Kirthi Kalyanam on Multi-Channel Retail Strategies

Multi-Channel Retail Strategies
Kirthi Kalyanam, J.C. Penney Research Professor, Leavey School of Business, Santa Clara University
March 26, 2004
Summary: Hands-on talk with a stage framework of multi-channel sophistication and good case examples. Key message was that you need not only to have an integrated multi-channel strategy, but move on to leverage one channel to another and then onto optimizing the two channels together. Very well received.


Everyone is now online and call themselves a multichannel retailer – but you need to do more than that.
Kirthi proposes a three-stage model:
– stage 0: Establishing online presence
– stage 1: Strategic alignment, excellence and integration
– stage 2: leverage across channels
– stage 3: optimize across channels
Difference between optimization and leveraging across channels – leveraging is using one to help the other, optimization means also transferring or changing assigned resources.
Web stores are trying to model a customer flow and building a web site to take people through that process: They want to locate products; get more information about them; evaluate with other products (using features like comparison matrixes (particularly electronic stores) and shop assistants (searches and modellers); place the order (Wish lists, shopping basket, shipping options & costs, checkout., one-click ordering; Recieve post purchase notification (order confirmation, delivery schedule, shipping notification); make returns (return by mail, in-store returns).
Two distinctly different customer behaviors: “Surgical shopping” (with search, know what they want), and browsing.
Good examples:
– Search: petco.com, a pet food site. Good search results has picture of product, different varieties with prices, one-click ordering. “Show me other brands” functionality. Also good at understanding common misspellings.
– Search: Macy’s: Search for “wine glasses“, excellent return of results, nicely laid out.
– Navigation: KayBee toys, a toy retailer (now apparently in Chapter 11, thanks to Walmart’s loss-leading strategy for toys) had good navigation with multiple entry points – dollar amount brackets, age brackets, gender, toy categories.
Search technology must handle keywords and misspellings, display results cleanly with visuals, make it easy to purchase, make it easy to expand, restrict or modify search.
Navigation must be consistent, provide multiple entry points, use customer scenarios.
Very rapid imitation in the retail industry, especially online. People are understanding how to create good web sites, so most of them will get it very fast – and the proof of that is in the increased customer satisfaction figures we are beginning to see.
Virtual models (software by a company called myvirtualmodel.com), allows you to enter your dimensions and features and create a model of yourself. Can then do “shop assistant”, search for “all clothes in blue that would fit me”.
Comparison matrix; used by many electronics merchants, shop products next to each other. Jim Bettman from Duke has a book on how people process information, lots of research on this.
Product comparison matrix vs. shopping assistant? Shopping assistant better because it helps in the early phases, when people get overwhelmed.
Good examples of shopping assistants: Lands’ End, but look also at activedecisions.com.
Many ways to do it channel leverage and optimization, among them: scale (most companies do this, Gap has lower COGS than Lands’ End), product testing, store allocation, kiosks, track lost sales and substitutions, clearance, stock out, new locations, gift registry, store traffic, new customers.
Three case studies of multi-channel evolution:
Case 1: Reinforcing merchandising authority
Multi-billion consumer electronics retailer, primarily store based, but added a web channel. Retail strategy levers are broad assortment – but this is really having the right, rather than the broad mix. They have customer self-help and very complex promotional pricing, with bundles and financing. This retailer had evolved from a simple web site, expanding online assortment with all channels at same promotions activity, moving towards order on line with pick up at the store, an online research center, now moving into online product testing.
Case 2: 2 billion Tri-Channel housewares retailer, high end merchandise, high involvement shoppers (devoted cooks), dual channel strategy expanded into the Internet. Didn’t believe online would work, but started with gift registry. When that worked, problem came because they were organized by channel rather than brand. Shifted to a brand centric organization structure. Extended the assortment online, seasonal assortment in the catalogues. The catalog drives store and web traffic, using measurable, repeatable process. Minimal advertising costs.
To get from leverage to optimization, you have to have measurements and a repeated decision cycle – making the decision to advertise through the catalog vs. regular advertising requires measures of whether it is working or not. Saves this company about 6% of sales.
Case 3: Saving the Sale
Specialty retailer, less than 1B, sells outfits for children, have to be displayed completely, highly involved target customer, very emotional and high involvement purchase. Focused on email notifications of new products. Moved to leverage by “Save the Sale” strategy, Shrink shop size by having a “look book” with the full assortment, web based POS system, associate training.

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