If the consumer landscape of the 20th century was anchored by stores, bolstered by catalogs, and reshaped by the Internet, then the emergence of the phenomenon called multichannel retail demands that merchants become expert practitioners of all three channels.
While that may be the conventional wisdom, and certainly what we’ve been led to believe with all the talk of consumer insight, continuous touch points, and commingled media, the reality is a little different. The promise of the multichannel craze is more closely linked to understanding an increasingly mazelike marketing and selling landscape than to adopting every promotional technology that promises fast customer access and faster payback. Today’s successful merchants aren’t necessarily those selling full-bore to every customer audience via every media. They are instead the savvy group that has taken the effort to understand their market and the various sales tools at their disposal, carefully intertwining both in a manner that best complements their core capabilities.
With that in mind, Winterberry Group and the Direct Marketing Association set out to define the market potential now enabling success in that vast, misunderstood space called multichannel. What we found over the course of our study was telling: Opportunities abound, but the most important resource in the modern marketer’s tool belt isn’t slick creative, a flashy offer, or even unique product. Instead, it is information — and the insight and wisdom to use it — that is creating a vast gulf between profitable merchants and those still mired in a frame of thinking that is, well, very 20th century.
FIRST, THE NUMBERS…
Whether you’re a merchant or a service provider, to identify the possibilities embedded in the multichannel marketplace first demands understanding of the size, segments, and behaviors of that marketplace. Given that approximately 870,000 companies in the U.S. can be considered multichannel merchants — including such disparate organizations as garden supply shops and high-tech-component catalogs — recognizing the addressable marketplace and its associated attributes should be a first step in any strategy to penetrate or grow within the market. Among other characteristics:
Multichannel players dominate the $2 trillion U.S. retail market. An estimated 40% of retailers sell through three or more channels, while another 42% sell through two channels.
Nearly one-quarter of all retail revenue is generated through direct marketing efforts. Direct mail alone accounts for half of that revenue, which translates into an impressive return on investment of 14.4 times.
Properly synchronized multichannel campaigns generate the most-dramatic results. According to the Internet Advertising Bureau, well-executed campaigns generate a sales lift ranging from 7% to 34%. Viewed from another perspective, that spells trouble for single-channel marketers; they’re likely missing out on $17 billion-$85 billion in potential revenue.
Multichannel consumers are the most profitable. The shopper who makes purchases via store, telephone, and the Internet spends 30% (or $438) more per year — in stores alone — than the average single-channel shopper.
The numbers are crucial for understanding the foundations of the multichannel marketplace. But beneath them lie several trends that continue to shape the market. Grasping these developments — and defining a strategy for how to apply them to your business — is the vital next step for growth in the multichannel world.
TALK TO ME
Mass media advertising is dead. Though the obituary has yet to be published, the sobering facts constitute a death warrant for so-called measurable media. Proportional spending on traditional broadcast and print advertising continues to dwindle in the broader marketing mix, replaced by direct methods — such as interactive advertising and search, direct mail, and event marketing — that rely on customer data to reach the right buyers via the right channels at the right times.
The inherent potential of these direct media, embodied in buzzwords such as “personalization” and “data integration,” speak to a broader trend: Consumers are growing tired of constant marketing bombardment and respond far more favorably to messages targeted to their needs, tastes, and aspirations. To marketers, the imperative is clear: Identify your core customers, offer products tailored to their likes, and keep them in the loop with a direct, clear and relevant dialogue.
Fortunately, marketer feedback indicates that this core principle is being satisfied, at least on the surface. More than 93% of multichannel merchants intend to increase their investment in Internet and e-mail-based sales efforts during the next three years, indicating a near-universal embrace of technology that offers one-to-one consumer contact with minimal overhead costs.
Maximizing these interactive technologies, however, presents a lingering challenge: How many customer e-mails per week constitutes too many? What kinds of offers should be extended across multiple channels, and which are best left solely on the Internet? What data points should be recorded in a customer database? The answers to these and other questions vary across the market.
