March 16, 2007
BrainTrust Query: Is Multi-Channel Integration Getting Short Shrift?
By Roger Selbert, Ph.D., Editor & Publisher, Integrated Retailing
Nearly 80 percent of retail winners (those that outperform peers in comparable store sales growth) operate in multiple channels versus only 50 percent of retailers who perform worse than average, according to recent study by Retail Systems Alert Group (RSAG). Yet a survey as part of the study found 23 percent of store-based retailing respondents reported still operating in only the store channel.
And while a recent LakeWest Group survey showed that nearly three-quarters of the top 100 retailers in the US operate in multiple channels, only 22 percent consider seamless multi-channel integration a top priority.
It is amazing that so many retailers still do not realize the necessity of making the most of multiple channels. Multi-channel shoppers are, on average, younger, more affluent, better educated and they shop and spend more than single channel shoppers.
Driven by the continued immersion of the internet into our daily lives, Americans have dramatically changed the way they research purchases, shop, and buy. And research continues to show online activity drives offline sales:
- Ninety-one percent of shoppers research items online before heading to a store, and one in three do so frequently (Deloitte).
- Twenty-two percent of all offline sales are influenced by the web (Forrester).
Yet of the retailers with websites, 40 percent still don’t have any integration between store and online operations (LakeWest Group). It is not enough to offer customers multiple channels; they expect to be able to move seamlessly between and among them.
As detailed in the pages of Integrated Retailing, multi-channel integration is the strategy being pursued by most major retailers including J.C. Penney, Macy’s, Nordstrom, Circuit City, Best Buy, Target, Home Depot, Wal-Mart and many more across virtually all retail channels.
Retailers face several challenges in attempting to integrate website, call center and catalog operations with full-line store businesses. According to a report by Infosys, these challenges include unaligned organizational structures; disaggregated merchandising and inventory management; uncoordinated customer operations; and disparate, multiple database and enterprise management technology systems. Obviously, an integrated multi-channel retailing strategy must entail significant change in organizational structures, business processes, staffing, technology, supplier relationships, and customer relationship management. Support from upper management, up to and including the CEO, is required!
Discussion Question: What are the most important barriers preventing top retailers from achieving seamless integrated retailing?
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Multi-channel selling involves a major organizational change: (1) redoing the back end computer systems so a unified portrait of a customer to anyone talking with that customer regardless of channel, (2) changing job responsibilities to broaden positions to include consumer responsibility as the technology changes, (3) requiring employees to learn how to use the new technology to create a better consumer experience.
Multi-channel selling involves a huge training component: (1) all employees who come in contact with consumers need to be able to respond to consumer questions regardless of channel that consumers have used or want to use to purchase products.
Now why is it that a number of retailers aren’t using more than one channel? It involves more than creating a website.
No doubt about it, multi-channel integration is a major issue for retailers today. The Retail Systems Alert Group study referenced in the article is right-on: best-in-class retailers are making multi-channel integration a top challenge, and are putting their money where their mouth is.
The top challenge to true multi-channel integration, however, is less an IT challenge, and more a cultural one. Too many managers are having difficulty releasing themselves from processes they are have come to depend on–even when those processes yield incorrect results. As a result, organizations are working from multiple versions of the truth. Often times, this lack of cohesive data is noticeable to the customer, who is immediately frustrated and moves on to other merchants. It must therefore be a C-level imperative to drive process change, and align data together.
To solve these problems, some retailers are reaching out to multi-channel solution providers. Others look toward formal business intelligence solutions such as my organization, on-demand, SaaS-based SeaTab Software (ok, I admit it, shameless plug). Whatever the route, though, multi-channel integration initiatives deserve all of the attention they receive–and deservedly so.
Most retailers believe they do well what they do. Bricks and mortar retailers say they understand the physical store environment. Internet retailers say they understand the online psyche. Catalog retailers feel they know mail order. But, once a retailer tries to cross channel lines, they get nervous. So, they typically don’t integrate but set up the second channel in a way that it can be severed if things don’t work out. Hence, lack of integration.
In the earlier days of mult-channel (early Internet phase), that made some sense. Today, it doesn’t. To survive, retailers must be in at least two of the channels, and longer term may have to be in all three. So, early and proper integration should be the goal.
There are, of course, many other benefits to tight integration. Branding strategy, merchandising, pricing, etc. all benefit from tight integration. Multi-channel is here to stay so those retailers who force themselves to cross-channel integrate will be better positioned to lead the pack.
