Consumers Shop Everywhere: Understanding Multichannel Sales

Multichannel Customers

Consumers today shop almost everywhere—in stores, at home, by mail catalogs, over the phone (soon over many mobile devices), via TV infomercials and over the Internet, and most retailers, including Wal-Mart, try to sell through as many as possible of these channels. But few can still effectively and seamlessly interact with customers across these channels. Selling accessories and installation services in-store when customers pick up goods they bought on-line or via the phone, even allowing them to redeem promotions they have come across at any other channel is difficult.

Except for a few groundbreaking companies, this is still uncharted territory, though retailers who are able to engage customers across many channels likely earn customer trust and receive more repeat business. There have been examples of retail companies using a multichannel retailing system to streamline sales of an expensive consumer product only to discover that their Web sales were significantly lower than sales made over the phone. The reason was that sales consultants were able to up-sell consumers to higher-end systems over the phone. As a result, these retailers were forced to redesign their Web sites and storefronts to provide places for customers to interact with a sales consultant, in person.

These "multichannel" customers are typically well-informed, and often more profitable buyers for a retailer, since they are driven by deliberate choice, convenience, and selection, whereby more formerly mainstream, single-channel (primarily in-store) shoppers turn "multichannel" on a daily basis. The need for on-line purchasing, account management, e-billing etc., is indeed not only here to stay, but will likely grow in the future, as users pass the phase of disillusion ("How do I reverse the wrongly clicked transaction?" or "Where on earth are my goods?"), and enter the phase of clarification how beneficial and "cool" the technology can be. Many have also turned to on-line holiday shopping in the wake of the events of unspeakable September 11, and due to occasional terrorist threats to shopping malls and other places of mass gathering.

Although multichannel sales might look like cannibalization to store executives, these fickle customers want first-class products configured just for them, backed by high levels of information and service, delivered through whatever channel suits their needs at the moment. In other words, these are the most valuable customers one can attract—they have more to spend, and are willing to spend it. By capturing them, retailers should be able to improve sales transaction values, order-to-cash speed, customer retention and marketing return on investment (ROI). There are some indications that multichannel customers spend even 50 percent or more during the holiday season than their traditional single-channel counterparts. For instance, Amazon.com is reportedly celebrating its best ever recent holiday season with record sales and bullish claims about the number of orders it was able to successfully fulfill.

Keys to Multichannel Success

Although better Web design and a wider selection of products offered on-line are important, the keys to multichannel success lie in understanding the factors that drive revenues and the ability to fulfill Web orders. Overall revenues are driven not by simply offering products via the on-line channels, but by creating a hybrid sales model that uses the Web and other more traditional channels, including phone, TV, and the old fashion "brick-and-mortar store". The hybrid model needs to be done in a mutually beneficial way to maximize profit from these different retailing models.

The ability to fulfill requires a strong infrastructure, in terms of IT systems, traditional physical stocking, warehousing, picking, and shipping practices. Some retailers like Best Buy have well grasped the innate differences between virtual and physical storefronts and used technology to bridge that gap to enable almost a painless purchase-on-line-and-pickup-in-store effort. The retailer has well explored such important aspects as

• What people like about shopping on-line (e.g., depth of details, range of options, convenience, easy comparison shopping and other related research)
  
  
• What they do not like about shopping online (e.g., cost of shipping, delay of shipping, inability to see and touch product before final purchase decision, consequents of returns and additional shipping inconvenience, inability to reach and talk to a sentient being)
  
  
• What they like about in-store shopping experience (e.g., the ability to touch and feel goods, the atmosphere, a person to talk with, the ability to get the product immediately)
  
  
• What they do not like about in-store shopping (long lines and crowds, parking cost and inconvenience, arriving only to discover that the product that a clerk on the phone said was there is no longer available).

The retailer has thus even allocated an employee in each store to supervise the aisles to absolutely verify that the product is actually there, and then put it away for the customer just before the customer is told to come and pick it up.

A good Web site design is one that has streamlined site navigation, search, and checkout processes. It enables the kind of sales process that best fits the customer's and retailer's needs. It will have good site performance, and a well-designed user interface. Indeed, one will never achieve proper order fulfillment without a self-evident navigational structure, the right search, help, linking of the site to the support center for synchronous user support, etc. Front-end business-to-customer (B2C) e-commerce success also requires good product information and pricing, because it is easy for Internet customers to comparison-shop. A $2 or so difference in the retail price of a DVD can have a large impact on sales volume when the competition is only one click away.

