Conventional wisdom regarding multichannel customers has been off target.
Posted Sep 8, 2004
Multichannel customers in the retail sector are significantly more profitable than single-channel ones, according to a new Aberdeen Group survey.
The report, "Multichannel Retailers Must Integrate Their Enterprises," claims that the conventional wisdom regarding multichannel customers has been off target: Competitive pricing, the old theory went, meant that online consumers were less profitable, and should be avoided. But rather than shunning online consumers, retailers have flourished by including them in a clicks-and-mortar-and-mailing mesh of channels. In fact, 60 percent of retailers see more profit from multichannel customers than from their single-channel counterparts. And the difference is significant: on average, those multichannel customers are 20 to 25 percent more profitable, according to Paula Rosenblum, director of retail research at Aberdeen Group and coauthor of the report.
According to Rosenblum, multichannel retailing has simply become a fact of life over the past decade. "Only 9 percent of the companies we surveyed sell through a single channel," she says, adding that Internet sales are going up at a compound rate of 35 percent a year.
Rosenblum says the survey revealed a troubling lack of self-awareness in the retail sector, with 28 percent of respondents claiming they didn't even know which kind of customer was more profitable. But the ignorance is no surprise, Rosenblum says. "With retail in particular, things that you think they've overcome, they haven't overcome."
"All the data we have says that the multichannel customer is more profitable," Rosenblum says. And although it doesn't matter which the dominant channel is, "the phenomenon of 'order online and pick up in the store' appears to be the most profitable," she says.
The multichannel customer is simply less focused on the price tag, Rosenblum says. "Retailers have gotten themselves in an awfully bad situation driving everything around price, but the multichannel shopper isn't as price-sensitive.... This whole price-sensitivity thing is a trained behavior--and the multichannel customer is getting untrained, because it's tiring. This is solely about convenience." Competing solely on price, she says, is "tired": Consumers just want to get a good deal, and aren't bothered by minuscule differences.
That makes customer service the main differentiator in multichannel operations, Rosenblum says. "The multichannel customer wants convenience. They want to get it where they want to get it, and they want to return it where they want to return it--and they don't care about your separated systems. Everything is fungible at this point. What [retailers] have to do is start being brand managers and not channel managers. The challenge is organizational."
Maintaining that convenience for the customer requires efficiency in the enterprise, and companies serving multichannel customers have hurdles to overcome, according to Aberdeen. Their top challenge, the report finds, is the need to better integrate order and inventory management processes. Once retailers can nail that part of the equation the rest will fall into place, Rosenblum says: Multichannel customers "aren't tolerant of mistakes, [and] they're discriminating--they're not particularly loyal, but if you provide it to them, they'll take the path of least resistance."
Chris Selland, Aberdeen's vice president of sell-side research and the report's other coauthor, adds that "best-in-class retailers are moving beyond [multichannel marketing] to multichannel fulfillment. This is a key competitive differentiator: The companies that do not just market to customers, but fulfill demand and provide postsales service--when, where, and how the customer demands it--will be those that excel."
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