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Chapter 3

Multi-Channel Retailing

McGraw-Hill/Irwin
Retailing Management,
6/e

Copyright 2007 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

The Multi-Channel Retailer

Steve Cole/Getty Images

Retailer

Digital Vision / Getty Images

The McGraw-Hill Companies,


Inc./Andrew Resek, photographer

3-3

3-4

Why are Retailers Using Multiple


Channels to Interact with Customers?
Customer Want to interact in different
ways
Each channel offers a unique set of
benefits for Customers

3-5

Benefits Provided by Different Channels

3-6

Unique Benefits Provided by Store Channel

Browsing
Touch and feel products
Personal service
Cash payment
Immediate gratification
Entertainment and social
interaction
Risk Reduction

(c) Brand X Pictures/PunchStock

Royalty-Free/CORBIS

3-7

Benefits Provided by Catalog Channel


Convenience
Portability, easily accessible
Visual presentation
Safety

Hoby Finn/Getty Images

3-8

Unique Benefits Provided by Internet Channel


Convenience
Safety
Broad selection
Detailed information
Personalization
Virtual communities
Problem-solving information
More info to evaluate merchandise

The McGraw-Hill Companies, Inc./Jill Braaten, photographer

Problem Solution Benefits


Offered By Electronic Channel
Bundling Information, Services, and
Products
Examples
iVillage
The Wedding Channel, The Knot

3-9

Virtual Communities
People who seek information, products and
services communicate with each other regarding
specific issues

Royalty-Free/CORBIS

310

Virtual Communities
Virtual community is a network of
members sharing common interests that
interact with each other electronically.
Examples:
IVillage - Women
Garden.Com - Gardeners
Flypaper.com talks about fashion
Cafeutne.org social issues

311

Personalization Potential
Of Electronic Channel

312

Customization Benefits
Offered By Electronic Channel
Information 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

313

314

Does The Electronic Channel Have


Lower Costs Than Stores?
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
Picking, Packing, Mailing
Small Orders to Home
Restocking Returned
Merchandise

315

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

316

What People Buy Over the Internet


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

317

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

Types of Attributes

318

Search: Can be determined prior to


purchase, consumption. (e.g., price,
brand)
Experience: Cannot determine prior to
purchase, consumption. (e.g., taste,
comfort)
Credence: Cannot be directly determined
by the average consumer. (e.g., health
benefits, technical specifications)

How to Sell Over the Internet

319

and eliminate returns

Even when retailers provide touch and feel


information retailers still experience 10% returns of
purchases 20% on the electronic channel.
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?

320

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 sales

321

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

322

When The Electronic Channel Provides


Superior Benefits
GIFTS
Saves time
Saves effort in packing
Saves effort in delivery
SERVICES
No Shipping Problems
Examples
Travel websites
Banking
Newspapers

Janis Christie/Getty Images

Resources Needed to Compete


Effectively in Internet Retailing

323

Exciting, Easy to Use Web Site


Management Information Systems
Order processing and status
Customer database
Personalization software
But These Resources Were Not Enough!

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

324

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

325

326

Resources Possessed by Different


Firm Types

Website Systems
Retailing Skills
Fulfillment
Brand Reputation
Assortments
Customer Data

E Only

Catalog

Store-Based Manufacturers

Excellent
Poor
Poor
Poor
Good
Poor

Poor
Good/Excel
Excellent
Good/Excel
Good/Excel
Excellent

Poor
Excellent
Poor
Excellent
Excellent
Good/Excel

Poor
Poor
Poor
Good/Excel
Poor
Poor

327

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

Digital Vision/Getty Images

328

Resources Possessed by Different


Firm Types

Website Systems
Retailing Skills
Fulfillment
Brand Reputation
Assortments
Customer Data

E Only

Catalog

Store-Based Manufacturers

Excellent
Poor
Poor
Poor
Good
Poor

Poor
Good/Excel
Excellent
Good/Excel
Good/Excel
Excellent

Poor
Excellent
Poor
Excellent
Excellent
Good/Excel

Poor
Poor
Poor
Good/Excel
Poor
Poor

Catalog Retailers can


Add Electronic Channel Easily

329

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

330

Resources Possessed by Different


Firm Types

Website Systems
Retailing Skills
Fulfillment
Brand Reputation
Assortments
Customer Data

E Only

Catalog

Store-Based Manufacturers

Excellent
Poor
Poor
Poor
Good
Poor

Poor
Good/Excel
Excellent
Good/Excel
Good/Excel
Excellent

Poor
Excellent
Poor
Excellent
Excellent
Good/Excel

Poor
Poor
Poor
Good/Excel
Poor
Poor

Store-based Retailers vs.


Electronic Retail Entrepreneurs

331

Knowledge of Retailing
Assortment Planning
Distribution Systems

Reputation
Customer Database
Convenient Location for Picking Up, Returning
Merchandise, Warranty Service and Installation
Vendor Relationships
Royalty-Free/CORBIS

Why did Walgreens Beat Out The


Electronic Drugstore Chains?

332

Three thousand conveniently located stores in the


US with drive-through windows for picking up
prescriptions and merchandise
A distribution system in place for picking, packing
and shipping prescription pharmaceuticals and
merchandise presently ordered by phone
A strong brand reputation for being trustworthy and
helping customers on health-related decisions
Agreements in places with third-party payers
(HMOs and insurance companies) to accept and
provide pharmaceutical benefits for its customers

333

Resources Possessed by Different


Firm Types

Website Systems
Retailing Skills
Fulfillment
Brand Reputation
Assortments
Customer Data

E Only

Catalog

Store-Based Manufacturers

Excellent
Poor
Poor
Poor
Good
Poor

Poor
Good/Excel
Excellent
Good/Excel
Good/Excel
Excellent

Poor
Excellent
Poor
Excellent
Excellent
Good/Excel

Poor
Poor
Poor
Good/Excel
Poor
Poor

Advantages of Retailers
vs. Manufacturers

Distribute Merchandise Directly to Customers


Provide Assortments
Collect and Use Information about Customers

Widespread Disintermediation Unlikely

334

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

335

336

Evolution Toward Multi-channel Retailing


Electronic 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

Overcoming Existing Format

337

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.

338

Percentage of Cross Channel Shoppers

339

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

340

Capabilities for Multi-Channel Retailing

341

Multi-channel Services and Features

342

Issues Confronting a Multi-Channel Retailer


Maintaining Brand Image Across
Channels
Merchandise Assortment Offered in Each
Channel
Pricing Across Channels

Shopping in the Future

343

344

Integration Key to Multi-Channel Retailing


Create a Seamless
Experience
Synchronized &
consistent service
regardless
of channel

Ordering
Returns
Refunds

Make it Easy

Know thy
Customer
Needs and
preferences
One to One
Marketing

Call Center
Shopping
Advice
Customer
Service

Provide Support

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