The past holiday shopping season (2004) was notable for several reasons. Wal-Mart cut prices to please Wall Street, while luxury retailers like Neiman Marcus had champagne and caviar selling like hotcakes for the hoi polloi. Gift cards became all the rage, jumping 25 percent to account for $20 billion. But perhaps most important in terms of future customer strategy, overall multichannel holiday sales in November and December climbed 5.7 percent to $222.3 billion in 2004, the strongest showing since 1999, and an increase from 5.1 percent growth in 2003.
In fact, 2004 marked the first year that multichannel shoppers became a majority. According to Forrester Research, 65 percent of all shoppers now shop and browse both on- and offline. And 51 percent characterize themselves as active cross-channel shoppers. ShopLocal.com reported this past January that 83.4 million consumers made in-store purchases during the 2004 holiday season after researching that purchase online. That¹s up 20 percent over 2003.
The numbers have reached critical mass, proving that multichannel retailing has taken hold. Companies, retail and nonretail alike, now realize the need to provide consistent experiences for their customers across different channels. But that concept, to use teenage parlance, is ³so 2004.² Companies leading in multichannel customer strategy are focusing on two concepts: entanglement and migration. Integrating channels has crossed the line from an operational coordination initiative to an essential part of customer strategy‹especially necessary for measuring, growing, and retaining a company¹s most valuable customers.
³A lot of CEOs came into the office in January after their vacation and looked at their holiday results per channel, and it finally got their attention,² says Coremetrics cofounder Brett Hurt. ³They finally saw that not only were channels influencing each other, they finally saw that the online channel was throwing off revenue, but more important, it was throwing off customer data. Now they want to understand ROI across channels. Now they want to understand how their marketing efforts spur sales at different channels. Now they understand that retailing in-store is still an art, but online it¹s a science.²
Multichannel: not just for retailers
It¹s important to understand that although the concept of multichannel strategy is most obvious at retail companies, it is not limited only to retail companies. Eight of the top 10 Fortune 500 companies are retailers. However, GM and AIG (at numbers four and 10, respectively) sell services and provide critical customer information through several channels. AIG connects with its customers through brick-and-mortar offices, printed materials, a contact center, and a Web site. Pfizer, Merck, and other pharmaceutical companies don¹t sell directly to consumers, but they do provide products and information to physicians via sales reps, contact centers, email, and printed materials. However, multichannel entanglement and migration are most easily illustrated through retail examples.
On the entanglement side, retailers face a challenge that can be solved by multichannel integration. Overall retail sales numbers were impressive last year, but two sources warn of a coming crisis if companies fail to apply a more effective customer strategy across channels for the 2005 holiday season and beyond. The first warning comes from the American Consumer Satisfaction Index (ACSI). In late February it released an extremely critical report on the retail sector both online and offline. Its customer satisfaction rating dropped three percentage points from the previous year to 72.6.
³TheŠmajor cause of the plunge in customer satisfaction appears to be problems with servicing a growing volume of shoppers,² writes Claes Fornell, director of the ACSI and professor at the Stephen M. Ross School of Business at the University of Michigan, in his analysis of the retail report. ³While high levels of customer satisfaction typically lead to company growth, it is not always the case that business growth leads to satisfied customers. In many cases, the opposite is true.²
And a Forrester Research report released in early January showed that companies failed to deliver satisfactory experiences in every area from the Internet to email to cross-channel interactions to phone self-service. Only 27 of the firm¹s 300 complete customer experience reviews were deemed as satisfactory in the cross-channel category.
Building multichannel entanglement
The opportunity to attract customers across channels has been exploited, as the overall sales numbers show. The opportunity to learn about those customers and their attitudes and behaviors has yet to be exploited. Companies that take that opportunity can identify and measure their most valuable customer groups and address them with a higher level of customized treatments. The challenge then will be to retain customers attracted by multichannel efforts that have exceeded their expectations.
This can be seen at Saks Fifth Avenue. It spent ³minimal² marketing dollars launching and publicizing its Web site in 2004, according to Denise Incandela, senior vice president of Saks Fifth Avenue, but saw results that not only yielded 50 percent higher sales than expected, but also attracted thousands of new customers. Customers who shopped at both Saks.com and at a Saks store spent five times more money in 2004 than shoppers who bought from only one channel. Fifty percent of the Saks.com visitors shop in a Saks store after their online visit. Forty percent of the customers who bought from Saks.com had never purchased an item from a Saks store, and those customers were on average 10 years younger than the typical Saks in-store customer.
