5th Edition

Chapter 3

Multi-Channel
Retailing

McGraw-Hill/Irwin
Levy/Weitz: Retailing Management, 5/e Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.
 The World of Retailing

Introduction
to Retailing Types of Retailers

Multi-Channel Customer Buying

Retailing Behavior
The Multi-Channel Retailer

Retailer
Today’s empowered consumers live in a multi-channel world -- Research
products online, buy offline, and demand service everywhere

Web & Email

Consumers buy • 24x7
• Visual
what they want,
when they want,
Call Center
wherever they want
• Convenient
• Immediate
Brick & Mortar
• Touch/Feel
• Experience driven

Kiosks
• Visual
• Convenient
Customer
Pervasive
• Immediate
• 24x7
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
Unique Benefits Provided by Store Channel

• Browsing
• Touch and feel products
• Personal service
• Cash payment
• Immediate gratification
• Entertainment and social interaction
Benefits Provided by Catalog Channel

Convenience
Portability, easily accessible
Visual presentation
Safety
Unique Benefits Provided by Internet
Channel
• Convenience
• Safety
• Broad selection
• Detailed information
• Personalization
• Problem-solving
information
 Will Consumers Shop
Electronically from Home
or
Go to the Mall?
 What’s the Big Deal About
Shopping on the Internet?

$2.5 Trillion US Retail Sales

$200 Billion Catalog and Direct Sales

$ 4 Billion TV Home Shopping

$ 50 Billion Internet Retailing

Just a Drop in the Bucket, But Growing Fast!

 Electronic Channel Influences
Shopping Behavior
Even though the electronic channel accounts for less than 2% of
retail sales, the Internet is used extensively in the buying process

100
90
Findout about new
80
products
70
Search for product
60
information
50
40 Compare and Evaluate
Products
30
20 Purchase and Pay
10
0
In-Store Internet Mail-Order Television Kiosk Pervasive
Visit from Home Catalog
 Positive Outlook for Future

Younger people are growing up with

computers view them as an appliance
55% of U.S. households have Internet access
now and more have access at work
Women use the Internet almost as much as
men now
40% of people buying cars go to the Internet
for info before seeing a dealer
 Impediments to Shopping On-Line

Technological concerns are

becoming less important
– Access to Internet
– Bandwidth
– Privacy, Security
concerns

Are the benefits of shopping on-line greater

than the benefits of going to a store?
 Factors Affecting the
Diffusion of an Innovation

• Ease with which the innovation can be tried out

On-line access

• Perceived risks of adoption

Security, Privacy

• Perceived benefits compared to present

alternatives (going to store or buying from
catalogs)
Internet Users Across the Globe
 Illustration - Judy Jamison - Part 1

Judy Jamison sits in front of her home electronic center

reviewing her engagement calendar displayed on her TV screen.
She sees that she has accepted an invitation to a formal cocktail
party on Friday night and decides to buy a new dress for the
occasion. She switches to her personal electronic shopper,
FRED, and initiates the following exchange:
FRED: Do you wish to browse, go to a specific store, or buy a
specific item?
Judy: Specific item.
FRED: Type of item?
Judy: Black dress.
FRED: Occasion? (menu appears on screen)
Judy: Formal cocktail party
 Illustration - Judy Jamison - Part 2

FRED: Price range? (menu appears)

Judy: $300 $500
FRED: 497 items have been identified. How many do you want to
review?
Judy: 5
Five pictures of Judy in each dress appear on the screen with the
price, brand name, and the IHS retailer selling it listed beneath each
one. Judy clicks on one of the dresses and it is enlarged on the
screen. Another click and Judy views the dress from different
angles. Another click and specifications such as fabric and
laundering instructions appear. Judy repeats this routine with each
dress. She selects the one she finds most appealing. FRED knows
her measurements and picks the size that fits her best.
 Illustration - Judy Jamison - Part 3

FRED: How would you like to pay for this? (menu appears)
Judy: American Express
FRED: Nieman Marcus [the firm selling the dress Judy selected]
suggests a Xie scarf and Koslow belt to compliment the
dress.
[Judy clicks on the items and they appear on the screen. Judy
inspects these items as she inspected the dresses. She decides to
purchase both accessories. FRED then asks Judy about delivery.
Judy selects two day delivery at a cost of $5.00]
FRED: Just a reminder. You have not purchased hosiery in 30
days. Do you wish to reorder at this time?
Judy: Yes
FRED: Same shades?
Judy: Yes
Why Do People Patronize a Retailer?

