mc3 and the leadership gap

To be successful in creating a mc³ retailer, you must articulate and define what success means. Many companies pursue multichannel, customer-centric strategies because they know they must but have no clear plan of where exactly they are headed.

Success needs to be defined within three areas: strategic, operational, and financial. For strategic success, you need to understand and articulate how initiatives will benefit four key constituencies: the customer, the company (and its employees), the investors (or shareholders), and the vendors and other business partners. From an operating and financial perspective, you must understand how initiatives will change your three most important platforms — customer acquisition, transaction, and service — to drive a superior experience for customers and higher growth and margins for the business.

That said, a company can also leverage these multiple channels to improve its own internal level of service and communications with its employees, shareholders, business partners, and vendors. All of the above should be very thoughtfully aligned to deliver powerful and measurable financial and operating metrics along with customer loyalty and lifetime value.

It is not uncommon to walk into a board meeting and hear someone say, “Ohmigod, business is hot — our traffic is shooting through the roof!” Now if traffic to a brick-and-mortar store were soaring, this would be fabulous indeed. In a store environment, traffic is a very good indicator of sales because conversion rates are high. Once a shopper has made the decision to drive to your store, navigate traffic, find a parking spot, and then walk your aisles and look for product on your shelves, he is fairly unlikely to leave without making a purchase, even if what he finds isn't exactly what he wants, because he doesn't want to have to repeat the driving/navigating/parking/walking process.

But if the traffic in question is Website traffic, the business may not necessarily be hot at all; driving traffic to a Website is not that difficult in this pay-per-click world. Driving traffic that converts into buyers — that's another thing altogether. On the Web it's all-too-easy to hop from one competing merchant to another; one click, one or two seconds, and you're there.

Once you understand that, you very quickly realize you'd better have something compelling to sell people online. Your old brand and offline formula will carry you only so far, as Nordstrom and Zales discovered much to their chagrin and Zappos and Blue Nile much to their delight in selling shoes and jewelry respectively.

It is difficult to be accountable when there is lack of clarity on what and why to measure. Even today you could walk into the boardroom of most retailers, ask them which key metrics they use to track their Internet business, and receive a wide range of answers, many of which are way off the mark. The metrics that many companies track, such as Web traffic and average order sizes, can easily be manipulated by clever promotions and expensive advertising, as we mentioned above.

One of the key metrics that multichannel merchants need to focus on, and one that most direct marketers already home in on, is customer lifetime value (LTV). Without knowing customer LTV, you cannot determine how much you should pay to acquire a customer.

What many retailers that don't calculate LTV end up doing is opting for online advertising deals that are self-funding or break even with the first transaction. As a result, they end up leaving a bunch of money on the table by not acquiring varied segments of customers, such as those who make multiple transactions but spend less per order or those who convert over a longer period of time. Surprisingly, fewer than 50% of retailers measure customer LTV, and most of those who do, do so poorly or inadequately.