While I’m a believer in the benefits of multi-channel integration for retailers, we should be careful about confusing cause with effect as we present reasoned arguments about its financial benefits:
Does online pre-shopping influence customers to spend more in stores or are shoppers simply more likely to make the research effort prior to making big-budget purchases?
Three-channel shoppers may be most profitable, but do multichannel offerings change behavior or are most frequent and profitable customers already more likely to use more channels to interact with a retailer?
Deep, actionable understanding of these subtleties requires research into complex sets of consumer attitudes and behaviors. I would advocate an ethnographic approach, because it is evident that we do not yet know how to frame the right questions.
It’s also a good time to once again identify an elephant in the room: Namely that all retail categories do not present identical opportunities online. Books are easy; tailored suits are not; and some categories, like ice-cream and cold medicine, are only appropriate for some of the people some of the time.
Fair or not, all retailers today are held to customer expectations based on the most satisfactory multi-channel experiences they encounter anywhere, in any channel. Absence of an informational Web presence is inexcusable for any retailer. Lack of a seamless product research and purchase option shuts out a group of lucrative shoppers who are spending anyway.
I do believe, as a matter of business philosophy, that retailers must do their utmost to present a single, consistent face to shoppers, across all channels of interaction. This requires an integrated back office and some hard management-level decisions about the trade-offs of price zones and other legacy store-based practices.
I can’t resist throwing in a couple of cents here, mostly around the core findings of the report.
Multi-channel shoppers spend more money. That’s been documented everywhere and there are no “aha’s” there. Until this year, a majority of retailers also found their multi-channel shoppers more PROFITABLE. The overall channel might not have been profitable, but the customers were. That’s shifting. That’s the “aha.” The lack of integration is starting to create material issues for multi-channel retailers.
When multi-channel/e-commerce/cross-channel business represented 3% of a retailer’s revenue, it wasn’t worth the cost of integrating systems, inventory and procedures together. That’s changed.
The need for a seamless consumer experience is clear and goes without saying. The customer is unforgiving and everyone knows it. The recognition of the need to do it efficiently is new. I guess the best way to describe this phenomenon in 2 words or less is “growing pains.”
It is interesting to compare some of the numbers here with the front page article in today’s Wall Street Journal. Here we say 91% percent of shoppers pre-research their purchases online. The WSJ points out that 28,000,000 wage earners don’t have bank accounts and another 45,000,000 say they “use banks intermittently.” I doubt if these 73,000,000 shoppers are going online to decide their next purchase.
The percentages of online sales still remain small in comparison to brick and mortar. Although some of us have difficulty understanding it, many people still enjoy “the hunt” and will go to malls or retail stores just for the experience. I think this aspect of the shopping adventure will always remain.
The challenge is enabling the alternative channels for the independent and small chain retailer. As more solutions are built on the “network model,” using the network to provide subscriber services to anyone, the service costs can be spread across many independent users. This is the promise of the next generation of web applications.
Having focused on multi-channel retail strategy for 10 years now, we are thrilled to see how many retail boards are demanding well-articulated multi-channel game plans of their senior management team. The past 2 years has seen the most significant tipping point reached since “multi-channel” even appeared on the retail radar screen. What most casual observers fail to realize is that there are many significant initiatives under way, with retailers of all sizes, to better integrate their channels. Some are more apparent than others as they represent the front end (e.g., customer experience), while others are back-end focused so their benefit may not be as visible (e.g., customer and inventory data integration). We can confidently say that we will see an acceleration of integrated strategies in the coming years as the board-level push manifests into real activity; with real, profitable results. For more than 10 years now, the core web strategy of most retailers has been focused on aggressively growing their direct business, led by the high growth e-commerce channel. As an industry, we’re undergoing a shift that will see greater emphasis on an integrated multi-channel experience for customers. This needs to be achieved while still harvesting the growth of the e-commerce channel on its own. The barrier most pressing for most retailers to address in order for this to happen? We believe that addressing organization design and people skills will drive many other downstream decisions in order to execute the game plan well.
I’ve got two things to throw into the discussion.
One, while I agree with Mark that profitability should be the goal, retailers who look at each channel in isolation are missing the boat. Forrester’s research found that 22% of offline sales are DIRECTLY influenced by the online channel, and they further found that when a consumer researches online and then goes in the store to buy, they spend an average of $160+ more per transaction over what they researched. If you just look at the profitability of online, you could potentially leave a lot on the table by ignoring the dynamic in the store. Is that the direct cause behind why we at RSAG found that many more retail winners are in multiple channels? Well, you can’t go so far as to say that. But I think the fact that for store-based retailers, the online channel from a sales perspective barely has the volume to compare to, say, a flagship store, is part of the problem–online just isn’t on the radar of merchants and so they’re not demanding the integration that would help them take advantage of the synergies of both channels. Without that demand, the integration just isn’t going to happen.
