Chapter 3: Multichannel Retailing

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Chapter 3 Multichannel Retailing

• HDCS 3303 Section 12711 Introduction to
  MerchandisingEvangeline Caridas

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I. Non-store Versus Store-based Retailers

• While only 10 of retail sales are made through
  non-store channels, sales in non-store formats
  are growing faster than store sales.
• Non-store retailing is a form of retailing in
  which sales are made to consumers without using
  stores.

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I. Non-store Versus Store-based Retailers

• The various types of non-store retailers are
  defined in terms of the medium they are using to
  communicate with customers
• Electronic retailers use an interactive computer
  or computer-like interface to communicate with
  customers.
• Catalog and direct mail retailers communicate
  using printed material.
• Direct selling retailers communicate with
  customers through a personal, face-to-face
  contact by a salesperson.
• TV home shopping retailers use television.
• Vending machine retailers have limited
  communications through the display of
  the merchandise in the machine.

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I. Non-store Versus Store-based Retailers

• The nature of the communications between the
  retailer and its customers differs for the
  various non-store retailing formats. The
  communications in direct selling are highly
  interactive. Electronic retailing has the
  potential for providing this same high level
  of interactivity. On the other hand,
  the communications in TV home
  shopping, vending machine, and catalog
  retailing are not very interactive.

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I. Non-store Versus Store-based Retailers

• Most non-store retailers offer consumers the
  convenience of selecting and purchasing
  merchandise at a time and location of their
  choosing.
• While non-store retailing provides unique
  convenience benefits over in-store retailing,
  frequently consumers are not able to get some
  important services provided by store-based
  retailers including that they cannot touch and
  feel the merchandise, try it on, attend sessions
  on how to use it, or have it altered prior to
  purchase.

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II. Electronic Retailing

• Electronic retailing is a retail format in
  which the retailer and customer
  communicate with each other through an
  interactive electronic network.
• After an electronic dialog between the retailer
  and customer, the customer can order merchandise
  directly through the interactive network or by
  telephone and the merchandise is typically
  delivered to the customers home.
• The bandwidth of the Internet connection into
  most household limits the interactivity and
  amount and quality of information that can be
  presented. Experts predict that a large of
  households will have broadband services by 2003.
  Thus, over the next few years, the quantity and
  quality of information you will get from
  electronic retailers will improve dramatically.

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II. Electronic Retailing

• A. Factors Affecting the Growth of Electronic
  Retailing
• Electronic retailing is less than 1 of retail
  sales in the U.S. and even less in Europe and
  Asia. However, the annual growth of U.S.
  electronic retail sales is over 100. If this
  growth rate continues, electronic retailing will
  have a major impact on the retail industry
  significantly decreasing retail sales in stores.
• Three critical factors affecting the adoption of
  a new innovation such as shopping electronically
  are
• 1. The environment where customers can try the
  innovation
• 2. The perceived risks in adopting the innovation
• 3. The benefits offered by innovation compared to
  the present alternatives.

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II. Electronic Retailing (Cont.)

• 1. Trying Out Electronic Shopping
• To experience electronic shopping, consumers need
  to have access to the Internet through a
  computer. In 1999, over 180 million people
  around the world had access to the Internet with
  a majority living in North America.
• Women now comprise slightly less than half of
  Internet users, which is important for the
  electronic retailer because women do most of the
  shopping.
• The substantial Internet usage by Generation Y
  suggest a bright future for electronic shopping
  retailing.

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II. Electronic Retailing (Cont.)

• 1. Trying Out Electronic Shopping (Cont.)
• The US, adults over 50 years old are the fastest
  growing market going online, now comprising 20
  of the Internet users. Older people tend to buy
  more merchandise and services on-line because
  shopping in stores is more difficult for them.
• Internet usage and electronic shopping in Europe
  is much less than in the US, due in part to
  higher telephone charges while on the Internet,
  and unreliable postal service, tax differences,
  and credit card security fears. In addition,
  Europeans tend to see shopping as a social
  activity.

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II. Electronic Retailing (Cont.)