But nothing has hurt the adoption of multichanneled shopping more than delayed or even cancelled orders because of stock-outs. Many retailers are thus striving towards near real-time cross-channel inventory management and visibility to mitigate this conundrum. For example, sold-out items are automatically grayed out on the screen while the back-order functionality, allowing the customer to agree to a back order, proactively alerts customers when the product is available again. When retailers design their processes to take advantage of the multichannel sales opportunities instead of simply focusing on reducing costs, a strong infrastructure that supports on-time delivery of orders and handling of returns must be built.

A few years ago highly publicized B2C Internet retailing disasters were typically not driven by bad Web site design, but were rather caused by the inability of several prominent retailers to deliver the goods in a timely manner. It was often the link between the Web storefront and the companies' traditional back-office and ERP systems, and real-world distribution systems that caused the problems. Multichannel retailers must be able to flawlessly execute a full range of services to engage, transact, and fulfill Web-placed orders. Hence, the most successful multichannel retailers of today have to either build a complete set of such services in-house or outsource some or all of them.

Traditional brick-and-mortar retail stores still rely on store clerks and managers to support customers, while multichannel retailers must provide similar support via call centers that are adequately staffed (so that customers do not have to be on hold for too long periods) and that are available around the clock. There should also be a number of appropriate financial services available, such as payment gateway, merchant account, fraud screening, and business payment services. For more information, see Differences in Complexity between B2C and B2B E-commerce.

Multichannel Retailers

The likes of Amazon.com is an important milestone in the evolution of the B2C Internet retailing (e-tailing) phenomenon, as it seems to be proving the viability of on-line merchandizing. Amazon.com always comes to mind either as an example of what potential e-commerce offers, or as an example of how painful the road to achieving this type of profitability can be. This does not mean the unconditional endorsement of Amazon's CEO's initial philosophy of "if we build, they will come"—this has apparently been quite modified during this process.

Much of the retailer's recent success has come from its ability to tremendously improve customer service (order tracking and fulfillment). The all-but-unacceptable poor delivery record which it had several seasons ago, has been replaced with improving efficiency. This is partly through the consolidation and reduction of warehouses and staff members. This combined with offering reasonably priced quality products across a number of segments (a wider selection) has paid off for the company.

For example, Amazon is providing mobile telephones, palmtops, household equipment, and other goods in addition to the usual books, CDs, DVDs, computer games, and other software. The reasons for its success have been based on the traditional tenets of business. Seemingly, its nothing pertinent except it is new to the "new, Internet economy". Amazon.com has also announced further savings for customers by adding a free delivery option for qualifying orders over certain amount. That should alleviate much of customers' resentment towards hidden costs (shipping and sales tax) that often equal the price of one book or CD. Likewise, it will raise the bar for Amazon's competitors.

In addition to Amazon as the Internet retailer pioneer, the likes of Best Buy, Staples, Target, or Lowe's are also carving out niches. They are capturing growth and profits from multichannel, customer-centric marketing in a competitive market dominated by Wal-Mart's well-oiled retail machine. While Wal-Mart can match these retailers growth in absolute numbers just from opening new stores, it will hardly take more business in the competitive market of serving multichannel customers with individual, personalized shopping experiences, and delivering on every complex customer's requirement.

For example, Target once had a different order management system to support each of its several direct-to-customer sales channels. Nowadays, Yantra's distributed order management (DOM) product (now part of Sterling Commerce) manages orders across all these channels, for orders ranging from standard pick-pack-ship fulfillment to complex, multistep fulfillment and delivery processes. Target has also been narrowly focusing on the off-mall retailing, which crystallized with the divestiture of Marshall Fields and Mervyn's in 2004.

Target also enhances its "fast, fun, and friendly" store experience with even higher service levels, with new product-focus areas and over 10,000 scanners to speed availability and price checks. Using returns as a new opportunity to excel, Target's new receipt-lookup system reportedly saves time while protecting stores against fraud. Younger customers choose Target for "fashion-forward", chic yet reasonably priced merchandise, which requires that the store have even faster design-to-delivery cycles. Further, integrating import warehouses into its supply-chain helps distribution centers (DC) prioritize high-demand seasonal merchandise, while Web-enabled tracking delivers inventory visibility from booking through receipt, for faster response to any delay.

