What Is Multi Channel Retail?: Benefits, Challenges and Impacts

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 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 Multi-Channel Retail | 1/28/2008 1

Multi- What is Multi - 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. Here’s a few: Organisational Benefits Increased revenue and growth opportunities – more touch points into target market Multi-Channel Retail | 1/28/2008 • • 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) 2

• 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. Evaluating cost of investment in development of cost effective, secure, scalable environments and systems integration against probable short term impact on bottom line 2. 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 3. 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’ 4. Problems in merging and standardising customer data i.e. unifying different systems which may have very different data models 5. 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. Organisational Impacts and the Changes Needed Multi-Channel Retail | 1/28/2008 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 audience’s channel preferences and their perceptions of service 3

• 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 front- end 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 start? Where do you start ? A good place to start your multi-channel journey is by considering Flint and Spieler’s 4 stage process (Source - IBM white paper on Multi-Channel Customer Management: The Benefits and Challenges) 1. Create a multichannel strategy 2. Determine the relative priority for the channels 3. Reorganise for multichannel operation by reconciling central brand, experience and service Multi-Channel Retail | 1/28/2008 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. 4

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What Is Multi Channel Retail?: Benefits, Challenges and Impacts

by Rizwan Tayabali

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