Evolving Customer Expectations: The Retailer's Dilemma

By Jim Bengier and John Stelzer

Retail has undergone many transformations driven by customer expectations. As customers routinely look for new ways to research, shop, purchase, monitor and return merchandise, retailers have had to continually adjust their business model. What used to be "value add" is rapidly becoming the minimum ante to the game. No longer satisfied with just having the right product at the right price in the right place at the right time, customers now expect a unified shopping experience wherever they see the retailer's logo…whether it's on the store, the Web site, the catalog or the special order kiosk.

Customer experience has evolved to include a new set of expectations, and these expectations are forcing retailers to rethink strategies and tune up execution. Single-channel retailers are adding channels to secure customer loyalty and grow share of wallet. Multi-channel retailers are seeing that bet and upping the ante with cross-channel execution as a new competitive differentiator.

The Customer Experience Has Evolved

The multi-channel experience grew out of a means to increase customer count and expand assortment. Even with the introduction of the automobile, a traditional retail outlet could only draw customers from a limited radius, thereby limiting growth. In order to expand the customer base, the catalog was born.

In 1888, the first catalog issued by Richard Sears and the R.W. Sears Watch Co. and it featured watches and jewelry. Not only did this catalog increase customer awareness, it also took a high margin commodity and made it readily available to new customers. The first multi-channel customer experience was established.

The next evolution of the multi-channel customer experience occurred with the creation of Web sites. Retailers once again, found that customers' expectations had changed. The customer now required the retailer to have a Web site where they could shop and purchase merchandise easily. Retailers found that they had a huge opportunity to expand brand awareness while meeting customers' expectations.

But, as Internet shopping grew so did customer expectations. Customers were no longer satisfied with all aspects of their shopping experience (e.g., research, shop, purchase, receive and return) in a given channel being restricted to that same channel. They looked for more convenience and flexibility from retailers.

With the number of channels through which they could interact with retailers expanding (e.g., in-store, online, catalog/call center, kiosk, special order, TV, mobile, etc.), consumers began to expect a more unified experience regardless of the type of channel or the number of channels accessed. It was no longer good enough for a retailer to present its offer in a multitude of ways. The new expectation was that the experience be seamless, whether interacting with the retailer over the Web, via its catalog call center, in stores, via the retailer's special order kiosk, through a delivery and installation service partner, or wherever the retailer's brand leads them. Cross-channel retailing was the new requirement.

Retailers Answered the Bell

Once again, retailers modified their business model…this time, to offer in-store returns of purchases made via the Web or call center. The new service meant that consumers avoided the return shipping charges and could easily drop the returned merchandise off at their local store. Retailers benefited as well. They were boosting customer satisfaction by giving consumers a more positive and convenient return experience. And, by getting the customer into the store to make the return, retailers also were increasing the likelihood that the customer would spend the refunded money while there in the store.

The retail business model evolution didn't stop there. Recognizing that cross-channel execution could be mutually beneficial for the retailer and their customers, retailers also saw the opportunity to offer in-store pick up of orders placed via other channels.

Customers enthusiastically embraced the added convenience, speed to value and lower costs that in-store pick up and return afforded them. Their merchandise was reserved for them, they got instant gratification, they could return products with greater convenience, and they didn't have to pay shipping charges to receive or return the merchandise. In fact for some retailers, the addition of in-store pick-up alone has grown to represent 15-25 percent of their total business and continues to grow rapidly.

Since the dawn of this new retail paradigm, those who have embarked upon the path of cross-channel retailing are enjoying the fruits of their labor:

  • Additional in-store sales from in-store pickup of online orders — REI, which rolled out a program for in-store pickup of online purchases, reported that "one out of every three people who buy something online will spend an additional $90 in the store when they come to pick something up." That tendency translates into a healthy 1 percent increase in store sales.
  • Larger online market basket because of no shipping charges — 67 percent of consumers indicated shipping costs are the top reason preventing more online purchasing.
  • Heightened customer satisfaction — 58 percent of consumers surveyed considered it important to be able pick up online purchases at a store.
  • Increased sales from multi-channel shoppers — Multi-channel shoppers generate 20-25 percent more profit than the average customer.
  • Opportunity to convert returns into in-store purchases when merchandise is returned to the store — An impressive 90 percent of consumers surveyed considered it important to be able return online or catalog purchases to a store. And 78 percent indicated they are likely to buy additional items while in the store.

Cross-channel Is Becoming the Norm

The cross-channel experience has created today's "spoiled consumer," and it raises the bar for every retailer. Having tasted the convenience and cost savings that a seamless customer experience delivers, consumers now expect that they should be able to complete the transaction any time, anywhere and in any way. And they expect the brand experience with any given retailer to maintain its integrity regardless of how they shop or across how many channels they shop.

As you assess your readiness as a cross-channel retailer, consider the capabilities you offer your customers:

  • Can they order online and pick up the product in the store?
  • Can they order via the catalog call center but check the shipment status via the Web site…or vice versa?
  • Can they place a special order at one store and check that order's status at another store, via the Web site or by calling customer service?
  • Can they expect regular proactive notification about the status of their order (e.g., from order confirmation through to delivery)?
  • Can they receive their online purchase at home but return it to the store?

In short, can your customers research anywhere, buy anywhere, inquire on order/shipment status anywhere, receive/pick up the product anywhere, and return it anywhere? If not, you may be multi-channel, but you are most certainly not cross-channel. And the problem with this is that today's consumer increasingly expects that wherever they see your logo they will have a unified experience. A fragmented shopping experience (i.e., dealing with several disjointed entities) is unacceptable and ultimately leads to lost sales and eventually lost customers.

Become Customer-driven Now

Retailers are constantly looking for the next competitive advantage. Historically, store layout and ambience, product mix, and value-added services have been the classic levers that retailers continually tweak looking for the next competitive edge. With the advent of so many new sales channels, multi-channel retailing has proven a very rewarding next step for retailers.

But now consumers have come to know the convenience and economy of a seamless cross-channel experience. And increasingly, they expect it from all their retailers. They don't care that each of your many channels runs a different application or that it's managed by a separate department or division. They see your logo and expect a seamless experience.

More and more retailers are becoming customer-driven in delivering this unified experience to their customers. And these consumers have become spoiled by the taste of how it can be. Even though multi-channel is better than single-channel, it pales in comparison to the unified customer experience that is only possible with cross-channel retailing. And what should be most troubling is that consumers now know the difference.

About the Authors: Jim Bengier is global executive for retail industry marketing at Sterling Commerce. A seasoned retail supply chain executive, Bengier has over 25 years of experience within the apparel, footwear, and electronics categories, and he has expertise in forecasting, location management, developing inventory improvement metrics and processes, business optimization strategies and merchandise system implementations. He can be reached at jim_bengier@stercomm.com. John Stelzer is director of retail industry marketing at Sterling Commerce. His work with retail industry leaders, associations, standards bodies and industry councils has placed him at the forefront of nearly every major industry initiative in the last 23 years, and he pioneered many of the standards used by companies today to drive operational efficiency and accelerate supply chain execution. He can be reached at john_stelzer@stercomm.com. More information at www.sterlingcommerce.com.

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