From Multichannel Fragmentation to Cross-Channel Transparency: Creating Competitive Advantage in Demanding Retail Environments white paper page 1 white paper From Multichannel Fragmentation to Cross-Channel Transparency: Creating Competitive Advantage in Demanding Retail Environments Executive Summary Most retailers today allow their customers to shop via multiple channels, offering some combination of traditional stores, catalog/call centers, and ecommerce sites. However, due to the disparate infrastructures that typically underlie these individual channels, consumers who “channel hop” as part of their shopping behavior often face an experience that is fragmented, inconsistent, and inflexible. This situation presents a significant opportunity for forward-looking retailers. Those who can make the transition from their current multichannel infrastructures to a fully integrated, cross-channel retail environment stand to gain many rewards. These include greater visibility into their customers and operations, enhanced revenue, and the customer loyalty that comes from providing time-starved consumers with the convenient, consistent and flexible shopping experience they increasingly expect. This paper explores what cross-channel transparency looks like through the consumer's eyes, the costs retailers incur by maintaining the status quo, and key steps retailers need to consider as they undertake cross-channel initiatives. “ The Internet boom has morphed into the multichannel phenomenon and that phenomenon has brought new challenges to global retailers. ” - Aberdeen Group The Evolution of Multichannel Retailing: From a Pitched Battle to an Arranged Marriage in Just 10 Years In hindsight, the predictions that online commerce would one day supplant bricks-and-mortar stores and well-established direct merchants now seem laughably naïve. While ecommerce continues to grow at an annual compounded rate of 25% to 35%, it still only accounts for about 2.5% of total retail sales; retail stores remain the predominant sales channel. In fact, what initially looked like a pitched battle between “bricks and clicks” has come to resemble an arranged and sometimes bumpy marriage between the two, with leading retailers pursuing multichannel strategies that encompass some combination of stores, catalog/call centers, and ecommerce sites. Reflecting this trend, most traditional retailers now supplement their store locations with an ecommerce site. Leading direct merchants, such as Lands' End and L.L. Bean, were early adopters of ecommerce and more recently have opened or greatly expanded their store locations. While multichannel selling is not a guarantee of success, it does appear to be a prerequisite. In a study conducted by Aberdeen Group, 64% of respondents who were categorized as best-in-class retailers reported that they sell through all three channels, and 27% sell in stores and on the Internet. Only 9% of those best-in-class retailers sell through stores only and none of them sell through the Internet only. page 2 white paper Understanding the Difference Between Multichannel and Cross-Channel Environments Now, the next stage in retail's evolution is under way as retailers strive to make the transition from today's multichannel environments to fully integrated, cross-channel environments. The distinction is a vital one. Multichannel environments typically consist of disparate, channel-specific technology infrastructures and business processes that were developed over a number of years. Often, there is extensive focus on processes within a channel but minimal integration across channels. As a result of this situation, the retailer has a fragmented view of its customers, limited visibility into its operations, and a lack of flexibility when it comes to implementing customer-friendly policies. Mirroring this state of affairs, customers who use more than one channel to shop - as millions now do - have an equally fragmented and inflexible experience. Though they are ostensibly dealing with one organization, they often encounter different inventory, pricing, policies and merchandising, depending on the channel being used. The person they speak to at the call center seems to know a great deal about them; the clerk in the store checkout line knows almost nothing about them. Over the lifecycle of any particular transaction, they must “stay in channel”, even if it's inconvenient to do so, because the retailer's own personnel have no way to view or modify the transaction from another channel. Once an order is confirmed, it is cumbersome to immediately change or cancel the order because the transaction may not be posted to the system for hours - and therefore is not visible to customer service representatives. Consumers Expect Cross-Channel Capabilities Today And Leading Retailers Are Setting the Pace While many retailers reluctantly accept the limits imposed by legacy, multi-channel infrastructures, consumers emphatically do not. Without ever having heard the term “cross-channel shopping experience,” millions of people now expect cross-channel conveniences, because that's what leading retailers already provide to them. In recent years, companies as diverse as Best Buy and Patagonia, Target and Abercombie & Fitch, Circuit City and Brooks Brothers have deployed a new generation of cross-channel retail solutions that allow people to shop, ship, pay and make returns in whatever way is most convenient to them. In a dramatic and fundamental departure from legacy retail systems, these new solutions integrate data on all aspects of the transaction life cycle - including customers, products, inventory, orders, and fulfillment - across all channels and in real time. As we shall explore in some detail, this cross-channel transparency offers two strategic benefits. First, by offering consumers a superior shopping experience, retailers can differentiate themselves from competitors, enhance customer loyalty, and reduce the pressures to compete on price alone. Furthermore, in gaining a single, cross-channel view of the retail