New form of Retailing

• Browsing

• Touching and feeling

• Personal service

• Cash and credit payment

• Entertainment and social interaction

• Immediate gratification

• Risk Reduction

Unique Benefits Provided by Store Channel

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(c) Brand X Pictures/PunchStock

Benefits Provided by Catalog Channel

• Convenience

• Information

• Safety

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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 they’re 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.

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Steve Cole/Getty Images

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

Retailer

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

• 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. Penny’s 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 DC’s 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 Channel’s 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

Customers and sales associates can assess the website in the store ( sometimes through Kiosks ) to get product and availability information .

Section Websites and stores access larger merchandise selection online

Store pick up Online orders can be picked up at the local store

Inventory Web sites indicates where inventory is available in the store

Shipping 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 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

• Integrated Shopping Experience– Communicate with customers

anytime, anywhere through multiple channels

– Website, Store, Kiosks, Handheld Devices

– Integrating legacy systems for seamless customer interface

Challenges of Effective Multichannel Retailing

Today’s empowered consumers live in a multi-channel world

research products online, buy offline, and demand service everywhere

Customer

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

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 company’s 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 customer’s 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.