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McGraw-Hill/Irwin

Retailing Management, 7/e


Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter 3
Multi-Channel Retailing
3-2
The World of Retailing
Introduction to Retailing
Types of Retailers
Multi-Channel Retailing
Customer Buying Behavior
3-3
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?

3-4
The Multi-Channel Retailer
Retailer
Digital Vision / Getty Images

Steve Cole/Getty Images

The McGraw-Hill Companies,
Inc./Andrew Resek, photographer

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.

3-5
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

3-6
Why are Retailers Using Multiple Channels
to Interact with Customers?
customer
Consumers buy what they want,
When they want,
Wherever they want
store kiosk catalog Call center Web/E-mail mobile
3-7
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
3-8
Dollars spent at different channels:
Average annual dollars spent by JCPennys customers
3-9
Benefits Provided by Different Channels
3-10
Unique Benefits Provided by Store Channel
Browsing
Touching and feeling
Personal service
Cash and credit payment
Entertainment and social interaction
Immediate gratification
Risk Reduction
Royalty-Free/CORBIS

(c) Brand X Pictures/PunchStock

3-11
Benefits Provided by Catalog Channel
Convenience
Information
Safety
Hoby Finn/Getty Images

3-12
Whats 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!

3-13
Whats 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.
3-14
Source: Forrester, State of Consumers and Technology, 2006
Whats the Big Deal About
Shopping on the Internet?
3-15
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?
3-16
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
3-17
More and better information to evaluate
merchandise
3-18
Side-by-Side Comparison
3-19
Personalized Customer Service
3-20
Using an Agent to Locate Merchandise
3-21
Problem Solution Benefits
Offered By Internet Channel
Bundling
Information,
Services, and
Products
Examples
iVillage
The Wedding
Channel
Garden.com

3-22
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

3-23
Virtual Communities
Virtual community is a network of members sharing
common interests that interact with each other
electronically.
Examples:
IVillage Women
Pricegrabbers.com; Epinion.comproduct comparisons
and reviews
Flypaper.com talks about fashion
ThisNext.com, Kaboodle.com, Wists.com, StyleHive.com
social shopping that combines shopping and social
networking
3-24

3-25
Virtual communities
Source. Future Trends in Microelectronics and IT, IBM Research from http://www-
05.ibm.com/cz/events/power6/pdf/Ton%20Engbersen_Trends%20in%20microelectro
nics.pdf

3-26
What People Buy Over the Internet

Travel
PC/Electronics/Toys
Books/Software
Apparel
Home & Garden
Jewelry & Watches

3-27
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

3-28
How to Sell Over the Internet
and eliminate returns

Branding:
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

How Can the Electronic Channel
Overcome Limitations?
3-29
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
3-30
My Virtual Model: Try It On
Link to My Virtual Model H & M


3-31
GIFTS
Saves time
Saves effort in packing
Saves effort in delivery

SERVICES
No Shipping Problems
Examples
Travel websites
Banking
Newspapers
Janis Christie/Getty Images

The Electronic Channel Provides Superior Benefits for
How Can the Electronic Channel
Overcome Limitations?
3-32
Use the Internet to Improve Multichannel
shopping experience

Instantaneous and easy data collection on how and
why customers shop, and how theyre dissatisfied or
satisfied with their electronic shopping

Store and website layout design tailored to
customers buying habits
How Can the Electronic Channel
Overcome Limitations?
3-33
Perceived Risks of Electronic Shopping
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
Don Farrall/Getty Images

