The challanges of adopting a multi-channel retail approach - Essay Example

?Identify the challenges of adopting a multi-channel retail approach and suggest how an organisation might manage these within context of an integrated retail strategy. The increasing power of consumers has significantly reshaped business distribution and marketing models. In turn this has required retailers to add value in stores to compete with the multiple retail channels and highlighted the need for businesses to adopt customer relationship oriented approach in order to create value for the consumer (Merz, He & Vargo 2009). As a result, it is evident that retailers are now having to move away from the conventional economics based approach to consider the benefit of integrating effective customer relationship management (CRM) into retail strategy to create value for its customers as part of integrated retail strategy. This has propagated discussion with regard to the need for businesses to adopt customer relationship oriented approach in order to create value in marketing (Poloian, 2009). In turn, this has created cost implications and challenges to the traditional retail marketing paradigm in order to accommodate the reality of multi-channel retail ( Poloian, 2009). This paper critically evaluates the challenges faced by the multi-channel retail environment and evaluates how an organisation should manage the multi-channel paradigm within an integrated retail strategy. It is evident that the digital era fuelled novel business opportunities and the continuous evolution of online business channels has made multi-channel retailing a reality, with the customer now placed at the forefront of retail strategy (Jain, 2008). In turn this has reshaped business distribution and marketing models. To this end, it is submitted as a central proposition in this paper that consumers increasingly dictate retail strategy and therefore CRM is vital as part of an integrated retail strategy to ensure that an organisation keeps pace with the multi-channel retail model (Poloian, 2009). Moreover, the central consideration should be given to the movement away from the conventional economics based approach to consider the benefit of integrating effective CRM into retail strategy. For example, Weinberg at al’s 2007 report into changing consumer behaviour highlights that approximately 65-70% of consumers fall within the category of “multichannel shoppers” and they increasingly have the highest purchasing power (Weinberg et al, 2007). As a result, Weinberg et al posit that it is “critical that organisations effectively employ a multichannel marketing approach, as consumers in B2C contexts now expect it” (Weinberg et al, 2007, p.385). The impact of multi-channel retailing has continued to grow and Retail Solutions Online highlight that industry research indicates that approximately 40% of sales will be attributable to the multi-channel model by 2012 (2009). Additionally, the Retail Solutions’ Online research indicates that the proliferation of the multi-channel retail model will continue to grow and as a result, retail business have to embrace the model as part of integrated retail strategy to compete in the marketplace (2009). Moreover, Vollmer and Precourt argue that the underlying basis for marketing is rooted in economic principles of exchanging goods for value (2008). It is precisely this concept of “value” that has been at the heart of marketing strategy in persuading consumers to exchange value for goods in conventional business strategy. However, as the business models continue to evolve in line with changing consumer habits and retail channels, Vargo and Lusch point to the fact that economical basis for traditional marketing strategy has been forced to adapt to remain relevant (2004). Additionally, Vargo and Lusch further refer to the arguments of Achrol and Kotler that the: “very nature of network organisation…..and the potential impact on the organisation of consumption all suggest that a paradigm shift for marketing may not be far over the horizon”(in Vargo and Lusch, 2004). They highlight the point that marketing has been forced to move away from the focus on tangible goods in light of the increasing consumer value attached to intangibles, thereby underpinning the “paradigm shift” in providing value in marketing. A significant part of this has been the move away from the economic model to the recognition of marketing as a social and economic process (Vargo and Lusch, 2004). In evaluating this “paradigm shift”, Gronroos refers to the fact that customer relationship economics presses the need for considering alternative marketing strategies and supports the importance of customer relationship marketing to address what consumers attach to the concept of “value” as a result of the multi-channel format (1997). Indeed, he argues that “relationship building is paramount”; which questions the relevance of the traditional Four Ps in providing value in context of marketing as part of traditional retail strategy (1997). Moreover, the