environment, retailers can understand and manage their business far more responsively and effectively. page 3 white paper The High Cost of Inaction Conversely, retailers who ignore the imperative of cross-channel transparency do so at their own peril. They put themselves at risk of lost revenue opportunities when consumers abandon a transaction or defect to a competitor due to a frustrating experience. They suffer reduced margins when inventory is discounted because it's not visible to shoppers in all channels. Unable to seamlessly integrate key business processes, they incur higher costs to deliver service that is comparable to competitors - or to recover from frequent customer dissatisfaction issues. Lacking visibility into buying trends and behavior, they are always reacting to the market rather than leading it. In short, those who can't make the transition from a multi-channel to a cross-channel world will find themselves left behind - both by their competitors and their customers. What “Cross-Channel” Means to Consumers: More Minutes in the Day What is cross-channel transparency? For consumers, it means a shopping experience that is convenient, efficient, flexible, and personalized - regardless of the channel being used and no matter what point in the transaction: before, during or after the sale. By allowing people to “channel hop,” retailers enable time-starved customers to shave precious minutes or hours off of mundane shopping tasks. So, for example, individuals can: Check pricing and item availability via the web before heading out to a store or ordering online. Order via a direct channel (web or call center) and pick the item up at a store location, eliminating the delay associated with shipping. Utilize gift registries, value cards and promotions from within any channel. When an item is out of stock at a store location, order it through a kiosk or at the point of sale - so the trip isn't wasted - and have it shipped to the consumer's address, so a second trip isn't required. Return or exchange online purchases at a retail location, saving the time required to re-pack it and take it to the post office. Return or exchange an item with no paperwork required, beyond signing a return receipt. Register online for in-store events and consultations. The Freedom to Change Your Mind In a true cross-channel environment, transactions are posted in real time, and transaction data and an updated customer history are immediately visible across all channels and all relevant business systems. This makes it much easier to accommodate customers who suddenly change their minds after hitting the “Confirm Order” button or walking out of the store with a purchase. Transparency makes it fast and easy to cancel a recent transaction, add something to an order, or change the shipping address - at no cost to the retailer other than the few moments it takes a CSR to key in the changes. A More Personalized Experience With all channels having access to a complete customer history, sales and service associates can interact with customers in a knowledgeable and efficient manner, and retailers page 4 white paper can tailor their rewards programs and merchandising based on a consumer's history and buying behavior. The total effect is to simplify the consumer's life, facilitate purchases, and deepen the customer relationship, to the exclusion of competitors. What “Fragmented” Means to Retailers: Having to Say, “I'm Sorry” Hundreds of Times a Day Compare this vision to the fragmented shopping experience that many multi-channel retailers offer today. It starts with the retailer having multiple “views” of the customer - one for each channel - and no easy way to consolidate them or reconcile the differences among them. This model carries over into inventory, order management, and fulfillment, making it impossible to gain a complete and real- time picture of a transaction. The impact of such fragmentation is difficult to quantify, but three examples suggest how devastating the cumulative effect can be on an organization's revenues, brand image, operational efficiency and profitability. Lack of real-time inventory data “I'd love to sell you that flat screen TV in time for the big game, but I can't find the model you want. Sorry!” In many legacy environments, inventory data available to the channels is updated in batch mode at the end of a day or perhaps even less frequently. As a result, information on item availability is always out of date, by anywhere from several hours to several days. This means that store customers may stand by impatiently as a sales associate calls around to other stores trying to find an out-of-stock item. Web and call center customers who believe they have completed a transaction may subsequently get a call, email or postcard saying the item is out of stock or on back order - and then perhaps choose to cancel the order. In both these scenarios, the retailer has jeopardized what would otherwise be a guaranteed sale, squandered scarce staff resources trying to resolve a problem, and sorely tested the consumer's patience. Repeated hundreds of times a day, 365 days a year, across all channels, the effect erodes the top line - by causing the retailer to miss revenue opportunities - and squeezes the bottom line by increasing costs. No cross-channel, enterprise view of the customer “I'm sorry, but store policy doesn't allow us to exchange an online purchase unless you have a receipt.” One of the imperatives of retailing is to keep the most profitable and high-lifetime-value customers satisfied by providing exceptional service, a personalized shopping experience, and loyalty programs. The good news is that leading direct merchants have developed sophisticated systems for identifying these customers, tracking their purchase history, and going the extra mile to quickly resolve problems and issues - thus reinforcing their loyalty. The bad news: that view tends to be channel-specific (and thus incomplete), and it is not necessarily available at the point of sale in retail stores. Take the