Incandela plans to address her fortunate entanglement challenge with two strategies. First, Saks is using the Web site to ³entangle² customers in the Saks multichannel experience by loading it with features that invite customers to provide more data about their preferences. Gift cards, email updates, product exclusives, and wedding registries are also available online. Saks will also encourage multichannel purchases through its SaksFirst loyalty program. Members get a credit card, an exclusive toll-free service number, complimentary standard shipping on Saks.com and catalog orders, invitations to exclusive in-store events, and complimentary valet parking when they visit a store.
Saks is one example of how customers are using multiple channels when they research, buy, and interact with the company after purchase. And while the short-term boost in sales is welcome, creating entanglement, as well as long-term customer retention, lies in a company¹s ability to deliver a consistent multichannel experience. A December 2004 survey by ForeSeeResults and the University of Michigan that studied thousands of shoppers highlights this.
The survey found that more than 86 percent of consumers purchased goods in-store, even though 38 percent of them researched the product online. But the survey also found clear evidence that multichannel usage increases customer satisfaction, as well as the propensity for customers to recommend the retailer to others. Multichannel shoppers who use the Internet as their primary research channel are more satisfied than those who use the store exclusively to research purchases. The overall satisfaction index for multichannel customers was 74 (out of a possible 100), and when asked if they would recommend the experience to a friend, the index hit 79. The most important elements to the multichannel experience, according to the ForeSee report, were inventory, brand image, and consistency. Price came in lower than those three elements, showing that the multichannel shopper is more interested in the overall customer experience than price.
Other ForeSee data shows that multichannel integration is essential. Multichannel shoppers scored 86 in the index when asked if they would purchase again within the next six months. Single channel, in-store only shoppers scored only 71.
³Multichannel management is a critical retention tool because consumers demand it,² says Larry Freed, president of ForeSeeResults. ³If you can drive customer satisfaction through your company¹s current channels, you can gain more information on your customers and identify the most valuable ones. It keeps you away from the more expensive customer acquisition trap. Done right, you can have more places to measure, and you can learn more about your customer¹s attitudes as well as purchase patterns.²
Retail banking is another example of where the right multichannel strategy can be a powerful tool for entangling customers. Because they have so many products, so many channels, and so much upside potential in keeping valuable customers as active as possible across those channels, retail banks have started to make strides in this area. According to a report from Keynote that surveyed 2,000 customers across America¹s top 10 banks, 56 percent of their customers value online banking and bill payment services ahead of branch locations (45 percent) or ATM convenience (52 percent). That¹s good financial news for banks because an in-bank transaction costs between $1 and $4, while an online transaction averages less than a nickel. Adding the online channel to the branch experience is also important for customer entanglement. ³Banks are starting to deliver a quality online experience for customers and, as a result, online banking adoption continues to grow, and online banking continues to become an increasingly important competitive factor for banks in attracting and keeping customers,² says Bonny Brown, Ph.D., director of research and public services for Keynote.
Celent, another leading financial service research provider, predicts that 80 percent of all major banks are planning or are currently engaged in projects that will integrate branches, online, and contact center channels for applications ranging from transaction data to compliance risk to profitability analysis.
³Banks should be looking at their channels from the customer¹s point of view,² says Celent analyst Isabella Fonseca. ³They should know which channel provides the most benefit for different types of customers. However, we are very much in the learning stages of this. There are very few banks that do this well, and very few that can predict the most valuable customers per channel. Ultimately, they will be able to do it well, and that will improve customer experience, enable a greater share of wallet, and retain the most valuable customers.²
If banks and other businesses can fulfill Fonseca¹s model of banks that can predict the most valuable customers per channel, they will approach the newest strategy in multichannel integration, and that¹s called multichannel migration.
Most companies know how much money they spend on operations, sales, and marketing on each key channel, as well as their revenue per channel. So, on a basic level they know their return per channel. But what if they could identify the most valuable customers per channel? The least valuable? The most growable? What if companies could start to define the key customer groups within each channel and what their most important needs and values are? They could then start to achieve what is truly the cutting edge of integration: multichannel migration.
Multichannel migration is the science of measuring key customer groups by channel, and then influencing them to interact with the channels that will have the best experience for them and the most profitability for your company. ³Companies need to stop trying to build loyalty by giving away their margins,² says Blue Martini president Monte Zweben. ³They have to build loyalty by moving people to the channels they value the most, and the channels they think will provide [customers] the most value.² According to Zweben, companies can use dialog marketing to do this.
Dialog marketing is a multichannel communications strategy that coordinates several consumer touchpoints. It was chosen as one of 20 ³breakthrough ideas for 2005² by Harvard Business Review. There are several ways it can work. Zweben cites a major clothing retailer that has initiated a dialog marketing loop that begins on the sales floor. At each point-of-sale station, cashiers and floor sales personnel have VIP lists with contact information about the most valuable customers for their departments, with their preferences for method of contact and preferred time to be contacted. So if the men¹s department receives a new shipment of Armani suits, for example, salespeople can contact by e-mail or phone a select group of valuable customers (in the case of this retailer, those who have purchased more than $1,200 in the department over the past three months) to come in for a private showing of the new Armani line. The information is then pushed to the call center or the Internet division to follow up. The dialog is always pushed to another step.
