Multi Channel Strategies: Exploring Diversity in Multi Channel Retailing. Stefan Klein Claas Müller-Lankenau Kai Wehmeyer Dieter Kerkfeld

Transcription

1 Wi irtsch haftsi inform matik Multi Channel Strategies: Exploring Diversity in Multi Channel Retailing Stefan Klein Claas Müller-Lankenau Kai Wehmeyer Dieter Kerkfeld

2 51_MultiChannelStrategy 2

3 Outline A. Introduction B. Multi Channel Strategies in Grocery Retailing C. Multi Channel Strategies in Consumer Electronics Retailing D. Conclusions and Outlook 51_MultiChannelStrategy 3

4 The Promises of Multi Channel Integration Retailers combine online and offline marketing channels in order to offer hybrid customer interfaces. It is claimed that multi channel retailing is especially promising if online and offline channel integration is extensive (i.e. extended value proposition and transactional integration). Online Channel Information Negotiation Fulfillment After-Sales Offline Channel Information Negotiation Fulfillment After-Sales 51_MultiChannelStrategy 4

5 The Promises of Multi Channel Integration Multi channel customers are two to four times as profitable as and more loyal than single channel customers (OC&C Strategy Consultants) An analysis [ ] of customer spend by channels shows that a well executed multi channel strategy is exponential, not additive (Doubleclick 2004) 51_MultiChannelStrategy 5

6 The Reality of Multi Channel Retailing The missing (or broken) link (Steinfield et al. 2002) Analysis of 985 Web sites of U.S. based retail firms Full transactions could only be completed online in one third of the sampled firms Return items purchased online to retail outlets: 8% Allow online order to be picked up in retail outlets: 6% E-Business (European Commission 2004) Survey of 504 retail companies in the EU in 2003 Only 8% of the companies in the sample are selling online 51_MultiChannelStrategy 6

7 The Reality of Multi Channel Retailing There is no intuitive reason why the Internet, or any service based thereon, will in and on itself cause consumers to spend more. (Peterson, Balasubramanian, Bronnenberg, 1997) Instead of focusing on an either-or-choice [ ] executives should be asking, What degree of integration makes sense for our company? (Gulati, Garino, 2000) 51_MultiChannelStrategy 7

8 The Multi Channel Strategy Gap There seems to be a gap between the recommendations in favour of apparently beneficial i multi channel integration and the actual multi channel strategies followed by multi channel retailers. Despite potential benefits, extensive multi channel integration is not the dominant strategy followed by click & mortar retailers. Multi channel retailers seem to follow diverse strategies regarding the degree of integration and the different roles of channels. 51_MultiChannelStrategy 8

9 The Research Approach Our study aims to develop a better understanding and explanation of diversity in multi channel strategies. We capture and analyze the diversity of approaches of traditional retailers in combining i physical and virtual channels and explore the contingency factors which might explain the diversity in multi channel strategies. We studied two industries with fundamentally different product characteristics: the grocery retail industry and the consumer electronics retail industry. 51_MultiChannelStrategy 9

10 A. Introduction B. Multi Channel Strategies in Grocery Retailing C. Multi Channel Strategies in Consumer Electronics Retailing D. Conclusions and Outlook 51_MultiChannelStrategy 10

11 Grocery Retailing and the Internet Groceries are low outlay, in many cases perishable, frequently purchased, tangible products. Distribution costs for home delivery are relatively high compared to purchase volume and profit margin. Many online-onlyonly retailers have gone out of business. Internet-induced change in the grocery retail industry has remained far below expectations. Predictions and estimates for online grocery sales: 1998: $34 billion by 2003 (Paler et al., 2000) More recent estimates: total sales of up to $3.5 billion in 2003 None of the retail chains expects the share of online sales to exceed 5% of total sales in the long run. (Lee, 2003) Considering the failure of pure Internet grocers, multi channel strategies seem to be a promising approach to selling groceries over the Internet. 51_MultiChannelStrategy 11

12 Classification of Multi Channel Strategies in Grocery Retailing: The Approach Two main aspects of multi channel strategies: How much of the traditional basis is put online? Scope of online retailing activities: Selling the same products online and offline and equal channel configurations vs. choosing a different scope of offerings online How many additional services/ Internet-specific features have been added? Scope of value adding features: The Internet has lowered technical barriers to offering diverse value adding features online, however choices might vary depending on general marketing strategy 51_MultiChannelStrategy 12