• 2. Perceived Risks in Electronic Retailing
• A critical concern of consumers is that
  credit card transactions are not secure when
  shopping on the Internet.
• A perception of risk is diminishing as
  credit card companies promote the use of
  their cards on the Internet and inform
  customers that the customers will not be
  responsible for security lapses.

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II. Electronic Retailing (Cont.)

• Issues about Shopping on the Internet
• 1. Entertainment and Social Experiences
• 2. Safety
• 3. Ordering and Getting Merchandise
• 4. Number of Alternative
• 5. Assistance in Screening Alternatives
• 6. Providing Information to Evaluate Merchandise
• 7. Cost of Merchandise
• Electronic retailing sales will grow only if the
  format offers consumers advantages over the
  existing retail formats.

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II. Electronic Retailing (Cont.)

• 1. Entertainment and Social Experiences
• In-store shopping can be a stimulating experience
  for some people, providing a break in their daily
  routine and enabling consumers to interact with
  friends.
• All non-store retail formats are limited in the
  degree to which they can satisfy these
  entertainment and social needs.

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II. Electronic Retailing (Cont.)

• 2. Safety
• Non-store retail formats have an advantage over
  store-based retailers by enabling customers to
  review merchandise and place orders from a safe
  environment-their homes

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II. Electronic Retailing (Cont.)

• 3. Ordering and Getting Merchandise
• Electronic retailing, like most non-store retail
  formats, enables consumer to order merchandise
  from any location at any time of the day.
  However, consumers usually have to wait several
  days to get the merchandise. Thus, all non-store
  retailers suffer in comparison to stores on this
  dimension.
• The importance of getting merchandise immediately
  to customers depends on the type of buying
  situation and merchandise.

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II. Electronic Retailing (Cont.)

• 4. Number of Alternative
• A person living in Columbus, Ohio can shop
  electronically at Harold's in London in less time
  that it takes to visit the local supermarket.
• Having a lot more alternatives to consider might
  not be that much of a benefit. While it is easy
  to go from one web sight to another, finding what
  you want is not so easy because each
  web site has a different interface which
  customers have to learn to get the
  information they want.

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II. Electronic Retailing (Cont.)

• 5. Assistance in Screening Alternatives
• Another potential, more significant, benefit of
  electronic retailing, is the ability to have a
  FRED search through a wide range of alternatives
  and select a small group for the customer to look
  at in more detail.
• FRED is called an intelligent agent. An
  intelligent agent is a computer program that
  locates and selects alternatives based on some
  predetermined characteristics. Shopping Bots or
  search engines are computer programs
  that simply search for and provide a
  listing of all Internet sites
  selling a product category.

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II. Electronic Retailing (Cont.)

• 6. Providing Information to Evaluate Merchandise
• Retailers vary in the sheer amount of information
  provided about the merchandise they offer.
  Store-based retailers also are different in the
  information they make available to consumers.
• Specialty and department stores typically have
  trained and knowledgeable sales associates, while
  many discount stores do not.
• Electronic retailers have greater
  opportunities to provide information to
  their customers than specialty and
  department store retailers.

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II. Electronic Retailing (Cont.)

• 6. Providing Information to Evaluate Merchandise
  (Cont.)
• Using and interactive electronic communication
  channel, retailers can respond to the customer
  inquiries just like a sales associate would.
• If information provided by the electronic
  database can be frequently updated and will
  always be available, consumers have advantages
  while store-based retailers have a very difficult
  time retaining knowledgeable sales associates,
  and in many cases it is not cost-effective for
  them to do so.
• Electronic retailers can easily provide
  information to have side-by-side
  comparisons of alternatives. Customers in
  stores usually have to inspect
  each brand, one at a time, and then remember
  different attributes to make a comparison.

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II. Electronic Retailing (Cont.)

• 7. Cost of Merchandise
• Some experts suggest that electronic retailers
  will have much lower costs than in-store
  retailers because electronic retailers do not
  have to spend money building and operating stores
  at convenient locations.
• However, electronic retailers, or their
  customers, will have higher costs of delivering
  small quantities of merchandise to homes,
  as well as dealing with the high
  level of return, and
  attracting customers to their
  websites.

