value insights

Multichannel Strategy Integration- Valutrics

Channels have always had the power to transform markets. They are the fundamental drivers of consumer access to business, and their composition has a profound impact across both the revenue and cost base of the enterprise.

Andy Grove (ex-Intel Chairman) is famously quoted as having said that, ‘in the future, all companies will be internet companies’ . This is certainly coming to pass as more and more businesses realize that this means of communication is having a major impact on consumer and business behaviour, providing ubiquitous information (where did you last look when you did not know something, or wanted to research a product?), opening up new digital channels (to your bookshop, bank or auction house and many other businesses) and creating an increasingly digital society that encompasses not just trading and communication but also information and social networks.

A look through the famous names in the business world quickly reveals many that are actively exploiting this new channel – Amazon, Cisco, Tesco, IBM, Capital One, First Direct. Companies compete as much with their innovative channel strategies as on innovative products or services, and, while many of the dotcoms have fared poorly, more and more web-inclusive, multichannel businesses have started to capitalize on the changes in the way that businesses and consumers want to interact.

The increasing range of choice is accompanied by new opportunities to access channels without owning them. Third-party contact centers, web channels, and field forces for sales or support are all on offer and can be combined with increased sharing of information between parties in the channel. This creates opportunities for both ‘white label’ services and the provision of complete, integrated channels for ‘rental’ . In many industries, the use of third-party logistics providers and outsourced call centres can mean that huge parts of the customer lifecycle are merely rented by the brand owner. Such opportunities have enabled many companies to avail themselves of competent channels that they could never have hoped to create themselves – sometimes many thousands of miles away, on the end of a helpline or website.

Channels combination for each customer group
Too many organizations multichannel operations are simply a fact of business life – little attention is paid to the overall strategy for designing and operating them.
The multichannel strategy should focus on helping the business engage with the challenge of providing a new range of channels to match each customer segment’s needs much more tightly. Nonetheless, successful multichannel transformation requires several key issues to be addressed if the strategic advantage of change is to be unlocked. Not least amongst these will be specifying the range of channels to be considered.
Challenges include the following:
• How wide an overall choice of channels should be offered?
• How much differentiation should be targeted between different customer groups?
• Should channel coverage be controlled by the supplier or left to customer choice?
• How should different steps in the customer life cycle be handled?

1. Choice of channels
At the height of the dotcom boom there were many who felt that the web channel would sweep all before it, and that clicks inevitably competed head-on with bricks. As the bubble burst, those on the physical rather than virtual side of the divide started to claim victory and pronounce the web a dead medium.
It is, however, becoming increasingly clear that the web is anything but dead and that increasingly bricks and clicks are both needed for a successful channel strategy. Nonetheless, the fundamental question of how wide to cast the channel net is near the top in any change, especially from a well-established, narrow model such as that historically used in pharmaceuticals, retail or many industrial companies.
The reason is simple: adding new channels is a costly exercise, especially where property or staff are involved, but even when a new online presence is sought – especially if integration is needed. In addition to the cost, a broadening of channels can often present a market risk, as it disturbs the existing channel participants and may cause them to act defensively.

Twenty years ago it was the traditional wholesale channel that would react aggressively to the decision by suppliers to sell direct to the new large-space superstores (in food, DIY, furniture or other sectors). Now it is these new retailers who are wary of suppliers who might want to bypass them and go direct on the web and telephone. In most business-to-business markets, complex channel chains generally make the focus on price and terms rather than supply. However, sensitivity is mostly reserved for the sales relationship. Looking more widely at the question normally means that the organizational challenge is different – consolidation and integration, or the creation of lower cost-to-serve channels (like web, intelligent voice recognition (IVR) or telephone) to replace expensive face-to-face interactions.

It is rare that a narrow channel strategy is the preferred choice for a channel change. More often than not these are start-up or new-entrant approaches where the narrow channel offer is integral to the proposition or provides an easy underbelly to attack by a focus on just one or two segments of the market. Once established, the channel position often extends to allow other customer groups to be served. Dell changed its model to address corporate customers, adding extranets and account managers (and now retailers!); First Direct added the web and made more use of the HSBC branch and ATM network to enhance service.

In practice, most businesses, when they examine what customers currently do, will find that individual customers, in whatever segment they sit, use a mixture of channels, depending upon their priorities and needs.
The challenge is to strike the right balance between providing and integrating channels to meet customer segment needs, and the cost of this provision both for build and ongoing management.
As a result, understanding the key needs of customers through their life-cycle is vital in putting the strategy together and defining the right set of channels to offer to each group.