case of a customer who frequently purchases high-end apparel and accessories via the web from a specialized retailer. Wishing to exchange an item she recently bought online, she visits a retail store but forgets to bring the receipt. The clerk has no way to verify the transaction or understand that he is dealing with a VIP customer. Following a blanket policy, he tells her she needs to complete significant paperwork or he can't accept page 5 white paper the exchange. Feeling both annoyed and embarrassed the woman asks to speak with the manager, who also insists that the forms be completed. Frustrated, the woman finds herself asking: “Don't you people know how much money I spend here every year?” and stomps out without completing the return. Based on one negative experience, this high-lifetime-value customer abandons the retailer without anyone realizing it has happened or why. Incredulous and upset by the incident, she tells the story many times to family and friends, damaging the company's brand image. Lack of distributed order management and fulfillment “I'm sorry. But if your cousin Nancy from Chicago wants to make a purchase from your wedding registry, she has to call our Boston store. (And by the way, what's a kiosk?)” Consider the example of a couple who visits a retailer's store at a local mall to find out about wedding registry services. In deciding to register, they are, in effect, bringing the retailer thousands of dollars in business. What they expect in return is an easy, convenient and completely flexible way for family and friends - who may be scattered around the world - to research, order and arrange delivery of gifts in any way that suits each buyer's unique needs and preferences. Some examples: Some family members, may want to handle the whole process online (or have an assistant handle it), never speaking to a sales associate or setting foot in a store. Others will probably want to browse the registry at an in-store kiosk and “touch the merchandise,” then place their order from the kiosk without having to stand in line at a register. Several guests will want assistance from a call center representative or in-store sales associate and have that person complete the order for them. Buyers expect flexible delivery options too. Guests who will be traveling a long distance often prefer to ship the gift directly to the recipients. Those who want to wrap a gift and enclose a personalized card may choose to take the item home with them or have it shipped to their home. Even in situations where a customer has a high regard for a retailer's brand, the inability to provide these capabilities can result in their business being given to a competitor whose store sits at the other end of the same mall. The Vision for Cross-Channel Transparency: Centralized, Integrated, Real-Time From a retailer's perspective, cross-channel transparency can be summed up in a few words: centralized, integrated, real-time. Across every channel, the vision is to offer a complete, consistent, and up-to-date view of customers and transactions, enabled by integration of customer history, inventory, order management, and fulfillment. While there are many dimensions to this vision, a handful of key components are summarized below. An enterprise view of the customer Like the shopkeepers of old, best-in-class retailers know their customers and are expert at leveraging that knowledge to enhance and personalize the shopping experience, drive sales, and reinforce loyalty. In contrast, Aberdeen Group found that 50% of retailers in the laggard category collected customer data but made no use of it whatsoever; only 14% of laggards made the information available at the point of sale. page 6 white paper Cross-channel integration provides an enterprise view of customers that includes a consolidated, up- to-the-minute purchase history, total lifetime value, purchases broken down by channel and retail location, and available incentives and customer loyalty points or activity. Making this information available at all touch points empowers personnel to act as customer service representatives, not just order processors or checkout clerks. Customers who warrant VIP treatment, as well as those with a history of chronic complaints or excessive returns, can be readily identified. Relevant recommendations for cross selling and upselling can be automatically provided to CSRs or directly to the consumer via the web, based on purchase history. An enterprise view of inventory Cross-channel access to real-time inventory information serves a number of purposes. First, it helps the retailer maximize sales at full price and optimizes inventory investments by ensuring that inventory available in any channel is visible and can be ordered from any other channel. If an item is out of stock at a store location but is available at another store or a distribution center, it can be easily located, ordered and fulfilled for the customer. Real-time inventory data also makes it possible to accurately set customers' expectations about order fulfillment and delivery before the transaction is completed. If an item is out of stock, the consumer can be informed upfront, and the sales associate can proactively suggest an alternate product. This helps avoid the canceled orders and bad feelings that result when consumers learn after the fact that a purchased item is out of stock. A QUICK CHECKLIST FOR EVALUATING CROSS-CHANNEL SOLUTIONS Integration of customer history, inventory, and transactions Real-time transaction processing from any channel An enterprise view of transactions Access to customer activity from any channel about all channels Ability to view and locate inventory in and from any channel Order fulfillment from anywhere Upsell, cross-sell and personalize the shopping experience across all channels Share common loyalty and incentive programs Support for in-store returns of online and catalog purchases Robust point-of-sale and back-office technologies Real-time analytics to enhance operational efficiency The ability to access order