Two, it may be nascent in the US today, but retailers that don’t get on the learning curve of multi-channel integration between online and stores are going to have their world rocked soon–by the mobile phone. I firmly believe that consumer mobility is only going to accelerate their cross-channel behavior because it so easily serves as a bridge between online in the home and the physical world of the store. Retailers who are down the path of multi-channel integration will be much better positioned to deal with this “fourth” channel.
Multi Channel Integration is a necessity of competing in the global and electronic markets. This requires a paradigm shift that most companies are unable to make because of the traditional perceptions and business alignments. Multi-channel integration demands best of breed performance in all aspects, since your organization is involved in different arenas at the same time. This means great intercorporate communication, excellent customer communication, and corporate alignment with all channels on an equal platform. Because of the technological requirements that this means (including the full cradle to grave product alignments with each of the channels) most organizations are ill-prepared to make these leaps–or worse yet–are just afraid to do it.
Vahe’s irony is welcome in a thread that in places may be too self-serious. Some of our multichannel retailers have evidently succeeded at hitching automobiles to their horse-drawn carriages. Technology considerations can sometimes obfuscate what in essence is about consumer experience. We should endeavor not to forget that.
Automobiles are here to stay and those retailers who do not embrace drive-through are doomed to fail! Automobile manufacturers should consider breakthrough innovations such as cup holders as more and more consumers consume while they drive. These cultural changes will require new investments so it behooves the retailer to understand the economic potential of this new car driving segment. Once this is understood, issues like parking lot size, parking lot signage, and the installation of electrical outlets in the proposed “drive-through areas” to power cash registers can be justified. The key is to first understand the behavior of this new cultural phenomenon–the commuter, ney, the multichannel commuter. This author suggests first asking your staff to experience the drive through experience and then, once this is understood–extending your research to various behavioral sub-segments. Automobiles, like the railroad, will most certainly change the face of retailing, and it is up to us to take the lead. Perhaps the first step is to recognize that retailers succeed by solving un-met needs or addressing cultural disconnects caused by the introduction of new technologies like the car. It was not so long ago that we were struggling to understand the impact of the move from party line phones so this should not be new. I believe it will be safe to say that those retailers who know how to manage their parking lots will be the winners, especially in a future of nuclear powered cars, declining energy costs and the failure of public transportation. Now, more than ever, we will need to not distracted by technology and become keen observers of how the automobile is catalyzing the new multichannel consumer.
One reason multi-channel retailing isn’t more widespread: it isn’t profitable for many retailers. If margins are low, assortments change frequently, and local price competition varies greatly, it’s unlikely the retailer can use e-commerce to make a profit. Furthermore, many retailers (including some cited positively by RSAG) won’t integrate online shopping 100%, because that wouldn’t be profitable either. Yes, Target has a great e-commerce site but Target is careful to use its site for the items it can sell profitably online. Staples has catalogs and a terrific internet site and stores everywhere, but needs to use zone pricing and assortment variations between media to preserve its profits. Many tools that can grow a business are worthwhile, but few can be profitably used by everyone.
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Multi-channel selling involves a major organizational change: (1) redoing the back end computer systems so a unified portrait of a customer to anyone talking with that customer regardless of channel, (2) changing job responsibilities to broaden positions to include consumer responsibility as the technology changes, (3) requiring employees to learn how to use the new technology to create a better consumer experience.
Multi-channel selling involves a huge training component: (1) all employees who come in contact with consumers need to be able to respond to consumer questions regardless of channel that consumers have used or want to use to purchase products.
Now why is it that a number of retailers aren’t using more than one channel? It involves more than creating a website.
No doubt about it, multi-channel integration is a major issue for retailers today. The Retail Systems Alert Group study referenced in the article is right-on: best-in-class retailers are making multi-channel integration a top challenge, and are putting their money where their mouth is.
The top challenge to true multi-channel integration, however, is less an IT challenge, and more a cultural one. Too many managers are having difficulty releasing themselves from processes they are have come to depend on–even when those processes yield incorrect results. As a result, organizations are working from multiple versions of the truth. Often times, this lack of cohesive data is noticeable to the customer, who is immediately frustrated and moves on to other merchants. It must therefore be a C-level imperative to drive process change, and align data together.