Coremetrics¹ Hurt looks at dialog marketing as a ³disruptive competitive advantage.² He says companies need to interrupt the customers¹ normal purchase cycles by pushing them toward information or offers at specific channels. The customer who bought a $6,000 HDTV won¹t be in the market for that item anytime soon. But by collecting data at the time of purchase, the retailer he bought it from can e-mail or phone that customer with information on new accessories for the TV that he can view online or in-store.
Best Buy has received the most exposure for multichannel migration. Some of its TV ads during the past holiday season urged last-minute shoppers to do so online, because its online channel holds more inventory than stores do. It has even opened a new channel, its ³geek squad,² which will send a team of experts to its most highly valued customers¹ home or office to troubleshoot or install electronics equipment. Sources at Staples say they will form their own version of the geek squad later this year.
One company that has traveled farther than most down the multichannel migration path is Minneapolis-based mattress retailer Select Comfort. Its net sales in 2004 increased 22 percent to $558 million, compared to $458 million in 2003, with a 16 percent increase in same-store sales. It has 370 stores, catalogs, a contact center, and a highly evolved Web site. To assess the value and needs of its customers, Select has created the equivalent of a sleep personality test. It requests that interested customers fill out more than 20 questions about their sleep habits. How much do they weigh? If they sleep with someone else, how much does their partner weigh? How long do they sleep? What side do they sleep on? Do they sleep on their shoulder? Do they toss and turn at night? This all ends up in a sleep comfort score that will help Select determine the mattress and accessories that are right for you. And then you hit a button and buy the mattress online, right? Wrong.
³This is an experiential product,² says Senior Marketing Manager Carol Ott. We want customers to come to the site and spend a lot of time on the site, but then we want them to go to a store and try the mattress out.²
Sales increase at Select when a customer is pushed from the Web site to the store. Select has been very successful at this strategy. Only 4 percent of its sales come from the online channel, according to Ott. It does not break out other sales by channel, but knows the majority are in-store. After the purchase, however, customers are pushed back online to encourage participation in Select¹s ³active owners² program. The program awards discounts if a customer refers a friend, and it feeds information via e-mail and direct mail to customers about new products and accessories in an effort to retain customers until they¹re back in the market for a new bed.
There are two keys to this kind of successful multichannel migration. The first is to dive deeply into customer data from each channel and determine customers¹ needs and values. Companies must then identify customer groups and encourage them to use what the company feels is the channel of choice, based on its needs and values analysis. For example, if a customer buys a lot of products from a sporting goods company but returns 50 percent of them, perhaps that ³heavy returner² should be encouraged to shop online. If a customer for that same sporting goods company is buying online for bulk shipments (league uniforms for example), maybe that ³bulk buyer² should receive a communication that invites him into the store for a meeting that will lock up his business for the year.
The second key is to balance the company¹s channel preferences with the customers¹ preferences. ³Some customers love the concept of guided selling,² says Blue Martini¹s Zweben. ³No matter what, you don¹t want to push them into the store, because they love the online experience. You may want that customer in the store. But they¹re happy online. Don¹t alienate them by being too aggressive about that.²
Don¹t overlook the customer experience Retaining customers and directing them to the channels that provide the most value to the company will be a competitive necessity by the coming holiday season, according to several analysts. But only the businesses that reach two important goals will be truly successful with their multichannel strategy.
The first goal is creating the ³hero² customer. This the ultimate multichannel customer who buys from a company via the Internet, contact center, and store; gives you positive feedback on products and services; and registers personal and product information online. And this is the customer who industry experts say will spend 30 percent more over the course of a year than single-channel customers. According to Forrester Research, that translates to $458 more per customer. The goal is for a company to work hard to turn all of its customers into multichannel customers.
The best way to create these ³hero² customers is by achieving goal number two: Ensuring a quality customer experience consistently across all touchpoints. Look at each touch point as a magnet for customers. If they¹re strong magnets, they will attract and hold customers. Each of them must provide a satisfactory customer experience, and the process of using several channels must also be a satisfactory customer experience. ³Above all, be consistent,² says Peppers & Rogers Group partner Bob Langer. ³Customers want to have a great experience when they need it and from wherever they need it. Coordination of all channels will not guarantee that, but without it you don¹t stand a chance.²Copyright 2005 – Carlson Marketing Group Inc. All Rights Reserved.
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