Retail's Two Worlds: Tips on Integrating Online and Offline Channels
When Kristen Sontos and her fiance began searching Wal-Mart's Web site, they were unaware that the entertainment system they chose couldn't be purchased in the store. The retailing giant failed to notify them of this on the Web. Kristen wanted to purchase the item in the store to avoid the $50 shipping charges. One hour and five dollars' worth of gas later, the third Wal-Mart they visited finally informed them that entertainment systems aren't carried in the store. "It was frustrating," she says. "We wasted a lot of time and ended up paying the shipping charges anyway. The dagger in the back was, when they finally shipped it to us, we were away on vacation. We ended up getting it a few weeks later."
Kristen's example highlights the reality many retailers are now facing in the Internet-shopping world. The emergence of online shopping is forcing companies to reconsider the business practices and technology they use to manage customer experience in the store and on the Web. More important, it's forcing retailers to think of them as one. "Integrating online and offline channels is something that's very much on the minds of retailers, and [is] forcing them to understand how to manage relationships across multiple channels, thanks to the emergence of the online shopper," says Mark Rein, senior manager at CapGemini. "From a CRM perspective, they need to understand who their customers are, understand their behavior, and execute seamlessly across those channels."
Currently, there are three main channels through which a customer can purchase an item: in the store, through a catalog, or via a Web site. Of these, online retailing is without question the fastest growing method. According to Forrester Research, online retail sales are expected to increase from $172 billion in 2005 to $329 billion in 2010, a 14 percent compound annual growth rate over the next five years. In addition, the average Web buyer earns more (with a household income of roughly $68,000 versus $52,000 for all consumers), is more likely to have a college degree, and is more likely to have purchased an item in the past three months across all product categories, according to Forrester. "As online retail continues into its second decade, business strategies that were once perceived as too complicated to integrate successfully, like CRM programs and multichannel integration, are now becoming commonplace," says Sucharita Mulpuru, senior analyst at Forrester. "E-commerce retailers are up and running. Now, it's a matter of honing and refining a lot of what they already know."
Ironing Out the Wrinkles
Retailers face a multitude of problems when it comes to integrating their online and offline channels. Of those problems, matching the prices and products found on their Web site to those found in the store has been a dilemma since the birth of online shopping. Nothing frustrates a consumer more than not finding the same DVD player in the store that he found online, or finding it at a different price. The reason for this is market pressure. Retailers compete regionally and nationally on prices and products. They must cater to regional consumers' wants--people in Washington don't purchase the same products that people in Florida do. The advent of retail Web sites has only complicated the matter.
David Z shoe stores are only located in New York, but the company's Web site can be accessed by anyone with an Internet connection. In a nutshell, regionalized pricing and inventory management, combined with regional competitors, are the main reason consumers find different prices on a retailer's Web site than in the store.
This problem crops up more in markets where consumer purchasing is based primarily on price. Take the consumer electronics market as an example. A PlayStation is a PlayStation no matter where you purchase it, but saving $20 makes a big difference to customers. "A few years ago, Circuit City was a good example of this. They gave one price online, another price in their ad, and a different price in the store, all for the same item, without any explanation as to why," Rein says. "Simply stated, that's a great way to confuse and frustrate customers."
Remember the old days when you leafed through a clothing catalog, filled out an order form, and then mailed in a check and received the pair of pants you had ordered two weeks later? Times have changed. Catalogs have lost some ground in recent years to the Internet as the principal channel after in-store purchasing, although catalogs still serve an important function in today's retail market--consumers are using catalogs more for shopping, but less for buying. Purchasing takes place in the store or online. However, while catalogs no longer drive sales like they used to, they do drive sales in other channels. The problem is, retailers are failing to realize this. If a company is spending $100 million a year on catalogs, but direct sales into the call centers are declining at a rate of 10 to 15 percent, the immediate reaction is to cut spending on the catalog. This is a mistake, Rein says, because chances are that online sales will have increased 10 to 15 percent during the same time period. Fashion retailers deal with this issue the most, but any company that uses mail-order catalogs can encounter it. The problem is attributable to retailers failing to understand the cross-channel purchasing behaviors of consumers and an inability to track a customer's purchasing behavior after receiving a catalog. "You need to understand the timing of what catalogs you send to what customers, and how that's going to influence their purchasing habits," Rein says.