digitisation of business has expedited novel business opportunities through the piecemeal development of e-commerce, thereby culminating in an unfamiliar business paradigm (Jain, 2008). However, the rapid pace of online business activity has led to ad hoc responsive retail strategy measures in an attempt to balance the interests and protection of consumers, whilst simultaneously facilitating market growth (Jain, 2008). This in itself highlights the multifarious complex issues pertaining to contemporary retail management strategy as a result of the e-commerce business model particularly when we factor in the cultural values at the increasingly individual approach required by contemporary marketing strategy (Patterson et al, 2006). Accordingly, this reinforces Weinberg et al’s argument that: “A critical reality is that the Internet is… arguably the, key driver in the burgeoning consumer demand…. in multichannel marketing” (2007, p.386). Furthermore, the e-commerce business model has facilitated novel societal trends and business openings via piecemeal development of electronic commerce. However, at the forefront of the e-commerce business model has been the increasing power of the consumer, which in turn has increasingly influenced marketing initiatives (Nunes & Cespedes, 2003). For example, an empirical investigation undertaken by Avlonitis and Indounas indicates that service companies’ pricing policies are increasingly dictated by consumer objectives (2007 83). Moreover, the empowerment of the consumer as a whole has led to market segmentation and a changing consumer market, forcing retailers to adopt a multi-retailer strategy (Levy & Weitz, 2008: 27). This in turn has led commentators to recommend the organisational use of customer relationship management strategies (CRM) to ensure value and address the challenges of the multi-channel retail marketplace (Levy & Weitz, 2008: 27). As a result, there is clearly a need to increase the perceived value in marketing strategy, which is supported by the arguments of Webster that marketing has become more than about securing sales, but rather instrumental in customer loyalty and corporate branding (Payne et al, 2004). Webster asserts that “the business is increasingly likely to be a network of strategic partnerships”, which highlights the point that a brand and corporate strategy is increasingly defined by the customer in the contemporary marketplace. Furthermore, this correlates to the arguments of Nunes and Cespedes in highlighting the point that the conventional economics based model of marketing has dramatically shifted whereby the customer is increasingly autonomous in determining value (2003). In distinct contrast to the power of retailers in the 1980s and mid 90s, “today’s customers “channel surf with abandon” highlighting the need to implement a new logic for channel strategy; which reiterates the need to be innovative in creating “value” to retain customer loyalty in contemporary marketing and retail strategy (Diamond & Pintell, 2004). In turn, the relationship between consumers and branding is arguably paramount in determining the centre of how value should be marketed to retain and persuade new customers (Merz, He & Vargo 2009). Indeed, whilst loyalty programs have been viewed as incentives for consumers, the type of loyalty programs in ensuring brand loyalty in the long term has become increasingly dictated by the consumer (Payne et al, 2004). Indeed, whilst loyalty programs have been viewed as incentives for consumers, the type of loyalty programs in ensuring brand loyalty in the long term has become increasingly dictated by the consumer (Payne et al, 2004). Therefore, the increase of consumer power arguably forces organisations to undertake a more lateral approach to marketing as opposed to merely focusing on competitors (Avlonitis & Indounas, 2007). This argument is reinforced by the proposition of Weinberg et al that organisations shouldn’t assume what the customers want, but that it is imperative for organisations to add value in addressing consumer needs to survive in the multi-channel marketplace (2007). A prime example of this is Target’s loyalty scheme and loyalty card system, which not only rewards consumers but continues to evolve to address changes in consumer behaviour. The target demographic of the retail store is wide and the loyalty card system and coupon availability reflects this. Additionally, Target has been reviewing how other supermarkets implement loyalty schemes in order to distinguish itself from the competition. For example, in 2010 Target has reshaped its REDcards loyalty scheme to include a five percent off discount on any in-store or online transaction processed on the REDcards (Duff, 2010). Target reports that when it trialled the scheme in Kansas in 2009 the scheme accounted for increased sales. Furthermore, the Target Loyalty scheme and coupons program has been increasingly geared towards customer preferences through monitoring regular purchases and patterns in order that coupons and discount