Lecture Retailing management (6/e): Chapter 3 - Levy Weitz

Lecture Retailing management (6/e) - Chapter 3: Multi-channel retailing. This chapter discusses the impact of electronic retailing and examines the strategies of successful e-tailers.

Retailing Management, 6/e Copyright © 2007 by The McGraw­Hill Companies, Inc. All rights reserved.

Chapter 3 Multi-Channel Retailing

The World of Retailing

Introduction to Retailing Types of Retailers

Multi-Channel Retailing Customer Buying Behavior

The Multi-Channel Retailer

Retailer

Digital Vision / Getty Images

Steve Cole/Getty Images

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

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

Benefits Provided by Different Channels

Unique Benefits Provided by Store Channel

Benefits Provided by Catalog Channel

ConveniencePortability, easily accessible

Visual presentation

Safety

Hoby Finn/Getty Images

Unique Benefits Provided by Internet Channel

More info to evaluate merchandise

The McGraw-Hill Companies, Inc./Jill Braaten, photographer

Problem Solution Benefits Offered By Electronic Channel

• Bundling Information, Services, and

Virtual Communities

People who seek information, products and

services communicate with each other regarding

specific issues

Royalty-Free/CORBIS

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

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

Does The Electronic Channel Have

Lower Costs Than Stores?

• Attracting Customers to Web Site

• 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 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

What People Buy Over the Internet

Travel PC/Electronics/Toys Books/Software

Apparel Home & Garden Jewelry & Watches

predict satisfaction prior to purchase

Gifts

Services

“Touch and Feel” not useful - Gifts

Superior presentation of “Touch and Feel”

Branding

Types of Attributes

purchase, consumption (e.g., price,

brand)

purchase, consumption (e.g., taste,

comfort)

by the average consumer (e.g., health

benefits, technical specifications)

How to Sell Over the Internet

…and eliminate returns

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 McGraw-Hill Companies, Inc./Jill Braaten, photographer

How Can The Electronic Channel

Overcome Limitations?

information into “look and see” information

Perceived Risks 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

Don Farrall/Getty Images

• Saves effort in packing

• Saves effort in delivery

SERVICES

• No Shipping Problems

• Examples

– Travel websites – Banking

– Newspapers Janis Christie/Getty Images

Resources Needed to Compete Effectively in Internet Retailing

• 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

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

Resources Possessed by Different

Firm Types

E Only Catalog Store-Based Manufacturers

Website Systems Excellent Poor Poor Poor

Retailing Skills Poor Good/Excel Excellent Poor

Fulfillment Poor Excellent Poor Poor

Brand Reputation Poor Good/Excel Excellent Good/Excel

Assortments Good Good/Excel Excellent Poor

Customer Data Poor Excellent Good/Excel Poor

Why did Electronic-only Retailers Fail?

recognition

necessary to build consumer

trust

assortments, manage inventory

and fulfill small orders to homes

Digital Vision/Getty Images

They had skills in web design

They had skills in systems to manage transactions

Resources Possessed by Different

Firm Types

E Only Catalog Store-Based Manufacturers

Website Systems Excellent Poor Poor Poor

Retailing Skills Poor Good/Excel Excellent Poor

Fulfillment Poor Excellent Poor Poor

Brand Reputation Poor Good/Excel Excellent Good/Excel

Assortments Good Good/Excel Excellent Poor

Customer Data Poor Excellent Good/Excel Poor

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

Resources Possessed by Different

Firm Types

E Only Catalog Store-Based Manufacturers

Website Systems Excellent Poor Poor Poor

Retailing Skills Poor Good/Excel Excellent Poor

Fulfillment Poor Excellent Poor Poor

Brand Reputation Poor Good/Excel Excellent Good/Excel

Assortments Good Good/Excel Excellent Poor

Customer Data Poor Excellent Good/Excel Poor

Why did Walgreens Beat Out The

Electronic Drugstore Chains?

• 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

E Only Catalog Store-Based Manufacturers

Website Systems Excellent Poor Poor Poor

Retailing Skills Poor Good/Excel Excellent Poor

Fulfillment Poor Excellent Poor Poor

Brand Reputation Poor Good/Excel Excellent Good/Excel

Assortments Good Good/Excel Excellent Poor

Customer Data Poor Excellent Good/Excel Poor

Collect and Use Information about Customers

Widespread Disintermediation Unlikely

Ecommerce Myths

• Low Cost of Entry

• Overestimate Importance of

Technology, Under Estimated Need

for Traditional Resources

• First Mover Wins

• Gets Rid of the Middleman

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

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

Percentage of Cross Channel Shoppers

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

Capabilities for Multi-Channel Retailing

Multi-channel Services and Features

Issues Confronting a Multi-Channel Retailer

• Maintaining Brand Image Across

Shopping in the Future

• Customer Service

• Needs and preferences

• One to One Marketing

• Synchronized &

consistent service regardless

of channel