Poor Fulfillment Poor Brand Reputation Poor Assortments Good Customer Data Poor Catalog Poor Good/Excel Excellent Good/Excel Good/Excel Excellent Store-Based Poor Excellent Poor Excellent Excellent Good/Excel Manufacturers Poor Poor Poor Good/Excel Poor Poor 3-41 Resources Possessed by Different Firm Types E Only Website Systems Excellent Retailing Skills Poor Fulfillment Poor Brand Reputation Poor Assortments Good Customer Data Poor Catalog Poor Good/Excel Excellent Good/Excel Good/Excel Excellent Store-Based Poor Excellent Poor Excellent Excellent Good/Excel Manufacturers Poor Poor Poor Good/Excel Poor Poor 3-42 Resources Possessed by Different Firm Types E Only Website Systems Excellent Retailing Skills Poor Fulfillment Poor Brand Reputation Poor Assortments Good Customer Data Poor Catalog Poor Good/Excel Excellent Good/Excel Good/Excel Excellent Store-Based Poor Excellent Poor Excellent Excellent Good/Excel Manufacturers Poor Poor Poor Good/Excel Poor Poor 3-43 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! 3-44 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 3-45 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 3-46 Why Did Internet Retail Entrepreneurs Fail? ■ Lack of Skills to Succeed in Internet Retailing ■ Consumers Prefer Multi-Channel Retailers (Bricks and Clicks) 3-47 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 Digital Vision/Getty Images 3-48 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 3-49 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 3-50 Impact of Internet Shopping on Store Sales $1,000 $800 $600 $400 $200 $0 1999 2000 2001 2002 2003 2004 2005 % of US Spending 5% 8% 10% 13% 17% 20% 24% Online Spending $18 $29 $45 $68 $106 $152 $199 $135 $207 $269 $348 $441 $540 $632 Web-Influenced 3-51 Ecommerce Myths ■ Low Cost of Entry ■ Overestimate Importance of Technology, Under Estimated Need for Traditional Resources ■ First Mover Wins ■ Gets Rid of the Middleman 3-52 Which Channel Is the Most Profitable? Cost Drivers in Stores and Electronic Retailers Stores ■ ■ ■ ■ Bricks and Mortar, Salespeople Attracting Customers to Store Distribution Centers Restocking Returned Merchandise Electronic Retailers ■ 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 3-53 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 3-54 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 3-55 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 3-56 Today’s empowered consumers live in a multi-channel world – research products online, buy offline, and demand service everywhere Web & Email Consumers buy what they want, when they want, wherever they want • 24x7 • Visual Call Center • Convenient • Immediate Brick & Mortar • Touch/Feel • Experience driven Kiosks Customer • Visual • Convenient Handheld Devices • Immediate • 24x7 3-57 Channels Offer Complementary Benefits Stores ■Known Entity ■Entertaining/ Social Experience ■Easy Checkout and Returns ■Personal Assistance ■Product TrialComplementary Merchandise ■Immediate Gratification Internet ■Location Convenience ■Speed ■Greater Selection ■Personalized Presentation ■Community Catalog ■Portability ■High Quality Visual Presentation 3-58 Multichannel Shopping 3-59 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 Source: Progressive Grocer, 01 Feb 00; Grocery Headquarters, 01 Feb 00. Consumer places order online for home delivery or store pick-up at a later time 3-60 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 3-61 Shopping in the Future 3-62 Shopping Experience: Personalization Potential 3-63 Integration – Key to Multi-Channel Retailing Know thy Customer Create a Seamless Experience • Needs and preferences • One to One Marketing • Synchronized & consistent service regardless of channel Shopping Experience • Ordering • Returns • Refunds Make it Easy • Call Center • Shopping Advice • Customer Service Provide Support 3-64