To solve these problems, some retailers are reaching out to multi-channel solution providers. Others look toward formal business intelligence solutions such as my organization, on-demand, SaaS-based SeaTab Software (ok, I admit it, shameless plug). Whatever the route, though, multi-channel integration initiatives deserve all of the attention they receive–and deservedly so.
Most retailers believe they do well what they do. Bricks and mortar retailers say they understand the physical store environment. Internet retailers say they understand the online psyche. Catalog retailers feel they know mail order. But, once a retailer tries to cross channel lines, they get nervous. So, they typically don’t integrate but set up the second channel in a way that it can be severed if things don’t work out. Hence, lack of integration.
In the earlier days of mult-channel (early Internet phase), that made some sense. Today, it doesn’t. To survive, retailers must be in at least two of the channels, and longer term may have to be in all three. So, early and proper integration should be the goal.
There are, of course, many other benefits to tight integration. Branding strategy, merchandising, pricing, etc. all benefit from tight integration. Multi-channel is here to stay so those retailers who force themselves to cross-channel integrate will be better positioned to lead the pack.
While I’m a believer in the benefits of multi-channel integration for retailers, we should be careful about confusing cause with effect as we present reasoned arguments about its financial benefits:
Does online pre-shopping influence customers to spend more in stores or are shoppers simply more likely to make the research effort prior to making big-budget purchases?
Three-channel shoppers may be most profitable, but do multichannel offerings change behavior or are most frequent and profitable customers already more likely to use more channels to interact with a retailer?
Deep, actionable understanding of these subtleties requires research into complex sets of consumer attitudes and behaviors. I would advocate an ethnographic approach, because it is evident that we do not yet know how to frame the right questions.
It’s also a good time to once again identify an elephant in the room: Namely that all retail categories do not present identical opportunities online. Books are easy; tailored suits are not; and some categories, like ice-cream and cold medicine, are only appropriate for some of the people some of the time.
Fair or not, all retailers today are held to customer expectations based on the most satisfactory multi-channel experiences they encounter anywhere, in any channel. Absence of an informational Web presence is inexcusable for any retailer. Lack of a seamless product research and purchase option shuts out a group of lucrative shoppers who are spending anyway.
I do believe, as a matter of business philosophy, that retailers must do their utmost to present a single, consistent face to shoppers, across all channels of interaction. This requires an integrated back office and some hard management-level decisions about the trade-offs of price zones and other legacy store-based practices.
I can’t resist throwing in a couple of cents here, mostly around the core findings of the report.
Multi-channel shoppers spend more money. That’s been documented everywhere and there are no “aha’s” there. Until this year, a majority of retailers also found their multi-channel shoppers more PROFITABLE. The overall channel might not have been profitable, but the customers were. That’s shifting. That’s the “aha.” The lack of integration is starting to create material issues for multi-channel retailers.
When multi-channel/e-commerce/cross-channel business represented 3% of a retailer’s revenue, it wasn’t worth the cost of integrating systems, inventory and procedures together. That’s changed.
The need for a seamless consumer experience is clear and goes without saying. The customer is unforgiving and everyone knows it. The recognition of the need to do it efficiently is new. I guess the best way to describe this phenomenon in 2 words or less is “growing pains.”
It is interesting to compare some of the numbers here with the front page article in today’s Wall Street Journal. Here we say 91% percent of shoppers pre-research their purchases online. The WSJ points out that 28,000,000 wage earners don’t have bank accounts and another 45,000,000 say they “use banks intermittently.” I doubt if these 73,000,000 shoppers are going online to decide their next purchase.
The percentages of online sales still remain small in comparison to brick and mortar. Although some of us have difficulty understanding it, many people still enjoy “the hunt” and will go to malls or retail stores just for the experience. I think this aspect of the shopping adventure will always remain.
The challenge is enabling the alternative channels for the independent and small chain retailer. As more solutions are built on the “network model,” using the network to provide subscriber services to anyone, the service costs can be spread across many independent users. This is the promise of the next generation of web applications.
