The Internet offers a powerful connection between retailers
and customers, but managing this tool among a portfolio of distribution
options demands marketing prowess and a juggler's skill
now have at their fingertips more information about products
and pricing than ever before. Web buyers are pickier and savvier,
using the Internet to research purchases before completing
them elsewhere. How are retailers to determine the best mix
of infrastructure and strategy to truly leverage the power
of the Web across all channels?
who have not addressed this question yet are late to the game.
Online commerce still accounts for less than 6 percent of
all retail sales, but as a channel the Internet clearly has
come of age. Technical advancements and the spread of high-speed
Internet service have made the Web a more comfortable place
for a growing number of shoppers. Meanwhile, e-commerce sites
have become easier to navigate, more customer-friendly and
maturation of the Internet market was apparent during the
2005 holiday season, when online purchases accounted for 27
percent of all spending, up from 22 percent the previous year
and 16 percent in 2002, according to research firm Nielsen//NetRatings.
a level of confidence that consumers have that online shopping
really does work," says Mohanbir
Sawhney, the McCormick Tribune Professor of Technology.
"We've reached critical mass. The Internet has finally
become just another way to shop."
and more, that evolution is being led by classic brick-and-mortar
retailers that have awakened to the Internet's potential as
a sales channel. Amazon and eBay, two sites synonymous with
online retailing, still dominated Internet sales during the
holidays. But the fastest-growing sites were traditional merchants
that have leveraged the power of multichannel marketing, offering
customers more than one way to buy a product or service while
expanding their opportunities to interact with that customer.
was the third-most popular site during the holiday season,
with Target, Best Buy and Circuit City close behind. Other
traditional retailers, including Neiman Marcus and L.L. Bean,
said that for the first time their Internet sales outpaced
telephone orders from their popular and well-established catalogs.
you're any company that's worth its salt, there's absolutely
no way you can avoid the Internet," says Louis
Stern, the John D. Gray Distinguished Professor Emeritus
of Marketing. "You're going to use it either as a primary
channel or as a complementary channel, because that's what
your competitors are doing."
sites have been refined to the point that shoppers can place
orders with a single click, rate and recommend items, and
chat with customer service representatives. Customers are
getting ever closer to experiencing the merchandise, browsing
the contents of books and compact discs or "trying on"
apparel in online dressing rooms. Shipping has become less
expensive and delivery more reliable.
maturation of the Internet, which is in part also the story
of widespread broadband adoption, has opened up a world of
opportunity to traditional retailers, allowing them to reach
customers who might not browse their stores or catalogs. Such
shoppers may well be drawn to a Web site that will enable
them to find what they're looking for quickly.
multichannel trend has worked the other way, too, leading
a number of catalog and Internet retailers to open traditional
stores to capture customers still more comfortable shopping
the old-fashioned way. Catalog retailer Coldwater Creek, for
example, had no brick-and-mortar stores as recently as eight
years ago. Now, the women's apparel merchant counts more than
150 shops across the country. "You need to interact with
the customer in a way that's convenient for them," says
Anderson, associate professor of marketing. "If you're
customer-centric, multichannel is the way to go."
are also exploiting the multichannel environment, using the
Internet to bargain-hunt and research merchandise before heading
into a traditional store to buy an item. Such behavior has
blurred the distinction between channels, Sawhney notes, adding
that firms must think about serving their customers in a more
don't think there's a hard and fast dichotomy between brick-and-mortar
and online retailers," Sawhney says. "Think about
the last time you made a significant purchase. You might locate
it online, find a couple of reviews and some information on
the price, and then go into a store to buy it. Was that an
online or offline purchase?
brick-and-mortar retailer has to open another front online,"
he concludes. "They have to use the store to complement
the online experience and vice versa." This will be easier
in some categories than in others, Sawhney admits; apparel
makers will always face more of a challenge marketing their
wares online than, say, book or music sellers, who can enable
customers to sample their products via downloads from the
virtually all traditional retailers have a point of presence
they can leverage in ways that purely online stores can't,
Sawhney concludes. He cites Circuit City's offer to customers
to buy an item online and pick it up at their store within
24 minutes, "guaranteed."
a good, synergistic use of the Web site," Sawhney says.
"You can't do that if you're only an online store."
the opportunity presented by the Internet channel is abundant,
so are the potential pitfalls. It can be difficult, for example,
for merchants to find a cost-effective balance between their
Internet sites, catalogs and traditional stores. Anderson
notes that while catalog orders can be more costly for a company
to process than those placed over the Internet, return rates
tend to be lower. Reducing the returns of orders placed online remains an ongoing
challenge for retailers, but one worth surmounting, because,
as Anderson says, "once you get people to order over
the Internet, they tend to stay on the Internet."
even bigger issue for multichannel retailers is pricing. The
Internet has introduced a degree of transparency that would
have been unimaginable a decade ago, catching retailers —
and customers — by surprise.
people weren't aware that firms price according to local conditions
until the Internet came along," Anderson says. "They'd
go into a store in one area and see something on sale for
one price, and then go online and see it for another price.
The Web made it salient that prices weren't the same."
retailers have responded by setting the same price across
the board. Others have established the Internet price as the
lowest price, but as Stern says, "that puts one channel
in competition with another channel. If they displace each
other, or customers start saying one of your channels is acting
at cross-purposes to other channels, then you've created a
monster. You've got to keep your channels from stepping on
each other's toes or confusing the customer."
can prevent that by ensuring that each channel delivers the
service outputs for which it is best suited, Stern says. For
the Internet, those would be convenience, ease of use and
access to information.
For all the effort and expense involved in developing
the Internet as a retail channel, the impact it will have
on the bottom line for traditional retailers remains unclear.
believe that multichannel buyers are typically better customers,"
Anderson says. "It is true that customers who buy from
multiple channels will spend more money than customers who
buy from just one. For example, Saks claims that multichannel
buyers spend five times more than single-channel buyers.
if you're a firm that is investing in multiple channels, that
doesn't mean you're necessarily going to increase what your
customers spend on you," Anderson adds. "You're simply creating more options for purchasing. Your
best customers will tend to shop across all your channels,
but this does not imply that offering multiple channels causes
customers to spend more at your company."
so, traditional firms are well advised to make their online
channel the best it can be. The Internet has become the channel
of choice for many customers, and firms without an online
presence risk losing sales to competitors, Anderson says.
"online channels are not just about purchasing; they
are also about providing information," Anderson adds,
citing findings that eight out of 10 consumers have searched
online for an automobile before arriving at a dealer showroom.
exposure emphasizes the need for traditional retailers to
strengthen their Web presence even if such investments do
not instantly translate to the bottom line.
brick-and-mortar retailer has to be a clicks-and-mortar retailer,"
Sawhney says. "They have to give the online channel the
attention it deserves."