offers offered are more targeted towards customer requirements. Not only is this effective in increasing customer retention rates, it also boosts customer loyalty by placing customers at the fore in customer relationship management (Duff, 2010). Finally, in acknowledging the role of technology in changing consumer behaviour not only has Target extended its in-store value marketing techniques to online purchases, it has also unveiled in-store mobile scanners for updating Target GiftCards and loyalty points under the various loyalty schemes available via mobile. As a result, Target.com’s President Steve Eastmen commented that “the addition of Mobile GiftCards to our suite of mobile shopping solutions further simplifies the Target experience for our guests” (O’Sullivan, 2010). This is a prime example of acknowledging the need for retailers to continually study and understand consumer needs and the intrinsic complexity of consumer behaviour as a direct result of the multi-channel retail model (Levy & Weitz, 2008). In understanding this and applying a more targeted loyalty scheme, Target is not only providing increased value, it is also applying the necessary customer relationship model that is required to ensure continued loyalty and long term sustainability in the multi-channel retailing environment. Additionally, it is submitted that segmentation of the traditional marketplace has become increasingly shaped by consumer trends, which has pressed the need to integrate CRM as part of integrated retail strategy in order to maintain and facilitate continued growth in the marketplace (Vollmer & Precourt, 2008). This in turn has created a novel marketplace, where the consumer is effectively the market, thereby creating novel business opportunities. Indeed, the e-commerce archetype has clearly fragmented the retail sector and Galbreath and Rogers argue that, “no enterprise can any longer succeed…..without understanding the needs and desires of its customers”(Galbreath & Rogers, 1999). As such, the increase of consumer power arguably forces organisations to undertake a more lateral approach to marketing as opposed to a competition centric retail strategy (Avlonitis & Indounas, 2007). Moreover, it is posited growth of online business models is intrinsically interlinked to the impact of CRM, which has distinctly altered the way that companies approach planning; with a marked shift from focusing on product to CRM (Ryals & Knox, 2001). To this end, Vargo and Lusch argue that: “Marketing’s role as the facilitator of exchange becomes one of identifying and developing the core competencies and positioning them as value propositions that offer potential competitive advantage. To do this, marketing should lead the effort of designing and building cross functional business processes. Therefore, marketing should be repositioned at the core of the firm’s strategic planning”(2004). In considering a paradigm shift, Payne et al consider the use of the “six markets” model, in considering the role of business/stakeholder relationships as being instrumental to highlighting brand value in marketing initiatives (2004). As a result, their central findings in undertaking research into stakeholder relationships is to highlight the four inter-related elements such as stakeholder value propositions, value delivery, design, stakeholder relationship marketing plans, measurement and feedback (Payne et al, 2004). Therefore, the influence of stakeholders forces businesses to be increasingly inclusive in ensuring that the product and brand development stage is tailored to the stakeholder’s perceptions of value (Payne et al, 2004). To this end, Payne et al posit that as a direct result of the multi-channel retail model: “Marketing interest in relationship based strategic approaches has increased strongly over the last decade in line with expanding global markets” (Payne et al, 2004). To this end, they refer to the six markets stakeholder model, sub divided into the major stakeholder groups, which are customer markets, referrals, influence markets, employee markets, supplier markets, internal markets (Payne et al, 2004). The increasing influence of stakeholders as a result of the multi-channel model in customer oriented marketing not only has resulted in a paradigm shift; but has also dramatically altered the presentation of consumer values in corporate marketing campaigns (Carrigan et al, 2005). Indeed, Carrigan et al suggest that “marketing ethics has developed in the context of business ethics that reflect the interests of various stakeholders in the exchange process” (2005). This reiterates the discussion above that the increasing power of the consumer has forced companies to address the interrelationship of multifarious subjective consumer preferences such as culture, religion, ethics and morality beyond conventional approaches to product development (Carrigan et al, 2005). Moreover, in demonstrating the importance of the paradigm shift to addressing consumer perceptions of value in marketing strategy, Reichheld (1996) suggested that “a 5% growth in customer retention rates culminated in a mean customer lifetime value figure ranging between 35% to 95%, with knock on effects on profit margins” (In Ryals & Knox, 2001). This therefore highlights the importance of presenting value in context of marketing initiatives in customer retention as part of integrated retail strategy in the contemporary market model (Levy & Weitz, 2008). Accordingly, it is further extrapolated that the contemporary marketplace, particularly in context of the evolution of the internet business model has forced businesses to adopt a different approach to corporate marketing strategy and this is arguably supported by the development of the multi-channel retailing paradigm, which has forced businesses to “innovate” in order to survive the market (Levy & Weitz, 2008). Accordingly, from a retailing perspective the need for businesses to be creative in order to adapt to the multi-channel marketplace has become imperative (Levy & Weitz, 2008; Gupta, 2009). Indeed, leading industry body for global e-retailing IMRG estimates that currently 25 percent of retail purchasing in the UK is undertaken online with the market value estimated at approximately ?80billion accordingly (www.imrg.org). Signals of this prolific growth have been evident since 2003, which has resulted in consumer led business strategy by retailers to implement novel delivery methods to widen the retail channels available to customers (Diamond & Pintel, 2004). As such, this has seen a shifting approach in multi-channel retail strategy from bricks and mortar to multi level formats including home shopping and mobile commerce (Levy & Weitz, 2008). Initially, traditional retailers found the digital innovation of the classic retail paradigm challenging and therefore the first mode of multi-channel retailing involved integration of two platforms with an effective cloned copy in the form of home shopping (Diamond & Pintel, 2004). However, this led to segmentation and viewing of the two models as separate entities in competition. The difficulty of retailers to initially shift their outlook was compounded by the growth of unmanageable proportions of the Internet and the multiple digital platforms threatening the customer base and fragmentation (Levy & Weitz, 2008). Moreover, some commentators argued that simply focusing on entering and accommodating multiple channels risked exclusion of the customer (Laing, Hogg & Newholm, 2003). Indeed, the multi-channel retailing paradigm has shifted control to customers that are more tech savvy with increased expectations including consistent pricing and best value offers, loyalty points being consistent through all channels and the ability to check the status of any order placed online(Schoenbachler & Gordon, 2002). Therefore it is submitted that it is important to understand consumer behaviour in any approach to multi channel strategy in the current market (Levy & Weitz, 2008). Whereas under the traditional retail framework customers physically went into shops and made the purchase choice, in the current multi channel marketplace, customers often research on the web prior to visiting the store, therefore effective interaction between the online presence and the bricks and mortar model is vital (Lee, 2002). As such, the globalisation of the retail industry as a result of the e-commerce business model has signalled a fundamental shift in customer and business relationships with an intense focus on CRM as part of integrated retail strategy. Moreover, the main objective of CRM is to identify, qualify, acquire, develop and retain increasingly loyal and profitable customers by delivering the right product and service to the right customer, through the right channel, which has become particularly pertinent in the multi-channel challenge reshaping retail strategy (Shimp, 2008). As a result, consumers have increased control and therefore an application of traditional vertical integration will not suffice in contemporary retail strategy particularly due to the low barriers to market entry in the multi-channel model. As such, access to a potentially global demographic of consumers, renders the ecommerce paradigm a significant business opportunity if exploited correctly(Levy & Weitz, 2008). Additionally, the factors highlighted by Kutner & Crips (1997) underline the importance of understanding consumer behaviour, which is vital to effective CRM. For example, Gupta et al (2003) undertook research into consumer habits and found that regardless of the distribution channel adopted by a consumer, ultimately customer loyalty is inherently reliant on the characteristics of the consumer regarding risk (Gupta et al, 2003). This is further evidenced by Chaing et al’s study (2004) regarding the weight attached to the product and its concomitant impact on consumer patronage frequency (2004), which determined that this is intrinsically variable depending on the nature of the product. Therefore it is important for businesses to understand the internet medium to