2. Customer Differentiation
One of the keys to unlocking the challenge of breadth is to understand the importance of beginning your multichannel strategy from the customer viewpoint, even when the trigger for innovation is to do with costs.
Everyone knows that customers are not all the same; they have different needs, and are of different value to the organization. They also behave differently, and use channels in different ways. Despite this, all too often businesses start out on a multichannel strategy with no effect ive segmentation as a basis for the channel approach, and this makes any innovation difficult to focus.
It has always amazed us how strong the herd instinct is in industries, and how readily organisations assume that what is good for another is good for them. Such assumptions are frequently the real undoing of benchmarking exercises.
Yet, looking across industries as diverse as retail banking, automotive companies, pharmaceuticals, food and drink or building products, one could be forgiven for assuming that little attention has been paid to crafting innovative multichannel strategies. The limited differences that exist generally reflect the paucity of attention that has been devoted to really understanding how customers engage different channels.

One of the first channel strategies we were engaged in, over 20 years ago, was for an automotive company. Despite its different brand profile, small volume share (making outlet density an issue), strong brand loyalty and up-market customer base, its channel strategy was identical to that of the leading volume manufacturer. An external perspective could see clearly that advantage, in terms of experience and cost, could be gained by an alternative approach.

To date, almost all pharmaceutical companies have assumed that all primary-care physicians (in most countries in the world) are best served by a face-to-face dialogue with a sales representative, or invitations to symposia and events. It is only now, as physicians continue to restrict their access and start increasingly to use other methods of information gathering, and more complex account structures emerge, that big pharma is beginning to change its customer interaction model.

It is only in the past couple of years that telecommunications companies have started to segment their customers beyond the business, small-office-home-office (SOHO) and consumer segmentations (and, within the latter, identifying the high-value customers). Even then, they have done little to really look at channel usage and segmentation to create operational changes that impact cost, access and differentiation.
Many business-to-business organisations rarely get beyond industry sector and company size as a basis for segmentation, and then they fail to ground these sufficiently to make effective operational segmentations.
We have worked with chemical companies and software businesses that have differentiated channels neither by product category nor by customer type, instead preferring to adopt a standardised structure for each aspect of the customer life-cycle. This frequently means over-serving low-value customers and under-serving the vital high-value ones. this type of segmentation is inadequate to set a multichannel strategy, and will rarely enable innovative and advantageous approaches to be adopted in response to the need to change.

Customers need to be treated differently and, just as each chooses a different product, each will also choose different channel combinations for different transactions. The smart business recognizes this and builds its strategy around it.

3. Coverage and control
In addition to how many channels are to be offered, consideration also needs to be given to which channels will be offered to which customers, and whether this choice is to be made by the organization or by its customers.
This can be a sensitive decision, not just for customers but also for channel participants. We worked with one sales team in Ireland for whom the concept of concentrating on designated retail outlets (trend-setting, innovative premises) presented a real challenge to previous ways of working, culture and metrics. Creating the conditions to enable it was critical to enabling an effective multichannel strategy.

Forcing customers down one channel, especially when they would prefer another, is at best ineffective and can even be counterproductive.
As many studies and analysts have observed, the most effective way to ensure that a customer uses the channel combination that you would like is to design it in a way that makes is easy to use. Failure to do this can totally backfire. The more often customers complain or push against a channel choice, the higher the operational cost in handling them … and the worse the customer experience! If customers find other aspects of the proposition sufficiently attractive to continue to trade with the supplier, then a train of higher-cost, aggravated customers and demoralised channel staff will result.

However, the benefits of a customer-oriented, differentiated coverage model can be huge. In work done with Nextel in the USA several years ago by IBM, the redesign of the service channel to make better use of IVR menus and improvements in the management of the contact centers supporting customers enabled Nextel to reduce operating costs by 40 percent whilst improving customer perceived service – not a prize to be overlooked, especially in the hugely pressured telecommunications marketplace.

Conversely, where the execution of the strategy is poor, customers will inevitably choose their own route to the supplier. Poor IVR menu systems (with too many levels and choices, badly identified categories and unfriendly routing) or poor contact-center capacity and workforce management leave far too many consumers hanging on the line.
Too often, companies try to make decisions on behalf of their customers rather than letting the customer decide. This is particularly true of business-to-business organizations where, all too often, the company decides how it will sell and serve its customers without adequate consideration or consultation with the customers themselves. If service standards, costs and propositions can be identified sufficiently clearly, then why not let a customer choose – even when as a supplier you might have the power to force a choice?

Establishing a new coverage model, the strategy for how customers will be served, needs consideration of how much control will be exercised over the route to market and, critically, how that control will be exercised (by management decision, customer choice, price and service differentiation).
This was one of the key aspects of its business model that IBM radically re-engineered in the 1990s to address a mix of the strategic issues identified earlier. The benefits of this were enormous, and included a significant amount of empowerment to customers to choose so that, through seven different routes to market, decision-making was a mixture of customer choice, management objectives and economics.