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II. Electronic Retailing

• C. What Type of Merchandise Will be Sold
  Effectively by Electronic Retailers?
• In addition to the amount and presentation of
  information, retail formats also differed in the
  type of information they can present effectively.
  For instance, when purchasing apparel, some
  critical information might be look and see
  attributes like color and style, as well as
  touch and feel attributes like how the apparel
  fits.
• Based on the difficulty of providing touch and
  feel information through non-store channels, one
  might conclude that non-store retailers will not
  be able to successfully sell merchandise with
  more important touch and feel attributes like
  clothing, perfume,flowers, and food. However,
  this type of merchandise is presently sold by
  non-store retailers.

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II. Electronic Retailing

• C. What Type of Merchandise Will be Sold
  Effectively by Electronic Retailers? (Cont.)
• Branding overcomes many of the uncertainties in
  purchasing merchandise without touching and
  feeling it.
• In some situations, the electronic retailer might
  even be able to provide superior information
  compared to store retailers.
• In other situations, touch and feel information
  might be important, but the information in a
  store is not much better than the information
  provided by an electronic retailers.

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II. Electronic Retailing

• C. What Type of Merchandise Will be Sold
• Effectively by Electronic Retailers? (Cont.)
• Some services retailers have been very successful
  over the Internet, because their look and see
  offering can be presented very effectively over
  the Internet.
• The critical issue determining what types of
  merchandise can be sold successfully by
  electronic retailers is whether the electronic
  retailer can provide enough information
  appropriate to the purchase to make sure
  customers will be satisfied with the merchandise
  once they get it.

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II. Electronic Retailing (Cont.)

• D. Will Electronic Retailing Lead to More Price
  Competition?
• With electronic retailing, consumers can search
  for merchandise across the Internet at a low
  cost. The number of stores that a consumer can
  visit and compare prices is not limited by
  physical distance.
• To limit price comparisons, presently HIS
  retailers make it difficult for customers to go
  from one Internet site to another.
• In addition, Internet retailers electronically
  prevent search agents like FRED from accessing
  their sites and collecting information about the
  products sold at the site.

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II. Electronic Retailing (Cont.)

• D. Will Electronic Retailing lead to More price
  Competition? (Cont.)
• Thus by making these comparison difficult,
  electronic retailers are limiting attractiveness
  and growth of the format. However, consumers
  eventually will insist on making these
  comparisons and will reward electronic retailers
  that offer this service by going to their sites.
• While consumer shopping electronically can
  collect price information with little effort,
  they can also get a lot of other information
  about the quality and performance of products at
  a low cost.

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II. Electronic Retailing (Cont.)

• E. Keys to Success in Electronic Retailing
• Some critical resources needed to successfully
  sell merchandise electronically are (1) strong
  brand name and image, (2) customer information,
  (3) complementary merchandise and services, (4)
  unique merchandise, (5) the ability to
  effectively present information on the web pages,
  and (6) a distribution system to efficiently ship
  merchandise to homes and receive returns.

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II. Electronic Retailing (Cont.)

• F. Potential Winners and Losers in Electronic
  Retailing
• F1. Catalog Retailers
• Catalog retailers are best positioned to exploit
  electronic retailing. They have order fulfillment
  systems, and database management skills needed
  for effective electronic retailing. Also, the
  visual merchandising skills necessary for
  preparing catalogs are similar to those in
  setting up an effective website.
• Catalog retailers vary in the uniqueness of their
  merchandise and will need to develop this area.

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II. Electronic Retailing (Cont.)

• F2. Store-based Retailers
• The Internet provides an attractive opportunity
  for store-based retailers to expand their
  customer base with relatively low cost and risk.
• Electronic retailing is particularly attractive
  to firms with strong brand names but limited
  locations and distribution.
• On the other hand, some store-based retailers
  with extensive market coverage are cautious about
  selling merchandise over the Internet because
  they believe their electronic offering might
  cannibalize there in-store sales.
• Self-service, store-based retailers such as some
  category specialists and general merchandise
  discount stores compete primarily on price and
  depth and breadth of assortments. These retailers
  are particularly vulnerable to competition from
  electronic retailers.

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II. Electronic Retailing (Cont.)