apply CRM effectively in the current retail climate, This is particularly important in light of the strategic driver of the internet medium being information sharing and increased knowledge. As a result, the manner in which consumers online are purchasing has significantly changed. They often seek out reviews and social networks to get peer recommendations on products and therefore any company marketing online has to understand the complexities of the medium and the increased power of consumers and adopt this in CRM management (Prince, 2010). Indeed, leading marketing expert Seth Godin highlights the weakness of applying traditional marketing and conventional vertical integration to online marketing on grounds of what he terms the “meatball sundae” principle (Godin 1999;Godin, 2008). Godin utilises the metaphor of a meatball sundae to suggest that traditional marketing principles will not work in the online business model because of the completely different nature of the medium to conventional bricks and mortar business. As such, Godin argues that marketers attempting to apply conventional vertical integration often fail online and end up creating a “meatball sundae” effect (Godin, 2008). Therefore, this reiterates the importance of the company understanding the medium and its audience. For example, a strategic driver of the internet economy is the value of a network, which is linked to market shares and therefore this correlates to the increased connection of users. As a result, the more users which connect and are part of online networks; the more valuable it becomes for companies to understand this and cater to this communication shift in marketing online. This is particularly so as ecommerce has enabled consumers to buy goods from anywhere and anyone (Carbone, 2004). Moreover, the difficult economic conditions have created changes in consumer attitudes towards price sensitivity with consumers increasingly attracted to discounts and money saving initiatives (Aktas, 2010, p.19). Additionally, the contemporary marketplace has seen the phenomenon of social networking and media revolutionise how people communicate with each other. From a business perspective, this has implications for consumer relationship management as the control is increasingly with the consumer (Gupta, 2009). For example, Seth Godin highlights that people are more likely to seek peer reviews of services and products in the increasingly networked environment, which has implications for businesses particularly when dealing with complaints (Godin, 2008). Therefore in terms of effective CRM, businesses need to adopt a multifaceted interactive customer relationship strategy and use new media to access an increasingly diverse consumer demographic. One option for example, would be to use video and in particular YouTube, which is the world’s biggest video streaming site. Currently YouTube is estimated to have 2 billion views a day with 24 hours of video uploaded every minute (website-monitoring.com). In developing a YouTube strategy specifically geared towards the long wait lines, one approach would be to use humour, which is a great tool to engage with customers (Meyerson, 2010). A prime example of a successful business use of YouTube to engage with customers was Blender, who created humorous YouTube videos to promote their product. Therefore, in applying a successful YouTube strategy as part of CRM it is imperative to think outside the box and one way would be to create humorous videos. The key to a successful YouTube campaign is not just engaging with the customer base but to increase brand awareness and exposure and therefore any YouTube campaign should take advantage of its viral potential. YouTube enables people to share videos and post to other social networking sites such as StumbleUpon, Facebook and Twitter. In encouraging users to share videos, this can help videos go viral, which would be great for brand exposure and new customers. Furthermore, in addition to YouTube strategy, another great way to engage and deal with consumer issues would be to adopt social media marketing particularly with Twitter and Facebook (Prince, 2010). A prime example of a business adopting this approach is Dell, whose use of Twitter and Facebook has been cited as directly contributing to increased sales (Prince, 2010). Prince explains that Dell has used Twitter “to straddle both the tracking and directing sides of the customer engagement approach”. The use of Twitter enables Dell customers to interact with each other and for Dell to directly address consumer issues. Accordingly, the above analysis highlights that the correlation between globalisation and the digital revolution has fundamentally altered the traditional retail business paradigm. As such, it is evident that the proliferation of the Internet and e-commerce business model has played a vital role in reshaping marketing and distribution channels in retail companies, thereby reformulating the nature of supply and demand. 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