management and fulfillment systems in real time allows retailers to be more responsive and flexible in dealing with customers, but without incurring the high costs and service delays associated with manual service processes. Unlike legacy systems that are only updated once a day, real-time order management makes a transaction immediately visible across the enterprise. Orders can be changed in real time, accommodating customers who change their minds about a purchase. Crosschannel order management also facilitates returns and exchanges of purchases, regardless of the purchase channel. All the details of the original transaction can be called up, the customer can be credited for the return, and the item can be added back to the inventory available, with minimal effort on the part of personnel or customer. One process for entering data A retailer who is implementing best practices for achieving cross-channel transparency will have only one operational data store for all its customer information and product information. This means data only needs to be entered once; it can then be centrally managed in uniform manner and distributed and shared across channels, as needed. A single operational data store minimizes data entry time and costs and reduces the likelihood of mistakes and discrepancies. Furthermore, customers enjoy a consistent, reliable and accommodating experience, which the retailer can deliver efficiently and cost effectively. The current reality falls far short of this ideal. According to Aberdeen Group, only 19% of best-in-class retailers use this best practices approach; nearly half enter data into a channel “system of record” and then move it electronically to other channels. Even this system is far more efficient than a third approach, which entails entering data separately for each channel. Tellingly, 57% of the retailers Aberdeen categorized as “laggards” reported that they entered product and customer information in this latter way. page 7 white paper Integrated business analytics to enhance insight The value of a unified, up-to-date data repository increases exponentially when it is coupled with integrated business analytics. Sophisticated analytics provide rich insight into emerging trends, historical patterns and current operations - with the result that decisionmaking is greatly enhanced. Illustrating the power of integrated analytics, the following examples show how a retailer can: Focus on the products and customers that make the biggest contribution to financial performance. Not all $200 purchases are equal. A bargain hunter who buys four low-margin items on sale does not contribute as much to the bottom line as one who buys one high-margin item at full price. Analytics can help a retailer distinguish between the two and then adjust marketing, merchandising and customer rewards programs to improve financial performance and retain the most profitable customers. Respond to emerging trends. With analytics, retailers can quickly spot weekly, seasonal or year-over-year trends in buying behavior for popular items (e.g., cashmere sweaters, game consoles), seasonal products (ski equipment, patio furniture) or laggards (lace doilies, feather dusters) and also compare buying behavior across channels. They can then adjust marketing plans and inventories accordingly. Quickly test and fine-tune promotional offers, based on response and profitability. For online shoppers, free shipping can be used as an incentive to encourage additional purchases. However, because free shipping incurs a cost, retailers want to optimize the point where it “kicks in.” Is it $50? $75? $100? Analytics can help find the answer. For example, a retailer with an average order value of $60 who sets the level at $75 can almost immediately see the impact of that change, as reflected in data on revenue per order. They can then adjust the free-shipping level up or down, based on the volume and increased revenue impact, until finding the point that maximizes gross margin. Identify and resolve potential problems before they undermine customer loyalty or vendor relationships. Product returns can negatively impact revenues and customer loyalty, yet many retailers do not have detailed and real-time visibility into returns. Analytics can help retailers proactively mitigate the impact of returns by providing data such as the most frequently returned products, the most common reasons a specific item is returned, the original purchase channel, and revenue impact by item, vendor and channel. In turn this data facilitates problem solving and provides leverage when dealing with vendors. For example, if there is a spike in returns due to product damage - and that spike crosses all channels - this probably indicates the product is poorly made or its packaging is inadequate, and the issue needs to be taken up with the manufacturer. However, if the spike only occurs for online purchases, the problem more likely is related to shipping and needs to be addressed with the respective vendor. How Do We Get From Here to There? People, Policies, and Processes - Enabled by Technology While the right technology is crucial to the success of a cross-channel strategy, technology is just a platform for enabling people, policies and processes - and all these need to be in alignment to ensure a successful initiative. “Alignment” is easy to say and hard to do. In environments where individual channels - and, in some cases, individual stores - have long operated independently, policies often conflict, creating barriers to a consistent and page 8 white paper convenient shopping experience. Furthermore, fears that a nascent channel will cannibalize the sales of a dominant one can breed resistance to change. Take, for example, one ostensibly simple policy: allowing online shoppers to return web purchases at any store location. Compared to the cumbersome manual processes that are required to accomplish this task in a traditional setting, a truly integrated cross-channel platform makes it fast and easy for store personnel to accept web