January 31, 2006, 12:00 AM

The Multi-Channel Imperative

A new index measures how well online retailers meet their customers` multi-channel needs.

How does a retailer assess whether a web site is high performing, especially during the critical holiday season when the challenges are bigger and the stakes are higher?

The most obvious performance metric is online sales. But, there’s a fatal flaw in looking solely at this number: it dramatically understates the value of the web channel. While online sales are growing rapidly, they still comprise a small portion of overall sales for many retailers.

ForeSee Results’ recent holiday update of the Top 40 Online Retail Satisfaction Index revealed that 51% of online holiday shoppers named the company web site as their primary research channel, yet one in three said they preferred to purchase in a store. That means online sales figures represent only two-thirds of the purchases influenced by the online shopping visit. Since retailers lack the ability to link online shopping visits with sales through other channels, the full contribution of the online shopping experience to sales through other channels doesn’t appear in the e-commerce division’s balance sheet.

A new metric

In the absence of reliable behavioral data linking online shopping visits with in-store purchases, ForeSee Results has developed a new metric, based on the American Customer Satisfaction Index methodology, that projects the contribution of the web site shopping experience to future multi-channel sales. Since the ACSI links customer satisfaction to financial performance, it provides a leading indicator of the impact on overall sales influenced by online shopping visits. We call this metric the Multi-Channel Value Index.

The American Customer Satisfaction Index measures the impact of increasing customer satisfaction on financial performance and is a leading economic indicator. Produced on a quarterly basis by the University of Michigan, the ACSI is a cross-industry benchmark of customer satisfaction with goods and services in the U.S. economy with over a decade of empirical evidence. Applied to the Internet, the ACSI methodology assesses online customer satisfaction, its drivers and future behaviors that are linked to satisfaction, such as likelihood to purchase, to recommend and to refer the web site to others.

The Multi-Channel Value Index enables multi-channel retailers to assess the contribution of the web channel to overall sales while providing a point of comparison to other retailers. The MCVI factors online customer satisfaction into likelihood to purchase online or through another channel to provide a single score that can be readily compared across retailers to gauge how effectively the web site is contributing to overall sales. MCVI scores, like all ACSI-calculated numbers, are shown on a 100-point scale. Higher scores indicate retailers that are more effectively driving overall sales through the web site shopping experience.

Multi-Channel Value Index scores were calculated from data collected by ForeSee Results for the Top 40 Online Retail Satisfaction Index in the spring and this holiday season. Data for each period was collected from between 9,000 and 11,000 online panelists who had visited a site within the past 14 days. Of the respondents, some completed a purchase online while others had not.

The accompanying table shows that retailers with high Multi-Channel Value Index scores are doing a better job at leveraging their web sites to support multi-channel sales than those with lower scores.

Overall, the aggregate MCVI score for the 36 multi-channel retailers included in the Top 40 Online Retailer Satisfaction Index dropped from 80 in spring 2005 to 75.9 during the 2005 holiday season. All but three of the retailers (1-800-Flowers.com, Chadwicks and Banana Republic) had declining scores. The decline in most multi-channel retailers’ MCVI scores was driven by several factors:

  • A 4% aggregate drop in customer satisfaction from spring 2005 to the holiday season
  • The increased proportions of infrequent and first-time visitors to the site, who report lower satisfaction and are less likely to purchase
  • The heightening of needs and expectations of online shoppers, influenced by free shipping deadlines and promises of significant discounts.
  • Out-of-stock status of desired merchandise added to the frustration of online shoppers.

For the holiday 2005 season, QVC had the highest Multi-Channel Value Index score at 83, 14 points higher than the score of 69 for SonyStyle. A declining MCVI score during the holidays doesn’t necessarily mean that online holiday sales will go down, since during the holiday period, the pool of customers in the market increases greatly. It means that these companies were less effective at leveraging online customer satisfaction to support sales through all channels than in the non-holiday period. Improving MCVI scores indicate that the retailers are more effectively meeting the needs and expectations of holiday shoppers and can expect this to foster future purchases overall in the coming months.

The surprise leader

The research looked at MCVI scores across several product and sales channel categories. In the category of store-based multi-channel retailers, online shoppers generally exhibited higher likelihood to purchase offline than online, with the one exception being Neiman Marcus. If store-based retailers are able to drive online customer satisfaction higher, they should see more online purchases, leading to an increase of the multi-channel value of the web site.

Surprisingly, the apparel category outperforms the computers and electronics category with an MCVI aggregate score of 77 vs. 73.9. This is unexpected because computers and electronics products are more of a commodity on the web, with a constant set of specs that can be readily compared online. However, apparel is a more unique product, and the apparel retailers have made great strides in overcoming the challenges of projecting fit, product information and product descriptions. In both of these categories, we see no strong preference to purchase in one channel over the other.

Multi-channel retailers should capitalize on key seasonal opportunities and leverage online customer satisfaction measurement to help drive sales through all channels:

Maximize overall sales revenue, instead of focusing independently on channel revenues. Multi-channel retailers need to understand how the web reinforces sales throughout the organization and to strive to understand the multi-channel customer perspective in a more integrated way. Understanding how customer satisfaction with the online shopping experience influences future cross-channel purchase behavior in all channels will help retailers make the optimal resource allocation decisions to take greatest advantage of the holiday season.

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