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The multi-channel shopper paradox: big spenders, little loyalty

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Multi-channel shoppers are valuable to merchants in a very literal sense: They spend more money and do so more frequently than shoppers who confine their buying to one sales channel. In 2005 they generated about $125 billion in offline sales, according to Forrester Research Inc. These shoppers spend up to 50% more than single-channel shoppers and usually buy bigger ticket items like electronics, appliances and computers; offline sales of these items to multi-channel shoppers, for example, hit $44.5 million in 2005, Forrester Research says.

However, despite spending more and purchasing with greater frequency, multi-channel shoppers tend to be less loyal than their single-channel counterparts, according to research firm Gartner Inc. The two primary reasons are that multi-channel shoppers are more price sensitive because they use the online sales channel to conduct more price comparisons, and they have higher expectations for customer service. In customer service, for example, any perceived shortcoming in the shopping experience is apt to send a multi-channel shopper elsewhere, Gartner says.

“Retailers need to be aware of these characteristics in multi-channel shoppers because they open the door to decreased loyalty,” cautions Hung LeHong, research vice president for retail at Gartner.

Retailers remain eager to capture more sales and loyalty from multi-channel shoppers. Merchants such as Circuit City, Best Buy and Sears Roebuck and Co. have launched programs enabling shoppers to buy online and pick up in store. The tactic serves not only as a way to bring online shoppers into the store where they might continue shopping but also to encourage shoppers that frequent the store but often lack the time to spend browsing to experience the convenience of shopping online. So strong is this drive to encourage multi-channel shopping that Sears specifically promoted the ability to order online and pick up in store through a television ad campaign during the holiday shopping season.

These programs have proven so successful that other retailers are moving down the same path. Radio Shack, for instance, joined the club in November. The electronics retailer is piloting a ship-to-store program in 1,300 of its company owned-stores and plans to roll out the program to its remaining 3,400 later this year.

Encouraging cross-selling
“Multi-channel shopping strategies are about driving consumer behavior to encourage cross-selling,” says Jimmy Mansker, vice president of RadioShack.com. “The aim is to get consumers that shop online into a store where they can interface with a sales representative that can introduce them to accessories for the purchase, and get store shoppers onto the web site where they can access a much larger catalog.”

Given the small footprint of Radio Shack stores, 2,500 square feet, shoppers see slightly more than 3,000 of the 20,000 SKUs in the retailer’s catalog. A major reason behind the decision to launch the ship-to-store program was that Radio Shack regularly rotates select items carried in store to its e-commerce site to keep store inventory fresh. “We always want to have the right items in the store, but not eliminate those items moved off the shelf from the catalog,” Mansker says.

Customers who come to Radio Shack in search of an item only to discover it is no longer on the shelf may subsequently leave the store unhappy, which overall can have a negative impact on customer loyalty. To encourage these shoppers to move online, Radio Shack sales representatives direct shoppers to the web store. “We gather a lot of field data from store managers about what items shoppers are being directed to buy online,” says Mansker, who adds that the information influences online product placement and promotion.

Understanding how shoppers move between sales channels and use each of them to arrive at purchasing decisions is critical to retailers seeking to grow their base of multi-channel shoppers, experts say.

Office Depot tracks customer behavior across all sales channels and uses it to better leverage each touchpoint with shoppers. Marketing efforts are coordinated across each sales channel to ensure a consistent marketing message without sending an overwhelming amount of promotional materials.

The coupon’s in the mail
To encourage single-channel shoppers to become multi-channel shoppers, Office Depot mails or e-mails customers coupons that can only be redeemed in a sales channel they do not use. The tactic has proven effective, says Kristin Micalizio, vice president of direct sales at Office Depot, though she declines to be more specific. “Customers like a deal regardless of the redemption channel.”

Other strategies used by Office Depot to encourage multi-channel shopping include placing notices on store shelves when an item is out of stock directing shoppers to the web store. “No retailer likes to be out of stock, but this is a way to let shoppers know they can find what they want through another sales channel,” says Micalizio, who adds that each store is equipped with a kiosk to access the Web site.

Increasingly, many consumers are broadening their use of the web to gather information prior to making purchasing decisions. About 55% of multi-channel shoppers research a product online then buy it offline, according to Forrester Research.

Take off
This process can take multi-channel shoppers beyond a retailer’s site and off to comparison shopping sites, blogs, social networking sites and other sources that include customers’ reviews of products and even the retailers. “Retailers not looking at emerging sources of information that shoppers are tapping into can miss out on better serving the multi-channel shopper,” says Gartner’s LeHong.

A Gartner report on multi-channel shoppers due out later this year reveals that multi-channel shoppers often will use multiple sources of information to arrive at a purchasing decision. While in-store visits rated highest at 70%, word of mouth and product reviews tied for second with 45% each. The Internet overall netted 31% and advertisements received 25%.

If the image or marketing message presented to consumers across shopping channels is inconsistent, it can adversely affect customer loyalty to one or more sales channels. That was a problem Famous Footwear recognized and set about addressing last year with its “More Shoes, More Ways” campaign. The aim of the campaign is to create a consistent marketing and merchandising message across its online and in-store sales channels, regardless of the promotional media used.