• F3. Electronic-Only Retailers
• While electronic-only retailers such as
  Amazon.com have been highly valued by investors,
  they presently do not possess some of the
  resources needed for long-term success.
• If and when major retailers decide to exploit the
  electronic retailing channel, store-based
  retailers have some significant resources that
  can be used to compete effectively in the
  emerging channel. Resources include strong brand
  names and reputation, relationships with vendors,
  skills in editing assortment, and local stores
  for displaying merchandise and providing
  information and services.

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II. Electronic Retailing (Cont.)

• F4. Manufacturers and Disintermediation
• Disintermediation is when a manufacturer sells
  directly to consumer by passing retailers. This
  concern arises because manufacturers can get
  direct access to consumers by establishing a
  retail site on the Internet without making the
  heavy investment that retailers have made in
  store locations.
• But retailers are more efficient in dealing with
  customers directly than manufacturers. They have
  considerable more experience than manufacturers
  in (1) distributing merchandise directly to
  customers, (2) providing assortments, and (3)
  collecting and using information about customers.

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III. Catalog and Direct Mail Retailing

• Catalog retailing is a non-store retail format in
  which the retail offering is communicated to a
  customer through a catalog, while direct mail
  retailers communicate with their customers using
  letters and brochures.
• Historically, catalog and direct mail retailing
  was most successful with rural consumers, who
  lacked ready access to retail stores. With the
  rise of dual-income families and other people
  with limited time for shopping in stores, catalog
  retailing has grown in popularity and now appeals
  to a broad cross section of consumers.
• Some merchandise categories experiencing higher
  than average growth include apparel, hosiery,
  computer hardware and software, gifts, and
  pharmaceuticals and vitamins. Cosmetics, books
  food, etc. had lower, than average growth.

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III. Catalog and Direct Mail Retailing (Cont.)

• A. Types of Catalog and Direct Mail Retailers
• Two types of firms sell products through the mail
  (1) general merchandise and specialty catalog
  retailers and (2) direct mail retailers.
• 1. General merchandise catalog retailers offer
  a broader variety of merchandise in catalogs
  that are periodically mailed to their customers,
• 2. Specialty catalog retailers focus on
  specific categories of merchandise.

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III. Catalog and Direct Mail Retailing (Cont.)

• A. Types of Catalog and Direct Mail Retailers
  (Cont.)
• Direct mail retailers typically mail brochures
  and pamphlets to sell a specified product or
  service to customers at one point in time.
• In addition to the focus on a specific product
  or service, most direct mail retailers are
  primarily interested in making a single sale
  from a specific mailing, while catalog retailers
  typically maintain relationships with customers
  over time.
• About two-thirds of the sales are for
  merchandise and one-third are for services.

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III. Catalog and Direct Mail Retailing (Cont.)

• B. Issues in Catalog Retailing
• Direct mail and catalog retailing are attractive
  business opportunities because the start-up costs
  are relatively low.
• On the other hand, mailing and printing costs of
  catalogs are high, and it is increasingly hard to
  capture consumers attention as the receive more
  catalogs each year.
• The length of time required to design, develop,
  and distribute catalogs makes it difficult for
  catalog and direct-mail retailers to respond
  quickly to new trends and fashions.

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IV. Other Methods

• Direct selling is a retail format in which a
  salesperson, frequently an independent
  distributor, contacts a customer directly in a
  convenient location, either at the customers
  home or work, and demonstrates merchandise
  benefits, takes an order, and delivers the
  merchandise to the customer. Special types of
  direct selling include party plan systems and
  multilevel networks.

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IV. Other Methods (Cont.)

• Television home shopping is a retail format in
  which customers watch a TV program demonstrating
  merchandise and then place orders for the
  merchandise by telephone. The 3 forms of TV
  shopping are (1) cable channels dedicated to home
  shopping, (2) infomercials, and (3)direct
  response advertising shows on broadcast and cable
  TV.

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IV. Other Methods (Cont.)

• Vending Machine retailing is a non-store format
  in which merchandise or services are stored in a
  machine and dispensed to customs when they
  deposit cash or use a credit card. Technological
  developments in the design of vending machines
  may result in long-terms sales growth. New video
  kiosk vending machines enable consumers to see
  the merchandise in use and have more information
  about the merchandise and use their credit cards
  to make a purchase.