New form of Retailing

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

Benefits Provided by Catalog Channel

Convenience
Information
Safety

Hoby Finn/Getty Images

Average share of major channels of retail

selling

$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!

Selling on internet
It is just about 6 % of the total sales .
Just a drop in the bucket, but growing fast!
Internet sales is growing at the rate of about 20% every
year.
Furthermore , it has an important impact on other
channels
75 % of US customers say , they get information or shop online prior
to visiting a regular store .
49% purchase from different retailer online that researched online .
61% of US auto customers use the web to research their car
purchases .

Impediments of shopping online

Technological concerns are becoming less important .

Access to internet
Broadband connections
Privacy , security concerns .

Are the benefits of shopping online greater than benefits of

going to a store ?

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
Customized Information -- Side By Side Comparisons, Full Motion Video
Try It On Virtually

Information for Solving Problems, Not Just Merchandise

Characteristics
Virtual Communities

More and better information to evaluate

merchandise

Side by side comparison

Personalized customer service

Using an agent to locate merchandise

Problem solution benefits offered by

internet channels
Bundling
information
services and
products.

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 other participants in
the shopping experience.

Virtual communities
Virtual community is a network of members sharing
common interests that interact with each other
electronically .
Example :
Pricegrabbers.com; epinion.com- product comparisons
and reviews.
Flypaper.com talks about fashion
Thisnext.com social shopping that combines shopping
and social networking .

What people buy over internet

Travel
PC/Electronics /Toys
Books/ Software
Apparel
Home and garden
Jewelry and watches

What merchandise will be sold successfully

through electronic channel
Look and see attribute 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

How can the electronic channel overcome

limitations ?
Branding
National brands provide a consistent experience for
customers to overcome not being able to touch and feel .

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 increasing conversion rate , i.e % of consumers
who buy the product after viewing it .

 Electronic channels provide superior benefits for :

Gifts
Saves time
Saves efforts in packing
Saves efforts in delivery
Services
No shipping problems
Eg:
Travel Websites
Banking
Newspapers

 Use the internet to improve multi channel 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 .

Perceived risk 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 .

Evolution towards multi channel retailing

Traditional store based and catalog retailers are placing
more emphasis on their electronic channels and evolving
into multi channel retailers .
E-channels gives a way to overcome limitations of
existing formats.
With electronic channel , retailers can reach out to new
markets .
Build share of wallet
E-channel enables retailers to give insights into
customers shopping behavors .

Multi Channel retailing

The Multi-Channel Retailer

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.

Retailer

Steve Cole/Getty Images

The McGraw-Hill Companies,

Inc./Andrew Resek, photographer
Digital Vision / Getty Images

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

 Customers want to interact in different ways .

Each channel offers a unique set of benefits for
customers .

More reasons for becoming a multi

channel retailer

Increase share of wallet .

Overcome limitations of existing format .
Expand market .
Provide services more efficiently .
Leverage existing assets .
Brand name , inventory , customer database .
Develop insights in customer shopping behaviour.

Dollars spend at different channels.

Average dollars spend by J.C. Pennys customers

Benefits Provided by Different Channels

Recreation Equipment Inc ( REI ) A

leader in multi channel retailing

Overcoming existing formats

Size of the store is the greatest constraint for the
store
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 .

Percentage of cross channel shoppers

Capabilities required 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 to all channels .

Critical resources and Capabilities for

multi channel retailing

Resources possessed by different firm

types

Resources needed to compete

effectively in internet retailing
Exciting and easy to use website .
Management information systems
Order processing and status
Customer data base
Personalization software
But these resources are not enough !

 Retailing skills
Managing inventory
Editing assortment
Efficient fulfillment systems
Significant cost last mile
Picking and packing individual orders
Handling returns reverse distribution

 Strong brand name and image .

Built traffic
Reduce customer perceived risk
Complementary merchandise
One stop shopping
Lower shipping costs
Availability of customer information
Tailored presentations personalization

Why did internet retail entrepreneur

fail ?
Lack of skills to succeed in internet retailing
Consumers prefer multi channel retailers ( bricks and
clicks )

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 at homes.
They did not posses sufficient resources to evolve into multichannel
retailers .

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.

Why are store based retailers evolving

into multi channel retailers ?

Sales through 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.

E-Commerce Myths
Low cost of entry
Overestimate importance of technology , under estimate
need for traditional resources .
First mover wins
Gets rid of the middleman.

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 very tiny .
Picking , packing , mailing
small orders to Home .
Restocking returned
merchandise .

Will Electronic Channels low search

cost increase price competition ?
Conventional Wisdom
Greater comparison shopping
Offerings easily compared on price
Lower search cost = 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.

Will manufacturers by pass retailers

and sell directly to customers
Advantages of retailers vs
manufacturers
Distribute merchandise
directly to customers
Provide assortments
Collect and use information
about customers .

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 .

Channels offer complementary

benefits

Multi channel shopping

Features and
Services

Description

Return Policy

Online purchases can be returned in the

store

Promotions

Web sites and stores feature offline and

online sales , promotions and events

Information

Section
Store pick up
Inventory
Shipping

Customers and sales associates can assess

the website in the store ( sometimes
through Kiosks ) to get product and
availability information .
Websites and stores access larger
merchandise selection online
Online orders can be picked up at the local
store
Web sites indicates where inventory is
available in the store
Free shipping , especially for in-store pick
up

Illustration of multi channel

integration

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 .

Shopping in future

Shopping experience
personalization potential

Integration key to multi channel

retailing

Benefits of 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

Benefits of Multichannel Retailing

Gaining Insights into Consumer Shopping Behavior

Expanding Market Presence
Building a Strategic Advantage

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

Challenges of Effective Multichannel

Retailing
Integrated Shopping
Experience
Communicate with customers
anytime, anywhere through
multiple channels
Website, Store, Kiosks, Handheld
Devices
Integrating legacy systems for
seamless customer interface

Todays empowered consumers live in a multichannel 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

Keywords
Catalog retailing Nonstore retail format in which the retail
offering is communicated to a customer through a catalog.
Channel migration When consumers collect information
about products on one companys channel and then buys the
product from another competitor.
Direct selling A retail format in which a salesperson,
frequently an independent distributor, contacts a customer
directly in a convenient location (either at a customers home
or at work), demonstrates merchandise benefits, takes an
order, and delivers the merchandise to the customer.

Keywords
Disintermediation When a manufacturer sells directly to
consumers, thus competing directly with its retailers.
Electronic retailing A retail format in which the retailers
communicate with customers and offer products and services
for sale over the Internet.
Internet channel, Internet retailing, E-channel
Multichannel retailer Retailer that sells merchandise or
services through more than one channel.