If reaching the right customers with the right messages is the linchpin of successful retailing, then useful customer data are the fuel feeding the multichannel fire. But the importance of customer data isn’t restricted to targeted marketing; data increasingly affect enterprisewide decisions on multiple levels. For a successful merchant, a deeper understanding of the customer should influence every strategic deliberation, from pricing to merchandising to budget planning.
But if information doesn’t flow freely within the organization, your business cannot realize enlightenment through customer data. In too many cases, the communication gaps generated by independent data silos prevent merchants from leveraging their understanding of consumer interactions across channels.
More ominously, siloed data channels threaten to negate the positive impact of multichannel marketing altogether. Witness the consumer who buys an item online but isn’t allowed to return the item to one of the merchant’s stores. Or the in-store buyer who isn’t given the same discount as an online buyer. These interactions are folded into a negative aggregate brand perception. And now that consumers have come to expect that sophisticated brands will function universally across sales platforms, it’s a negative perception that sticks — even if the flaw is rooted in one single-channel data application.
Internal hurdles aren’t the only challenges to efficient data usage. Widespread concerns over data security, consumer privacy, and information sharing — most stemming from just a handful of high-profile incidents — now confront resourceful marketers with a roadblock that makes inefficient targeting and communication silos look insignificant by comparison.
But while the possibility of drastic measures, such as enhanced data-security legislation, is real, the addressable marketplace of skeptical multichannel consumers is likewise significant. A full 28% of consumers say they’re reluctant to make purchases online; of those, two-thirds cite “fear of transmitting credit-card data” as their leading concern.
But more-robust, and more-visible, data security could convert those potential customers to multichannel buying. Multichannel merchants who recognize that opportunity (and take commensurate action before legislators co-opt responsibility for the market) stand to benefit as both first-movers and trusted providers to weary consumers. In the wake of negative publicity about Web security generated by Cardsystems Solutions, Chase, and Choicepoint, that leadership position may be highly advantageous in the days ahead.
NEW AND NEWER
As the march of technology advances and U.S. consumers become enraptured with the same media that have taken the Asian and European markets by storm, these newer channels are finally emerging as viable sales tools over here. Among these newer media:
Interactive, advertising-supported home gaming platforms, embodied by the Xbox Live Marketplace, wi-fi-enabled Nintendo Revolution and PlayStation Underground. Advergaming, as it’s come to be called, will likely soon evolve into a complete shopping experience.
Mobile phones, already equipped for the purchase of ring tones and short videos, which have the potential to aid store-based sales and evolve into a stand-alone channel. “M-commerce” offers at least one significant advantage: Response rates average 6%-9%, compared with the typical 1% conversion rate of traditional advertising.
And yes, even the broadcast industry. Having caught on to the potential of one-to-one communications, cable providers and hardware manufacturers now offer interactive digital video recorder technologies such as TiVo that allow consumers direct control over their incoming marketing messages. The once-projected killer of broadcast advertising enables consumers to explore product information through interactive commercials — a technology that will no doubt lead easily to online comparison shopping and purchase.
As the contemporary triumvirate of stores, catalogs, and interactive channels expands to include these new media outlets, our research reveals that one trend that will remain constant: Consumer control. Staying competitive means meeting consumer needs quickly and efficiently; it means using available data to assess ever-changing demands and adjust growth strategies appropriately.
Fortunately, merchants armed with a comprehensive base of market knowledge (and an approach for building upon it) will be well equipped to meet customer demand — and even better prepared to react to the next wave of market developments. And they’ll have no trouble navigating the multichannel maze that the retail landscape has become.
Jonathan Margulies is a manager with Winterberry Group, a New York-based global direct marketing strategic consulting firm.
A pocket definition
Multichannel (mul’ te chan el) adj. (or v. or n.) 1 the practice of integrating various sales channels — including catalogs, direct mail, call centers, television, radio, Internet, and stores — to build profitable, long-lasting customer relationships 2 something that is very difficult for many marketers to do successfully