13 Classification of Multi Channel Strategies in Grocery Retailing: Metrics 51_MultiChannelStrategy 13

14 Classification of Multi Channel Strategies in Grocery Retailing: The Sample 51_MultiChannelStrategy 14

15 Classification of Multi Channel Strategies Scope of value adding features online service center service-oriented mc grocer service-oriented mc megastore extensive use of value adding features A: -- CH: Coop D: Edeka, Real F: (Casino, E.Leclerc)* UK: -- A: Billa CH: Migros D: -- F: Intermarché UK: -- A: -- CH: -- D: -- F: Auchan, Carrefour UK: Sainsbury, Tesco online information center focused mc grocer limited use of value adding features A: Spar CH: Denner D: (Plus)* F: -- UK: Safeway A: -- CH: -- D: -- F: -- UK: ASDA online advertising no value adding features online A: ADEG, Hofer, Nah&Frisch CH: Primo, Volg D: Aldi, Lidl F: -- UK: Morrisons * Companies which do not offer online grocery shopping, but market a limited number of other goods/services online (partly via different Web sites) no products sold online only groceries sold online groceries and additional products sold online Scope of online retailing activities 51_MultiChannelStrategy 15

16 Example: Online Advertising 51_MultiChannelStrategy 16

17 Example: Online Service Center 51_MultiChannelStrategy 17

18 Example: Service Oriented Multi Channel Megastore 51_MultiChannelStrategy 18

19 Understanding Diversity (1): The Impact of General Marketing Strategy and Retail Formats Underlying assumption: multi channel retailers align their online activities with their general marketing strategy. Common approach to capture the marketing strategies of grocery retailers: categorization based on retail formats (mainly based on the breadth and depth of assortment t and store size, also indicates activities in other areas contributing to strategic positioning) Retail Format Discounter Supermarket Hypermarket Description Retailers that offer a variety of merchandise including both private label and brand products. Private label products often make up for a relative large share of the assortment and are typically less fashion-oriented than brands in department stores. Prices are low and service is very limited. Conventional supermarkets are self-service food stores offering groceries, meat, and produce with limited sales of non-food items like health and beauty aids, general merchandise. Many of them follow a high-low pricing strategy, advertising temporarily low prices for some products on a regular basis to draw customers into stores. Hypermarkets stock a large range of items including groceries and a wide range of non-food items such as house wares, sports equipment or electronics. It is said that the first hypermarkets were created in France. They usually offer a wide range of services and other customer retention measures. 51_MultiChannelStrategy 19

20 The Impact of General Marketing Strategy and Retail Formats 51_MultiChannelStrategy 20

21 Understanding Diversity (2): The Impact of National Market Structures Previous studies have looked into the impact of the wider (national) environment on e-commerce. Although dominated by large international players, the grocery retail industry is still characterized by national markets that differ regarding major players (see sample information in the appendix), competitive structures and average industry margins. 51_MultiChannelStrategy 21

22 The Impact of National Market Structures Scope of value adding features Switzerland Scope of value adding features UK Scope of value adding features Germany Coop Migros Tesco Sainsbury Edeka Real,- Denner Safeway ASDA Plus Primo Volg Morrisons Aldi Lidl Scope of online reatailing activities Scope of online retailing activities Scope of online retailing activities Scope of value adding features France Scope of value adding features Austria (Supercasino)* (E.Leclerc)* Intermarché Auchan Carrefour Billa Spar Scope of online retailing activities ADEG Hofer Nah&Frisch Scope of online retailing activities 51_MultiChannelStrategy 22

23 A. Introduction B. Multi Channel Strategies in Grocery Retailing C. Multi Channel Strategies in Consumer Electronics Retailing D. Conclusions and Outlook 51_MultiChannelStrategy 23

24 Consumer Electronics Retailing on the Internet Most consumer electronics products are high outlay, infrequently purchased, tangible products. Compared to grocery retailing, distribution costs for home delivery compared to purchase volume and profit margin are considerably lower. Initially high expectations regarding online sales (Ernst&Young, 2001) weren t met. However, Internet sales only account for 2 to 3 percent of industry revenue (Wirtschaftswoche 2004), which is the average for retailing in general (NRW Medien, 2003). Compared to grocery retailing, Internet pure-players have a major impact on market structures in consumer electronics retailing. Traditional retailers face competition from new entrants and have to find a way of serving their customers through online and offline channels. 51_MultiChannelStrategy 24

25 Classification of Multi Channel Strategies in Consumer Electronics Retailing: Approach Two aspects of multi channel strategies: Similarity of channels: The marketing mix of online and offline channels can either be configured similarly or differently, leading to different potential benefits for a retailer. Design parameters include Assortment t Price Policy Communication Policy Distribution Policy Service Policy Support of customer channel switching: Diverse features can be used to support customer channel switching, Information on physical stores, such Information on product availability Offline pick-up of online orders or reservations Offline return of products that were purchased online Customer loyalty scheme 51_MultiChannelStrategy 25