“Prior to this we did not really package the idea on our web site that we had 1,000 stores and home delivery on out-of-stock items, or let shoppers in our store know they could access the web site to search our entire inventory,” says Jennifer Stack, vice president of relationship marketing at Famous Footwear.

Millions of shoes
At the center of the campaign is a pilot program in which access to the web store is available in 15 store locations. Customers online can access Famous Footwear’s catalog of one million shoe styles compared with the 11,000 to 12,000 typically carried in a store. This broader access to products is a major benefit because footwear shoppers typically understand their size may be out of stock or carried in another location; as a result, they expect to have to hunt for what they want. By extending online access to stores, shoppers can view an item first hand then immediately order it on the web site if the store is out of a style or size.

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“This is the kind of capability multi-channel shoppers want,” says Tocky Lawrence, a vice president at consulting firm F. Curtis Barry & Co. “The more multi-channel integration retailers have, the better off they are when it comes to serving multi-channel shoppers.”

More important, the strategy has created a stronger awareness of the web store and helped put Famous Footwear on track for record sales in 2006, Stack says. It also has encouraged in-store sales associates to become more accepting of the web store and direct store shoppers to it. “Our stores no longer view the web site as a competitor, but as a friendly complement to the business,” she says.

While retailers such as Wal-Mart, Target and The Home Depot are among the leaders in capturing offline sales from multi-channel shoppers, and Amazon.com, eBay and Overstock.com capture the largest share of cross-channel shoppers’ online spending, retailers need to keep in mind that loyalty is not a dominant characteristic of the multi-channel shopper, Forrester Research concludes. “About 50% of shoppers that research online at retail sites buy elsewhere,” says Tamara Mendelsohn, an e-retailing analyst at Forrester. “These are shoppers that typically want the right product at the right price.”

Before retailers can adequately serve and retain multi-channel shoppers, they must develop a 360-degree view of them, industry experts say. Without gathering the necessary metrics across each shopping channel that indicate the behavior of the multi-channel shopper, retailers will not present a consistent image of themselves or marketing message, Mendelsohn warns. “Multi-channel shoppers tend to be more demanding, and if they are not served satisfactorily across each channel, selling to them can be a pain,” she adds.

The discerning nature of multi-channel shoppers makes them less tolerant of mistakes made by retailers during the online shopping process. Mistakes made in this channel are more apt to negatively impact customer loyalty. Research by Gartner reveals that 32% of multi-channel shoppers will not return to a retail web site if they have an unsatisfactory online shopping experience. Multi-channel shoppers purchasing through a catalog are even less tolerant: 43% of those surveyed will not return after a bad experience. Multi-channel shoppers that purchase in store are the least likely to abandon a retailer when it comes to a bad experience, with 25% of those surveyed saying they will not return.

Sales associate’s fault
The resiliency of the in-store shopper is due in large part to blame for a bad experience being deflected onto a sales associate rather than the store itself, Gartner’s LeHong says. “There are vulnerabilities at every service point within each sales channel and retailers need to understand what they are and how they impact the loyalty of the multi-channel shopper,” he says. “The best retailers understand that multi-channel strategies require better service across all channels.”

Although some retailers disagree with industry studies that say multi-channel shoppers are less loyal, they acknowledge that consistent service and branding messages across all sales channels are essential to properly serving multi-channel shoppers. One way to achieve this goal is to coordinate product codes across all sales channels, making it easier for customers to buy through one channel and return in another. It also streamlines the return process for the customer and sales associate.

Industry observers point to JC Penney as a retailer that consistently delivers a high level of customer service across all sales channels. The retailer is noted for coordinating product codes across all channels, making it easier for customers to buy through one channel and return in another. Uniform product coding also streamlines the return process for the customer and sales associate. In addition, consistency in product labeling makes it easier for multi-channel shoppers to locate and view the same item as they move between sales channels.

Retailers in general are determined to eradicate such problems to capture more sales from the lucrative multi-channel demographic. “Our focus is to find out who our multi-channel shoppers are and what they want, then apply that information to create better marketing strategies to serve them,” says Radio Shack’s Mansker. Once armed with that information, he adds, the retailer can convert more single-channel shoppers into the more valuable multi-channel shoppers.

Peter Lucas is a Highland Park, Ill.-based freelance business writer.

How to win over the multi-channel shopper

Research firms Gartner and Forrester Research come to similar conclusions regarding how best to address multi-channel customers. Boiled down, they are as follows.

Brand consistency—Create a consistent look, feel and brand message, as well as SKU codes, across all sales channels.

Multi-channel returns—Enable shoppers to buy in one channel and return in another.

Avoid channel conflict—Integrate all channels and run them as a single business.

In-store promotion—Promote the multi-channel retail experience in-store using web kiosks to connect shoppers to an entire product catalog.

Cross promotion—Use online ads, e-mail, in-store signage and mass media to increase awareness of all sales channels.