3-34
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
3-35
Recreation Equipment Inc. (REI)
A Leader in Multichannel Retailing
3-36
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.
3-37
Percentage of Cross Channel Shoppers
3-38
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
3-39
Who Has These Critical Resources?
Capabilities for Multi-Channel Retailing
3-40
Resources Possessed by
Different Firm Types
E Only Catalog Store-Based Manufacturers
Website Systems Excellent Poor Poor Poor
Retailing Skills Poor Good/Excel Excellent Poor
Fulfillment Poor Excellent Poor Poor
Brand Reputation Poor Good/Excel Excellent Good/Excel
Assortments Good Good/Excel Excellent Poor
Customer Data Poor Excellent Good/Excel Poor
3-41
Resources Possessed by
Different Firm Types
E Only Catalog Store-Based Manufacturers
Website Systems Excellent Poor Poor Poor
Retailing Skills Poor Good/Excel Excellent Poor
Fulfillment Poor Excellent Poor Poor
Brand Reputation Poor Good/Excel Excellent Good/Excel
Assortments Good Good/Excel Excellent Poor
Customer Data Poor Excellent Good/Excel Poor
3-42
Resources Possessed by
Different Firm Types
E Only Catalog Store-Based Manufacturers
Website Systems Excellent Poor Poor Poor
Retailing Skills Poor Good/Excel Excellent Poor
Fulfillment Poor Excellent Poor Poor
Brand Reputation Poor Good/Excel Excellent Good/Excel
Assortments Good Good/Excel Excellent Poor
Customer Data Poor Excellent Good/Excel Poor
3-43
Resources Possessed by
Different Firm Types
E Only Catalog Store-Based Manufacturers
Website Systems Excellent Poor Poor Poor
Retailing Skills Poor Good/Excel Excellent Poor
Fulfillment Poor Excellent Poor Poor
Brand Reputation Poor Good/Excel Excellent Good/Excel
Assortments Good Good/Excel Excellent Poor
Customer Data Poor Excellent Good/Excel Poor
3-44
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!

3-45
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

3-46
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


3-47
Why Did Internet Retail Entrepreneurs Fail?
Lack of Skills to Succeed in Internet Retailing
Consumers Prefer Multi-Channel Retailers
(Bricks and Clicks)
3-48
Why did Electronic-only Retailers Fail?
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

They had skills in web design
They had skills in systems to manage transactions
3-49
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

3-50
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
3-51
Impact of Internet Shopping on Store Sales
$0
$200
$400
$600
$800
$1,000
% of US Spending 5% 8% 10% 13% 17% 20% 24%
Online Spending $18 $29 $45 $68 $106 $152 $199
Web-Influenced $135 $207 $269 $348 $441 $540 $632
1999 2000 2001 2002 2003 2004 2005
3-52
Ecommerce Myths
Low Cost of Entry
Overestimate Importance of
Technology, Under Estimated Need for
Traditional Resources
First Mover Wins
Gets Rid of the Middleman
3-53
Which Channel Is the Most Profitable?
Cost Drivers in Stores and 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
Stores Electronic Retailers
Few e-tailers are profitable
3-54
Will Electronic Channels 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
3-55
Widespread Disintermediation Unlikely
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
3-56
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
3-57
Customer
Todays empowered consumers live in a multi-channel world
research products online, buy offline, and demand service everywhere
Web & Email
24x7
Visual
Call Center
Convenient
Immediate
Kiosks
Visual
Convenient
Handheld Devices
Immediate
24x7
Brick & Mortar
Touch/Feel
Experience driven
Consumers buy
what they want,
when they want,
wherever they want
3-58
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
3-59
Multichannel Shopping
3-60
Source: Progressive Grocer, 01 Feb 00; Grocery Headquarters, 01 Feb 00.
Consumer does not find
desired item in the store.
Consumer goes to
kiosk to search for
product
Kiosk links to
chains web-site
allowing
consumers to find
and purchase item
Consumer places
order online for
home delivery or
store pick-up at a
later time
Illustration of Multi-Channel Integration
3-61
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
3-62
Shopping in the Future
3-63
Shopping Experience:
Personalization Potential
3-64
Integration Key to Multi-Channel Retailing
Create a Seamless
Experience
Make it Easy Provide Support
Know thy
Customer
Ordering
Returns
Refunds
Call Center
Shopping
Advice
Customer
Service
Needs and
preferences
One to One
Marketing
Synchronized &
consistent service
regardless
of channel
Shopping
Experience

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