Having focused on multi-channel retail strategy for 10 years now, we are thrilled to see how many retail boards are demanding well-articulated multi-channel game plans of their senior management team. The past 2 years has seen the most significant tipping point reached since “multi-channel” even appeared on the retail radar screen. What most casual observers fail to realize is that there are many significant initiatives under way, with retailers of all sizes, to better integrate their channels. Some are more apparent than others as they represent the front end (e.g., customer experience), while others are back-end focused so their benefit may not be as visible (e.g., customer and inventory data integration). We can confidently say that we will see an acceleration of integrated strategies in the coming years as the board-level push manifests into real activity; with real, profitable results. For more than 10 years now, the core web strategy of most retailers has been focused on aggressively growing their direct business, led by the high growth e-commerce channel. As an industry, we’re undergoing a shift that will see greater emphasis on an integrated multi-channel experience for customers. This needs to be achieved while still harvesting the growth of the e-commerce channel on its own. The barrier most pressing for most retailers to address in order for this to happen? We believe that addressing organization design and people skills will drive many other downstream decisions in order to execute the game plan well.
I’ve got two things to throw into the discussion.
One, while I agree with Mark that profitability should be the goal, retailers who look at each channel in isolation are missing the boat. Forrester’s research found that 22% of offline sales are DIRECTLY influenced by the online channel, and they further found that when a consumer researches online and then goes in the store to buy, they spend an average of $160+ more per transaction over what they researched. If you just look at the profitability of online, you could potentially leave a lot on the table by ignoring the dynamic in the store. Is that the direct cause behind why we at RSAG found that many more retail winners are in multiple channels? Well, you can’t go so far as to say that. But I think the fact that for store-based retailers, the online channel from a sales perspective barely has the volume to compare to, say, a flagship store, is part of the problem–online just isn’t on the radar of merchants and so they’re not demanding the integration that would help them take advantage of the synergies of both channels. Without that demand, the integration just isn’t going to happen.
Two, it may be nascent in the US today, but retailers that don’t get on the learning curve of multi-channel integration between online and stores are going to have their world rocked soon–by the mobile phone. I firmly believe that consumer mobility is only going to accelerate their cross-channel behavior because it so easily serves as a bridge between online in the home and the physical world of the store. Retailers who are down the path of multi-channel integration will be much better positioned to deal with this “fourth” channel.
Multi Channel Integration is a necessity of competing in the global and electronic markets. This requires a paradigm shift that most companies are unable to make because of the traditional perceptions and business alignments. Multi-channel integration demands best of breed performance in all aspects, since your organization is involved in different arenas at the same time. This means great intercorporate communication, excellent customer communication, and corporate alignment with all channels on an equal platform. Because of the technological requirements that this means (including the full cradle to grave product alignments with each of the channels) most organizations are ill-prepared to make these leaps–or worse yet–are just afraid to do it.
Vahe’s irony is welcome in a thread that in places may be too self-serious. Some of our multichannel retailers have evidently succeeded at hitching automobiles to their horse-drawn carriages. Technology considerations can sometimes obfuscate what in essence is about consumer experience. We should endeavor not to forget that.
Automobiles are here to stay and those retailers who do not embrace drive-through are doomed to fail! Automobile manufacturers should consider breakthrough innovations such as cup holders as more and more consumers consume while they drive. These cultural changes will require new investments so it behooves the retailer to understand the economic potential of this new car driving segment. Once this is understood, issues like parking lot size, parking lot signage, and the installation of electrical outlets in the proposed “drive-through areas” to power cash registers can be justified. The key is to first understand the behavior of this new cultural phenomenon–the commuter, ney, the multichannel commuter. This author suggests first asking your staff to experience the drive through experience and then, once this is understood–extending your research to various behavioral sub-segments. Automobiles, like the railroad, will most certainly change the face of retailing, and it is up to us to take the lead. Perhaps the first step is to recognize that retailers succeed by solving un-met needs or addressing cultural disconnects caused by the introduction of new technologies like the car. It was not so long ago that we were struggling to understand the impact of the move from party line phones so this should not be new. I believe it will be safe to say that those retailers who know how to manage their parking lots will be the winners, especially in a future of nuclear powered cars, declining energy costs and the failure of public transportation. Now, more than ever, we will need to not distracted by technology and become keen observers of how the automobile is catalyzing the new multichannel consumer.
One reason multi-channel retailing isn’t more widespread: it isn’t profitable for many retailers. If margins are low, assortments change frequently, and local price competition varies greatly, it’s unlikely the retailer can use e-commerce to make a profit. Furthermore, many retailers (including some cited positively by RSAG) won’t integrate online shopping 100%, because that wouldn’t be profitable either. Yes, Target has a great e-commerce site but Target is careful to use its site for the items it can sell profitably online. Staples has catalogs and a terrific internet site and stores everywhere, but needs to use zone pricing and assortment variations between media to preserve its profits. Many tools that can grow a business are worthwhile, but few can be profitably used by everyone.