26 Classification of Multi Channel Strategies in Consumer Electronics Retailing: The Sample Retail Chain Parent Company Samplig Data Germany Mdi Media Markt Mt Metro AG Top 6 by Saturn Metro AG market Red Zac Euronics-Verbund share Expert Expert AG EP EP International Karstadt Karstadt-Quelle AG France Darty Kesa Electricals Plc Six of the Carrefour Carrefour S. A. largest Conforama Pinault-Printemps-Redoute S. A. FNAC Pinault-Printemps-Redoute S. A. BUT Kesa Electricals Plc Gitem Euronics-Verbund Great Currys Dixon Group Plc Britain i Comet Kesa Electricals l Plc Argos Great Universal Stores Plc Dixons Dixon Group Plc CIH Euronics-Verbund Powerhouse Pacific Retail Group Ltd. USA Best Buy Best Buy Co., Inc. Wal-Mart Wal-Mart Corp. Circuit City Circuit City Stores, Inc. Target Target Corp. Radio Shack Radio Shack Corp. Sam s Club Wal-Mart Corp. retailers by market share Typ 6 by market kt share Top 6 by sales 51_MultiChannelStrategy 26

27 Classification of Multi Channel Strategies Similarity of channels 25 Integrated Mirrored e Sam's / Circuit Club City Best Buy Darty Conforama 15 Gitem Radio Shack Parallel Dixons Currys Media Markt Karstadt Carrefour Comet Target Power- house Wal- Mart EP FNAC BUT Store using Argos 5 Expert CIH Red Zac Saturn Store supporting Support of channel switching _MultiChannelStrategy 27

28 Example: Supporting the Store 51_MultiChannelStrategy 28

29 Example: Mirrored 51_MultiChannelStrategy 29

30 Example: Integrated 51_MultiChannelStrategy 30

31 Understanding Diversity: The Impact of General Marketing Strategy and Retail Formats Underlying assumption: multi channel retailers align their online activities with their general marketing strategy. Follows the previously used approach to capture the marketing strategies by retail formats, although different retail formats differ: Cooperation of dealer-owned stores General merchandise retailers Specialized markets 51_MultiChannelStrategy 31

32 The Impact of General Marketing Strategy and Retail Formats Cooperations General merchandise stores Sam'sClub Radio Shack Gitem EP Target Karstadt Wal- FNAC Mart Argos Expert Red Zac Carrefour CIH Specialized Circuit City Similarity Powerhouse Currys Dixons Comet Media Markt Saturn BUT Best Buy Darty Conforama Channel switching 51_MultiChannelStrategy 32

33 The Impact of National Market Structures USA Sam's Club / Circuit City France Radio Shack Target Wal-Mart Best Buy FNAC Darty Conforama Ähnlich keit der Kanäle Unterstützung des Kanalwechsels Gitem BUT Carrefour Germany GB Currys Media Karstadt Markt EP Powerhouse Dixons Comet Argos Expert Red Zac Saturn CIH 51_MultiChannelStrategy 33

34 A. Introduction B. Multi Channel Strategies in Grocery Retailing C. Multi Channel Strategies in Consumer Electronics Retailing D. Conclusions and Outlook 51_MultiChannelStrategy 34

35 Summary High diversity in multi channel retailing irrespective of product and market characteristics. National market structures don t appear to determine, but rather as a constrain the strategy: on the German market, which is very price-sensitive e and characterized ed by high competition, none of the larger retailers has implemented extensive online activities so far. It rather seems that the choice of multi channel strategies depends on a company s general marketing strategy, although this is sometime difficult to capture (supermarkets, specialized markets). 51_MultiChannelStrategy 35

36 Implications The classification and visualization of multi channel strategies provides insights that enable an analysis of competitors activities as well as a reflection of a retail company s own positioning. The wide variety of approaches to multi channel retailing shows that strategic choices are not simple and easy to find. However, following a multi channel strategy that is well-aligned with the general marketing strategy as well as the national market environment seems to be important. It seems that the current approaches to multi channel retailing are relatively stable. However, the ongoing adoption of the Internet and mobile technologies will probably bl contribute t to future dynamics. The results for consumer electronics retailers suggest that more extensive online activities iti have to be supported by adequate communications. Customers have to be enabled to handle the impersonal online self-service interface. This can be e.g. be achieved by high similarity of channels, which grows with more extensive online activities in our sample. 51_MultiChannelStrategy 36