Multi-Channel Retail

Benefits, Challenges and Impacts

January 2008
Authored by: Rizwan Tayabali
Contact: rizwan.tayabali@gmail.com
Website / Blog: www.multichannelthinking.com

OVERVIEW: Multi-channel retailing is a deceptively easy concept. Simple in terminology, but complex to
explain and even more so to deliver. This paper provides an overview of what it is about, covering the
drivers, benefits, challenges and organizational changes needed to get there.

Table of Contents

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W HAT IS MULTI-CHANNEL? ............................................................................................................ 2

DRIVERS ...................................................................................................................................... 2
BENEFITS ..................................................................................................................................... 2
ORGANISATIONAL BENEFITS ....................................................................................................... 2
CUSTOMER RELATED BENEFITS .................................................................................................. 2
CHALLENGES ................................................................................................................................ 3
ORGANISATIONAL IMPACTS AND THE CHANGES NEEDED ................................................................... 3
COMMERCIAL CAPABILITY .......................................................................................................... 3
TECHNICAL CAPABILITY.............................................................................................................. 4
ORGANISATIONAL PROCESS ....................................................................................................... 4
W HERE DO YOU START? ................................................................................................................ 4
SUMMARY .................................................................................................................................... 4

What is MultiMulti - Channel?

Retailers traditionally maintained a single department, offering sales and support via a single mode of
customer interaction like the physical store. Over time this has expanded to include multiple ways of
selling to, engaging, and interacting with the customer, primarily via mail, catalogue and telephone.
Advancing technology however, has led to a number of new ways of inter-personal interaction like the
internet, mobile phones, and interactive TV; and as these embed deeper into social culture, subsequently
new channels for offering product and service.
Multi-Channel then refers to the delivery of customer propositions via multiple channels with at least some
degree of cross channel integration in management, information and service, i.e. in a consistent and
coordinated way across all channels.
Complete integration and sharing of information and experience across all channels is now being referred
to as Merged-Channel retailing, but that's a story for another paper. If you want to know more, have a
look at my paper on The High Street 2.0, which is about merging online and offline customer experiences.

Drivers
While emerging technology has been a key enabler, multi-channel growth is essentially driven by
consumers. According to Shop.org, 34% of consumers today use at least three channels when shopping.
Research has found them to spend up to 10 times more, to generate 25 to 50% more profit and
demonstrate greater loyalty than their single-channel counterparts. The core driver then is customer
demand.
The other major driver is cost saving through efficiency and effectiveness. Managing channels separately
may not only impair customer relationships but also result in cost increases resulting from running
separate order-management and customer service operations, multiple warehouses and fulfilment
systems, and buyers and merchandisers duplicating effort across the different channels.
Multi-channel is also driven by strategic competitive advantage and differentiation opportunities, and
regulatory pressures around ensuring that all customers are able to access products and services on
offer.

Benefits
There are a huge number of both organizational and customer related benefits to be gained from
implementing a multi-channel strategy. Heres a few:

Increased revenue and growth opportunities more touch points into target market
Better responsiveness and sensitivity to changing environments
Competitive advantage over pure-plays particularly around immediacy, education opportunities
for complex products and easy e-merchandise returns.
Organisational efficiency and effectiveness opportunities through sharing of processes,
technology and information

Customer Related benefits

Better and wider customer interaction with a greater variety of information available for improved
understanding of customers and identification of opportunities for increasing value per customer
(business intelligence)

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Organisational Benefits

Increased customer loyalty through better understanding of customers

Better customer experience reducing churn and increasing loyalty
Opportunity to leverage and improve brand perception

Customers themselves also benefit from increased choice in interaction opportunities and the ability to
switch channels as convenient.

Challenges
I'd argue that the underlying success factor in multi-channel retail from an external perspective is a
seamless customer experience, and from an internal perspective is a single customer view - different
sides of the same coin. Most of the challenges to any retailer appear to stem from attempting to achieve
this.
The two key areas of impact here are technological and organizational dependent on retailer age and
size. The older the organization, the more likely they are to have legacy systems, and the larger they are,
they more likely they are to face resistance to change. Multi-channel may therefore require integration of
disparate technologies, while also needing a complete review of structure, skills, staff incentivisation, and
a host of other business and marketing processes.
The 5 main challenges faced by similar retailers entering the multi-channel space are as follows:
1.
2.

3.

4.
5.

Evaluating cost of investment in development of cost effective, secure, scalable environments

and systems integration against probable short term impact on bottom line
Pricing across different channels - Store channels have higher cost structures than web channels
for example, and price competition is higher on web, but consumers can be put off by different
pricing for the same product
Channel synchronisation i.e. ensuring brand, customer experience and customer information
consistency across channels while avoiding the 3E trap i.e. trying to provide everything to
everyone everywhere
Problems in merging and standardising customer data i.e. unifying different systems which may
have very different data models
Difficulties in reducing or abolishing organisational boundaries to cope with new channels

In summary, customers for whom a multi-channel approach will yield the most benefits are often those for
whom achieving it the most problematic they have the largest customer bases, most complex lines, and
longest histories of systems development, with many business critical systems that supply old CRM
processes.
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Organisational Impacts and the Changes Needed

A successful shift to multi-channel retailing requires a number of changes to the way any traditional retail
business functions, primarily in the areas of commercial capability, technical capability, and organization
and processes.
Commercial Capability

Retailers must develop the ability to differentiate between offering attributes across different
channels because they vary in effectiveness and efficiency.
Modeling capability will be crucial in enabling a deep understanding of the target audiences
channel preferences and their perceptions of service

Pricing, brand impact and route to market will have to evolve to ensure a seamless customer
experience.
The organisation will have to shift towards developing multi-channel value propositions and
commercial strategies.

Technical Capability

The core capability needed is a single customer information view, ideally via a single platform for
enterprise wide customer relationship management and proposition development. This requires
full integration of database and management systems across channels and also with supply chain
activities.
Multi-channel IT architecture requires a channel independent, service oriented and scalable
integration of different front-end and back-end legacy systems and 3rd party services. The frontend should support open industry standards like XML and web-services.
Measurement capability will be vital for monitoring and review channel integration

Organisational Process

There may be need for a culture change programme to shift from a product or function focused
approach to a customer focused approach
Where separate channels have their own objectives, management, staff and systems, these may
need to be synchronised or even merged if necessary
Organisational restructure may require a new model that adapts people, processes and
technology to meet the coordinated approach to channel management. Strong support from CEO
and Management will be required.
Multi-channel trend analysis on the industry in question will need to play a larger role in the
corporate strategy formulation process
Channel strategy and associated business propositions must be embedded into the basic
processes of the organization

Where do you start?

start ?
A good place to start your multi-channel journey is by considering Flint and Spielers 4 stage process
(Source - IBM white paper on Multi-Channel Customer Management: The Benefits and Challenges)
1. Create a multichannel strategy

3. Reorganise for multichannel operation by reconciling central brand, experience and service
standards control with the need for local autonomy in managing individual channels
4. Adopt and implement best practices for integrating new with old technology

Summary
To summarise, while the benefits are many, this paper should have highlighted the fact that there are a
number of challenges involved too. Embedding real multi-channel practices will take time as it involves
both a cultural and technological shift for any organisation. My recommendation when making early stage
investment and ROI decisions around multi-channel retailing, is aim to focus on long-term value and
competitive advantage rather than short-term profit. In other words, think longer term when developing
your business case, and have the patience to see it through. It will pay off.

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2. Determine the relative priority for the channels