Chapter 3
Multi-Channel Retailing
McGraw-Hill/Irwin
Retailing Management, 6/e
Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved.
3-2
The World of Retailing
Introduction to Retailing
Types of Retailers
Multi-Channel Retailing
Customer Buying
Behavior
3-3
The Multi-Channel Retailer
Steve Cole/Getty Images
Retailer
Digital Vision / Getty Images
The McGraw-Hill Companies,
Inc./Andrew Resek, photographer
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
3-10
Virtual Communities
People who seek information, products and
services communicate with each other regarding
specific issues
Royalty-Free/CORBIS
3-11
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
Personalization Potential
Of Electronic Channel
3-12
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
3-13
Does The Electronic Channel Have
Lower Costs Than Stores?
Stores
• Bricks and Mortar,
Salespeople
• Attracting Customers
to Store
• Distribution Centers
• Restocking Returned
Merchandise
3-14
Electronic Retailers
• Building,Refreshing
Web Site
• Attracting Customers to
Web Site
• Picking, Packing,
Mailing Small Orders to
Home
• Restocking Returned
Merchandise
3-15
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
3-16
What People Buy Over the Internet
Travel
PC/Electronics/Toys
Books/Software
Apparel
Home & Garden
Jewelry & Watches
3-17
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
3-18
Types of Attributes
 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)
3-19
How to Sell Over the Internet
…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?
3-20
Use technology to convert “touch and feel”
information into “look and see” information
3-D Imaging
Zoom Technology Technology increases sales
Live Chat
360 Degree Viewing
Virtual Models
3-21
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
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
3-22
Resources Needed to Compete
Effectively in Internet Retailing
3-23
• 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
3-24
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
3-25
Resources Possessed by Different
Firm Types
Website Systems
Retailing Skills
Fulfillment
Brand Reputation
Assortments
Customer Data
3-26
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
3-27
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
Resources Possessed by Different
Firm Types
Website Systems
Retailing Skills
Fulfillment
Brand Reputation
Assortments
Customer Data
3-28
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
3-29
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
Resources Possessed by Different
Firm Types
Website Systems
Retailing Skills
Fulfillment
Brand Reputation
Assortments
Customer Data
3-30
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
3-31
• 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?
3-32
• 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
Resources Possessed by Different
Firm Types
Website Systems
Retailing Skills
Fulfillment
Brand Reputation
Assortments
Customer Data
3-33
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
3-34
3-35
Ecommerce Myths
• Low Cost of Entry
• Overestimate Importance of
Technology, Under Estimated Need
for Traditional Resources
• First Mover Wins
• Gets Rid of the Middleman
3-36
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
3-37
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.
3-38
Percentage of Cross Channel Shoppers
3-39
Capabilities for Multi-Channel Retailing
To effectively operate and realize the benefits of
multi-channel retailing, firms need to have skills in:
•
•
•
•
•
•
•
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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
3-40
Capabilities for Multi-Channel Retailing
3-41
Multi-channel Services and Features
3-42
Issues Confronting a Multi-Channel Retailer
• Maintaining Brand Image Across
Channels
• Merchandise Assortment Offered in Each
Channel
• Pricing Across Channels
3-43
Shopping in the Future
3-44
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