There's no doubt that price is a big motivator for multichannel shoppers. A Forrester report, "Trends 2006: Online Retail," states that 68 percent of multichannel shoppers say they buy online because the price is lower than in the store. From a competitive standpoint, retailers are now dealing with online discounters, such as pricegrabber.com and pricewatch.com, which make their money by underselling the retailers' own Web sites. Unfortunately for brick-and-mortar retailers, consumers can go to a Best Buy to try out the latest Xbox 360, or hit Macy's to look at the new spring fashion lineup from Calvin Klein, but they can purchase these items from a competing online broker at a significant discount. This discounting threat doesn't have to come from the Internet, either. Wal-Mart is notorious for engaging in competitive pricing and underselling regional merchants.
A common, and unfortunate, response to these competitors is to lower prices. "A lot of retailers are caught in the mania of '99. They feel they need to extend an offer at the drop of a hat to drive sales. Those that do are slipping through a downward spiral of decay," says Mulpuru. The question for retailers then becomes this: What value are they giving the consumer other than price? "If price isn't your differentiating value, your customers are shopping at your store or at your Web site because you're adding value to their experience [in a way] that goes beyond saving money," Rein says.
That's where integrating online and offline channels can help. From a service perspective, many retailers are only beginning to integrate their online channels with their call centers. Most retailers that have both an online retail site and a phone-based catalog have failed to, or are just beginning to, integrate the two. A consumer can spend hours surfing a company's Web site, then call the catalog phone number with a question, only to discover the catalog call center has no knowledge of the shopper's presence or activities on the Web. Nor does it have any online transaction history for the customer. The same applies to interacting with the customer service desk at the store. Almost always, the assistant behind the desk has no access to transaction history at that store or on the Web. It is primarily a technology problem. "Most retailers aren't connected from the standpoint of an integrated customer profile," says Mark Singer, a director, focusing on CRM strategies, at McKinsey & Company. "Companies that used to have strong phone channels before the Internet are pretty disconnected when it comes to integrating their online and offline channels. Here, integrating multiple channels via the customer database with a content management system is key."
What's more, retailers are finding it difficult to acquire customer information. In the old days, stores were able to capture customer data each time a consumer swiped his or her credit card. Today, for security reasons, many states are enacting laws that prevent this. As a result, retailers are being forced to rely on their Web sites. This bodes well for customers who purchase via the Web, but forgetting about in-store consumers is a problem many retailers are only beginning to cope with. "When a customer walks into the store, it's critical to connect with them other than on price alone," Rein says. "Online retailing is a great way to capture customer data, primarily because it feels more natural to give information online than it does face to face with a person. But when it comes to capturing data in the store, retailers have to work a little harder these days and be a bit more ingenious than they are online."
When Worlds Collide
Understanding how to create the best shopping experience both in the store and on the Web means understanding customers' cross-channel behaviors. Doing so lets retailers create a seamless operation of top-notch service and support across all channels. "Retailers need to understand who their customers are and how they act differently on the Web as opposed to in the store," Rein says. "They need to be able to recognize customers and the type of transactions they engage in, transactions that are based on which channel the customer is shopping in."
Generally speaking, informed customers are happy customers. Many times customers understand that retailers prefer to drive sales to the Web because it's a cheaper delivery model. So, if a customer asks a retail salesperson about product pricing or availability on the Web, be honest and make it easy for employees and customers to access this information. Again, the consumer electronics market is a good example. People don't simply purchase a computer or digital camera; they seek the highest quality at the best price. "Customers aren't stupid. If you have a sophisticated customer who understands that it's much cheaper to transact with you online than it is in the store, retailers can reward that customer with lower prices [online], but again, you must make sure that the consumer understands that," Rein says. "As long as the company does a good job of informing the customer that there are price and inventory differences between online and offline, it's fine," Rein says.