Merchandise Assortments
Service
Convenience
Information to make good selections
Price - Total cost to customer
Go to store, find right merchandise, return
merchandise
Entertainment
Social interaction
 Benefits of Electronic Channel

Increased Assortment
More Information to Evaluate Merchandise
Drill Down as Much as You Want
Full motion Video

Personalization
Fred, the Super Sales Associate
Try It On Virtually
Information for Solving Problems, Not Just
Merchandise Characteristics
Virtual Communities
 Using an Agent to
Locate Merchandise
 Virtual Communities

• John Hagel III and Arthur G. Armstrong, Net

Gain: Expanding Markets Through Virtual
Communities. Boston: Harvard Business
School Press, 1998
• Definition: Virtual community is a network of
members sharing common interests that
interact with each other electronically.
 Virtual Communities

Virtual community is a network of members

sharing common interests that interact with
each other electronically.
Examples:
IVillage - Women
Garden.Com - Gardeners
Ibelieve.com
 The Knot -- Solving
Your Wedding Problems
 Value Proposition to Members

Full range of resources available to solve problem

or satisfy from one source.
Integrate content and communication maximizing
value of the available resources
Generation and dissemination of member
generated information -- increases quality,
breadth and depth of information.
 Value Proposition for Members

Meaningful personal Fantasy and

relationships -- Entertainment
Opportunity to
interaction with other
people with common
interests draws
people to community.

Access to competing
vendors and publishers
 Value Proposition for
Commercial Organizer

• Reduce cost of locating and targeting

customers
• Reduce cost of motivating customers to
make purchase decisions
• Opportunity for tailoring products, services,
• Lower capital investment – don’t have to
build store fronts.
• Broader geographic reach
 Benefits for Community Manager

• Strengthen Brand Name, Reputation

• Build Customer Relationships
• Extend Database of Potential Customers
• Revenue Generation
– Sell Merchandise
– Sell Services to Members
• Membership fees (Annual Charge for Access)
• Usage fee (Downloads, Time of Access)
• Advertising (Charge Advertisers)
 Sources of Revenue

Subscription fees – fixed monthly charge

Usage fee – charge based on usage
Membership fees
Content delivery fees – charge to download information
Service fee – notification fee
Advertising
Transaction commissions
Sales of membership list or access to members
 Who Is Best Suited to Organize
a Virtual Community?

Concerned Consumers
Content Providers - Vertical Publications
Suppliers
Retailers
Offering Competing Products
Unbiased, Good Reputation
Know How to Run a Business Selling to
Consumers -- Primary Revenue Source
What Merchandise Will Be Sold
Successfully Over the Internet
“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
 Why Did So Many e-tailers Fail?

Pure E- Catalog Store-Based Vendors

Tailer Retailers Retailers
Assortments Limited Limited Excellent Poor
Fulfillment Poor Excellent Good Poor
Customer Poor Excellent Good Poor
Information

Unique Poor Good Good Excellent

Merchandise

Brand Name Poor Some Some Some

Excellent Excellent Excellent
 Store-based Retailers vs.
Electronic Retail Entrepreneurs

Knowledge of Retailing
Assortment Planning
Distribution Systems
Reputation
Customer Database
Convenient Location for Picking Up, Returning
Merchandise, Warranty Service and
Installation
Vendor Relationships
 Advantages of Retailers
vs. Manufacturers

Distribute Merchandise Directly to Customers

Provide Assortments
Collect and Use Information about Customers

Widespread Disintermediation Unlikely

 Summary
• Present Electronic Retailing Does Not Reflect the
Future Potential -- Electronic Retailing Will Attract
a Significant Segment --Much More than
Catalogs
• Penetration of Electronic Retailing Will Be A
Function of the Degree To Which Retailers Take
Advantage of the Unique Properties of the
Internet -Personalization and Interactivity
• Search Agents Are Critical to Provide Consumer
Benefits
• Store-Based Retailers Are Well Positioned to
Exploit This Opportunity But Might Not
 Reasons for Becoming
a Multi-Channel Retailer
-Increase Share of Wallet

-Overcome Limitations of Existing Format

-Expand Market

-Leverage Existing Assets

-Brand Name, Inventory, Customer Database

-Develop Insights in Customer Shopping Behavior

Issues Confronting a Multi-Channel Retailer

Maintaining Brand Image Across

Channels
Merchandise Assortment Offered in Each
Channel
Pricing Across Channels
Shopping in the Future
 Customers Want to Recognized No Matter
What Channel they Use

Internet

Call Center

Customer
Customers Brick & Mortar Relationship

Pervasive

Kiosk
Integration – Key to Multi-Channel Retailing

•Create a Seamless •Know thy

•Experience •Customer
•••Synchronized & •••Needs and
•consistent service •preferences
•regardless •••One to One
•of channel •Marketing

•• •Call Center
•• •Shopping
•• Ordering •Advice
•• Returns •••Customer
•• Refunds •Service
•Make it Easy •Provide Support
 Illustration of Multi-Channel Integration
 Consumer does not find
desired item in the store.

 Consumer goes to
kiosk to search for
product

 Kiosk links to
chain’s web-site
allowing consumers
to find and
purchase item
 Consumer places
order online for
home delivery or
store pick-up at a
Source: Progressive Grocer, 01 Feb 00; Grocery Headquarters, 01 Feb 00.
later time