Along similar lines, Best Buy continues to build stores, staff, and services around its most profitable shoppers via a loyalty program that offers discounts for preference data. This has so far reportedly attracted 2 million members. Furthermore, technical specialists up-sell customers in stores and offer home consultations, while many homebuilder partnerships create thousands of "wired" (i.e., cable, phone, Internet, etc.) homes that are ready to absorb even more Best Buy goods and services.

There are indications that this multichannel customer focus has resulted in a market share increase in fiscal 2004, driven by growth in computers, digital televisions, imaging and entertainment software. These are all the high-end, configurable, service-rich products that the retailer's new strategy depends on. Results depend on a supply chain that delivers products and information as needed, and as promised. Cross-channel promotions, Web self-service and guided search, integrated sales and service touch points' are all coordinated through Best Buy's DOM solution, again provided by Yantra.

Staples, a $13 billion (USD) stationary retailer also adapts stores and delivery formats around customers, from multiservice superstores to niche suppliers like Quill and Staples Express, each offering a particular product range, services and delivery options that are crafted to customer requirements. With 45,000 standard items and even more custom products and services, Staples' supply chain could have been a mess of stock-outs and duplicate or obsolete inventory. Quite the contrary, the company has opened back-office accessibility as a competitive differentiator, offering near real-time, on-line availability, pricing, and line item shipping status to business partners.

At its end, Lowe's offers custom goods and services for a "market of one". The "market of one" concept builds on Lowe's in-store design experience with a recently added special-orders system that allows employees and customers to track orders from placement through delivery. This service has reportedly increased customer satisfaction, reduced errors, and raised average ticket sales. All of that has required a not-too-involving integration of Lowe's IT systems with key suppliers, to deliver timely supply-chain information without big investments or delays.

IT Investment Required

However, one can imagine that a great part of Amazon.com's huge initial liability could be attributed exactly to a significant application software investment, both in license and in its subsequent tweaking. Without such an effort, one could hardly imagine Amazon.com's ability to let users know exactly when, for example, UPS will deliver their order, or to provide those sometimes annoying personalized promotions informing us that "Most of the folks that have bought The Da Vinci Code' book have also bought"

Although Sears, Roebuck and Co (soon to be merged with Kmart) did not reportedly sell anything on-line until 1997, with only one product category until 1999, the company's strategy, from the beginning of the Internet revolution, was to at least maintain one face to the customer. It did not want to create a rift between the "on-line" and the "off-line" Sears. Sears lets products bought on-line be picked up and returned to its stores; customers can schedule service visits to the stores on-line; and near real-time inventory visibility is available across all stores. Still, while this was impressive a few years ago, these capabilities are now a matter of course.

One of the ways Sears has achieved its goal of a single channel for multichannel customers—as well as automating supplier relationships—has been to pay paramount attention to product data quality. It has striven to concentrate data in one location as one repository for all product information which drives the financial, logistics, and legacy systems. Sears reportedly has one vendor master file that holds payment terms, contact information, electronic data interchange (EDI) routing and setup information, insurance requirements, and so on. In the field of product information management (PIM), Sears has worked closely with QRS, a company that was recently acquired by Inovis and that addresses the problem of global data synchronization (GDS) between retailers and suppliers (see Inovis Delves into PIM by Snatching QRS).

Accurate product descriptions, specifications, pictures, etc., should give consumers and business partners more confidence that they will receive exactly what they wanted. Consequently, product categories beyond traditional books, CDs, DVDs, or games are becoming more popular for multichannel retailing. QRS, which keeps a file of 90 million universal product codes (UPC), is the bridge between disparate product information protocols used by suppliers and Sears preferred single repository. For more information, see The Role of PIM and PLM in the Product Information Supply Chain: Where is Your Link?.

Retailers must start with an understanding of what will generate the most revenue and profit across multichannels, whereby e-tailing Web sites must not be seen as totally independent of other channels—quite the contrary. Web storefront usability should be addressed first, but the focus on PIM/GDS and cross-channel inventory visibility infrastructure should follow soon. It is all the matter of individual preference whether to engage in Internet shopping, and it is; however, be certain that multichannel retailers will attract new business on condition they continue with good service, wide product and service selection, and reasonable price incentives.