returns, credit the customer, and record the item as being available in the store's inventory. Doing so certainly makes good sense from a business and brand perspective; it earns customer loyalty by providing a more convenient shopping experience, and it brings the customer into the store, where he or she may make additional purchases that offset the return. However, if other policies are in conflict with this one, the overall impact of integration will quickly be undermined. For example, if the retailer's accounting policy is to credit web returns against the local store's revenue, many store managers will tacitly discourage such returns because they undermine annual financial performance. Worse still, if the retailer wishes to change the policy but can't do so because its system is too inflexible, the full value of cross-channel investments cannot be achieved. People: Leadership, engagement, ownership In any retail organization, there will be dozens of such “points of friction” that need to be eliminated or reduced by harmonizing policies, processes and technology. This is largely an organizational challenge that requires both executive leadership and engagement with key stakeholders. At the executive level, a cross-channel champion will create the vision, inspire the troops, and ensure sufficient resources are available to develop channeltransparent capabilities. Having a champion is not enough however. Cross-channel and cross-functional teams must be put in place to foster ongoing cooperation among previously isolated groups and to identify, prioritize and resolve channel conflicts, down to the policy and process level. This level of involvement helps ensure an effective solution and also creates a sense of ownership among stakeholders that will accelerate user acceptance once the solution is deployed. Choosing the right cross-channel solution Vision, goals, policies, and processes: Ultimately, all must be implemented via the retailer's cross-channel system, making the choice of a platform and vendor an important success factor. Increasingly, retailers want a pre-integrated suite of solution components that seamlessly link all aspects of the transaction life cycle: customer history, inventory, order management, fulfillment, collaboration, and back-office integration. Choosing a proven and fully integrated solution greatly accelerates the goal of creating one view of customers and transactions. Equally important, it reduces the complexity, costs and risks that are introduced when custom integrations are required. The platform must be flexible enough to accommodate the infinite variations in how retailers choose to manage their policies and processes. It also needs to sup- port many different deployment scenarios: from small retailers that want to work with one vendor and deploy an all-inclusive solution in a short period of time, to large organizations whose entrenched multivendor infrastructures require a phased, incremental approach to deployment. Another important attribute is the ability to support and adapt to change and growth across many dimensions - including the number of stores, users, end-point devices, products being merchandised, transactions, etc. - without compromising business performance. page 9 white paper Robust migration tools are required to preserve data assets that may be dispersed across multiple legacy systems. Easy configurability makes it possible to tailor the system to accommodate established processes, and integration tools allow developers to link retail systems with a wide range of third-party and homegrown applications. Expertise: Choose a partner committed to your success By its very nature, a cross-channel integration touches several core systems a retailer relies on to run its business. A botched implementation can be disastrous, disrupting business-critical processes, causing a wave of customer complaints and defections, increasing the workload and stress levels of staff, and requiring costly remediation measures. In choosing a solution, it's important to choose a provider who can help ensure a smooth, timely deployment that is transparent to customers and partners. They should have proven expertise in cross-channel integration, a track record of successful, on-time deployments with brand leaders in a range of retail sectors, and the resources to assist you with planning, integration, deployment, as needed. When evaluating a provider's references, retailers should be sure to inquire about these dimensions of the organization's experience as well as their satisfaction with the vendor's product, service and ongoing support. About Datavantage/CommercialWare Datavantage/CommercialWare provides comprehensive, best in class retail solutions to retailers worldwide. Offering sophisticated technology, rich functionality and a proven track record of success in demanding environments, Datavantage/CommercialWare products power retail commerce for more than 450 leading brands, including Abercrombie & Fitch, Chicos, Sur La Table, Jos. A. Bank, J.Jill, Ritz Camera, and Patagonia. Our solutions help retailers solve business-critical challenges, enabling them to: Provide a unified view of the customer across the entire transaction lifecycle and all channels Build profitable customer relationships through consistent delivery of high level customer service Optimize efficiency through operational excellence, analytics, and collaboration Drive down costs, reduce shrink, manage data, and maximize customer value Deliver an exceptional customer experience Datavantage/CommercialWare's full suite of cross-channel retail solutions include point of sale, marketing, merchandising, direct-to-consumer, and analytic capabilities. With flexible deployment options, Datavantage/CommercialWare solutions integrate easily with existing resources and adapt to evolving business requirements, thus protecting and enhancing the value of existing and future investments. For more information, call 800.328.2826 or visit our web sites at www.datavantagecorp.com and www.commercialware.com.