Chapter 3 MultiChannel Retailing Mc GrawHillIrwin Retailing Management

Chapter 3 Multi-Channel Retailing Mc. Graw-Hill/Irwin Retailing Management, 6/e Copyright © 2007 by The Mc. Graw-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 Mc. Graw-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/Punch. Stock 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 Mc. Graw-Hill Companies, Inc. /Jill Braaten, photographer

Problem Solution Benefits Offered By Electronic Channel • Bundling Information, Services, and Products • Examples – i. Village – 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

What Merchandise Will Be Sold Successfully Through Electronic Channel? 3 -17 • “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” 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 Mc. Graw-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 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 3 -26

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 3 -28

Catalog Retailers can Add Electronic Channel Easily 3 -29 • • 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 3 -30

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 3 -33

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: • • 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