One Customer - Many Channels

The explosion in online retailing isn't creating new customers. But it sure is changing the channels available through which retailers reach customers. One potentially conservative prediction pegs online consumer spending growth at 150% compared to last year. Forrester Research suggests that a quarter of all retail spending will be "Web-involved" by 2006.

More computing time means that people are spending less time with television and other traditional advertising media. Any eyeball research will confirm this metric. It will also tell you that much of the United States is saturated with stores, and there seem to be fewer people strolling through malls.

It might seem that retailers have everything to lose as this proliferation of channels and the new class of "e-competitors" erode retailers' hard-fought brand equity. But, if retailers embrace the online channel to do what they do best, they have everything to gain.

The Retail Opportunity
Today's customer has the technology, the choice, and the inclination to construct personal assortments from a mix of retail channels. The "push" model of consumer marketing and interaction is being replaced with a "pull" model, in which consumers customize the purchasing space to meet their own needs.

The retail opportunity today is not to invest in catchy new technologies intended to "troll" for strange unknown customer types. Instead, retailers should have a multichannel retail strategy that is grounded in the needs, desires, and habits of this newly empowered customer.

In this sense, brick-and-mortar retailers have a unique advantage when it comes to brand identity and customer knowledge and relationships: retailers have them, while their start-up competitors do not. Online retail players are preoccupied with the brick-and-mortar equivalents of the POS, which is why we hear so much hype about "new markets" and "new customers." To these online retailers, retailing is new.

Evaluating The Competition
Online retailers are paying through the nose to get into your retail business and find customers. Shop.org and the Boston Consulting Group produced the following data regarding online retailers' operational realities and challenges:

• Web-only retailers spend almost twice what multichannel retailers spend on customer acquisition ($42 versus $22).
• They're spending 76% of their revenue on marketing and advertising, while multichannel retailers spend approximately 13%.
• They're investing in Internet affiliate programs. Web-only retailers generate 6% of revenue from affiliate sites, compared with 1% for multichannel retailers.
• Their IT (information technology) strategies are inexorably wired into their business model, while multichannel retailers outsource 52% of their IT development and a third of all site maintenance.

When online retailers figure out what brick-and-mortar retailers have figured out, watch out.

How Traditional Retailers Win
Many retailers buy into the notion that there is a zero-sum game out there where retailers are not making markets, but rather, stealing customers back and forth from one another — often based on price. However, leveraging the existing infrastructure to address multiple channels is key to the success of brick-and-mortar retailing in the virtual world.

Setting up non-integrated, redundant infrastructures to go online prohibits retailers from controlling the shopping experience for their hard-fought customers. In fact, the dual infrastructure approach exposes retailers to even greater risk of customer defection. We can only create meaning when we know who the customers are across all retail channels.

These new channels have a vision to further enhance the retail brand. Thus, they need an IT strategy that is inexorably wired into the business model. Being able to service customers in a multichannel environment requires a single view of the customer. "One Customer – Many Channels" isn't just a nice vision. It's a strategic imperative. At the heart of the winning strategy for retailers is staying true to their core competencies and leveraging existing and proven supply chain infrastructures. By focusing on the customers, retailers can build a flexible, Web-architected infrastructure to predict and exceed the needs of individual customers across any channel.

[Editor's note: John Buchanan is the chairman and CEO of Retek Inc.]

Questions about this article? E-mail the author at john_buchanan@retek.com.