Santa Clara University

Working Across Channels

Bridging the Gap Between Stores and E-Commerce

Professor Achabal

With the advent of the internet era, nearly every retailer has become a multi-channel operation, selling goods in physical stores, online, and sometimes through catalogs or other channels as well.
    This has profound implications for a company’s business model, yet research by two professors at Santa Clara University’s Retail Management Institute (RMI) has found that many companies are not managing the new reality effectively.
    “We interviewed dozens of C-level executives at retailers in the United States, Europe and Asia,” says Dale Achabal, RMI executive director. “By and large what they’re telling us is that while their companies have a presence in more than one channel, it’s not clear they have a multi-channel strategy.”
    In an attempt to address this issue, Achabal and RMI Director Kirthi Kalyanam wrote a white paper with IBM’s Institute for Business Value, titled “Cross-Channel Optimization: A Strategic Roadmap for Multichannel Retailers.” In it, they lay out a five-stage framework for cementing a strategy to make the various retail channels operate in an effective, integrated fashion.
    As an example of the types of issues created by multichanneling, Achabal cites the way in which customers now move between channels. A customer might search for and buy a product online, then decide to return or exchange it at a nearby store operated by the retailer. Or the customer might want to order online and pick the product up at the store.
    If the different channels haven’t been strategically integrated, the interplay between them will be ineffective and inefficient. Because compensation policies typically revolve around sales, the internet division could resist sending a product to the store for pickup for fear of losing credit for the sale. At the same time the store could resist taking a return on an internet sale because it’s putting out money and taking on inventory from another channel’s unsuccessful sale. Retailers need to structure pay and organizational incentives to make sure the two sides work harmoniously rather than at odds with each other.
    “Today’s consumers are much more informed and expect to be able to shop how, when and where they want,” Achabal says. “If that’s a problem, they don’t understand, because from the customer’s point of view, it’s all the same brand.”
    Another issue is leveraging the separate channels so that each does what it can do most efficiently, even if that means treading on what had previously been the prerogative of another channel. For instance, store executives typically have their own advertising budget, but in the case of a company with a strong catalog presence, it might make sense to saturate the store’s surrounding area with directly mailed catalogs and cut back on the store’s discretionary advertising budget.
    Achabal and Kalyanam lay out in their paper the process that companies should follow in achieving an effective multichannel operation. The stages are:
    • Create a presence. Simply get up and running in a new channel.
    • Align fundamentals. Make certain that basic value propositions such as assortment and pricing are in sync.
    • Achieve proficiency. Reduce costs in the new channel through economies of scale and integrate cross-channel customer interactions, such as shop online/pick up at store.
    • Leverage across channels. Exploit channel-specific capabilities and drive collaboration between channels.
    • Optimize the operating model. Establish permanent and repeatable processes for dealing with cross-channel issues and optimizing resource allocation among channels.
    “True multichannel retailing is a better business model that needs to be driven by senior management,” Achabal says. “Most retailers still do not understand it and are not benefiting from it.”

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