As product information should be shared across channels, so should customer information. The best way to do this is to share customer data from the Web with retail stores. Singer cites software vendors like Vignette that specialize in content management systems to accomplish this. These vendors provide out-of-the-box, role-based programs that let companies build portals to create, update, and manage customer information across multiple databases. "In many cases, you're just starting to see major retailers doing major overhauls of their Web sites that got built around the turn of the century," he says. "In these overhauls, they're integrating their customer databases via content management systems and creating more personalized Web interactions with personalization software. One reason newer retailers, such as Best Buy, have found so much success stems from the fact they realized the importance of this from the beginning. They built a six-lane highway right from the start, instead of expanding a four-lane highway years later."
Integrating online and offline channels also means integrating business operations. Progress was made in 2005 when retailers began selling and redeeming gift cards online, and giving consumers the opportunity to buy merchandise online, but pick it up in the store. In addition, many retailers are beginning to allow customers to return items they purchased on the Web in the store. Others are matching Web prices in stores, helping to overcome the quandaries of regionalized pricing. Shopper programs, such as discount cards and preferred customer cards, enable retailers to offer discounts and services that keep customers informed of discount specials or deals that can only be found in a catalog or on the Web site. These practices integrate the two channels, and have the further benefit of adding value to the shopping experience which, according to Rein, is the best way for retailers to compete with discount Web sites like pricegrabber.com. "Besides monitoring a pricegrabber.com to make sure that prices are within 2 to 3 percent of their lowest prices, retailers must identify what other value they can offer a customer based off of the types of products they sell. This can be a good return policy or the ability to try things out for the consumer electronics market or, in apparel, the ability to size and try things on, something you can't do when you purchase via the Web."
In-store shopping programs also overcome the problem of acquiring customer information when the consumer is in the store. Almost always, consumers must complete an application to enter a program. These discount cards also enable retailers to keep track of purchasing habits in the store. Many are now starting to use discount cards to record which items a person is buying when goods are scanned at checkout.
Last, retailers that have a strong understanding of cross-channel purchasing behaviors can exploit the advantages of catalogs. Last year, certain retailers began using online versions of print catalogs. It's an effective solution, but Rein says that to really gain an understanding of consumer behaviors, companies that use catalogs must track how their catalogs alter the behaviors of their customers. "Today, retailers send personalized catalogs to specific customers based off of prior purchases. If a company knows they sent catalog Y to customer Z, they can then track their purchases online and in the store using Web analytics and shopper programs. You can take that data and run it through segmentation tests, comparing purchasing data from those who received the catalog against those who did not. Only recently have we seen the really savvy retailers start to build this into their business practices."
Retailers will continue to develop the business processes associated with merging online and offline channels. New VoIP technology will enable customers to connect with a call center representative directly from the Web site. "Retailers will be able to provide links on their Web site that will connect consumers directly with CSRs with the click of a button, based off of what products they're currently viewing. But for now, merging online and offline channels is still more a business problem than it is a technological one."
THREE TIPS FOR INTEGRATION
1. Keep customers informed. Without question, the biggest problem associated with integrating online and offline retail channels is discrepancies in price and inventory between the store and Web site. Simply stated, retailers can't possibly maintain the same inventory in-store that they do on the Web. Fortunately, the answer is a simple, yet overlooked, solution. Keep the customer informed of differences between the store and the Web. Consumers are smart and will understand, not to mention appreciate, the retailer taking the time to notify them.
2. Add value. Improve the consumers' shopping experience any way possible outside of merely cutting them a good price. Friendly, easily accessible customer service, product expertise, and solid return or exchange policies across all customer channels create happy customers. Adding value to the shopping experience is one of the best ways to overcome competitors that rely solely on price.
3. Break down the silos. A staple of CRM strategy, this piece of advice also applies to integrating retail channels, though not from a technology standpoint. One of the biggest reasons retailers have struggled over the past decade to integrate is their failure to grasp the development of the multichannel consumer. Today, actions on the Web influence purchasing decisions in the store. Collect customer purchasing information in the store at checkout, on the Web, and through the catalog. Use segmentation campaigns to compare customers and gain a better understanding of how they interact with the company. Just as a goal of CRM is to gain a holistic view of the customer, a goal of any retailer should be to provide a holistic shopping experience across all channels.
--C.B.
Contact Editorial Assistant Colin Beasty at cbeasty@destinationCRM.com