Defining channel combinations to serve different customer segments is the first step to be taken once a decision to shift multichannel strategy has been made. Although often conducted superficially or on a poorly segmented customer set, it is a foundational step in creating an innovative and economically viable strategy. When carefully mapped out, it enables huge benefits to both revenue and costs. The revenue benefits might take some time to materialise, but savings of 15 to 20 percent in cost to serve, combined with improvements in service, are regularly realised in redesigns of sales and service channels in many different industries – and these cost savings are often redeployed to widen reach, improve service or sharpen pricing.

Building an integrated multichannel strategy

For a multichannel strategy to work effectively it must be carefully linked together, putting the essential joins in place, matching corporate goals, brand values and customer needs. This vital step is another that operational managers often discover has not been thought through effectively enough. Experiences such as that with Recreation Equipment Inc. (REI) are few and far between. In addition to their 84 stores, their web operation offers over 40,000 items and has, for many years, offered customers the opportunity to order online and collect from a store of their choice – an option that around 40 percent of customers now choose.
Similarly, the company offers kiosks in store to enable information-
gathering and infill purchases to be made when needed. However, as the difference between Circuit City’s 24/24 pick-up guarantee (a $24 gift card if a customer’s online order is not ready to collect within 24 minutes) and Wal-Mart’s estimated 7-day lead time proves, such integration is neither easy nor cost-free, and makes tremendous demands on the business. This is not something to be developed without a clear business driver.

Any linear description of the approach invariably falls short of reality as it becomes necessary to iterate between steps and trade-off different aspects of the problem. There is, however, a general cascading approach to developing an answer that helps unlock the way forward.

1. Setting goals for each customer group
The start point is to set goals for each of the identified customer groups, not just in terms of the criteria for the channel strategy but also in terms of the business objectives with that group. This is an important distinction, because business goals might be different by group (not necessarily always seeking to maximize immediate short-term profit but potentially seeking to increase penetration, reduce risk exposure, promote multiple product holding or other goals). This segmentation should draw on the exhibited channel usage by different groups, and their different needs.
This can provide a remarkable degree of focus. In the case of one financial services company, it enabled a much clearer set of business goals and desired service characteristics to be set around customers’ attitudes to risk and their desire for advice, and the location of the highest value targets for growth within this.

GM’s initiative aimed to increase penetration through the characteristic life-cycle of car purchase and replacement, targeting those potential buyers who demonstrated an affinity with the GM brand. This goal drew together all aspects of the company’s multichannel strategy (dealer, telephone, web, mail and magazine) to create a carefully structured program that measurably increased brand preference and incremental sales.
Clear goals make it a lot easier to decide what is needed, and hence design a strategy. However, this requires real clarity in defining and selecting customer groups and setting goals for each that many organizations struggle to achieve because they do not effectively monitor channel usage by their customers.

2. Bringing the product offer and the segments together
The main challenge that most companies face when they try to craft a strategy is finding the integrating elements that help to set boundaries. There are two aspects to this: first, integrating the nature of the transaction being conducted with the customer segment, and secondly, understanding the nature of the channel chain that needs to be created to deliver to each group effectively.
This can sometimes be quite challenging. In the automotive market, customers’ needs at each stage of the lifecycle are different – especially for proximity. When researching cars, the benefit of a wide choice of vehicles far outweighs the need to be close to the customer. In servicing, the need is for convenience and therefore local operation; an integrated sales and service operation is therefore not necessarily the best structure to serve the customer most effectively, and the use of web and SMS to provide better customer interaction is different at each step of the life-cycle. Conversely, many industrial businesses intuitively segment by life-stage, providing a different mix of web, telephone and face-to-face support for pre-sales, sales, and service and support.

The failure to differentiate transaction types holds back many industries from really exploiting effective multichannel operation. Recognizing that customers simply ‘want what they want’ when they interact with your organization helps to free up thinking about channels, and is well worth a try.
Amazon created its ‘where’s my stuff?’ button on the website in response to the web and telephone interactions that it tracked where customers simply wanted to know where their ‘stuff’ was, and used virtually that same wording when contacting Amazon. A similar need lies behind the now well-established tracking facilities on FedEx, DHL and other logistics operations websites.

Too often, businesses believe customers favor a human voice ahead of alternatives. Yet this is not always true. In the USA, Hertz’s synthetic agent which allows gold-card customers to reserve a car is much preferred by these customers to human agents. Customers prefer its speed, assurance and low involvement – similar to the reasons why many customers like ATMs for simple banking transactions.
It is quite different, though, when the customer has a problem and the channel needs to cope with a significant delivery issue or complaint. At these points, people more often than not need to deal directly with other people.
When one of the authors ordered a Dell laptop that failed to turn up as expected and delivery seemed problematic, web-based information would not suffice. It needed an agent, with a name and a contact number, who could be relied on to find where the machine was and ensure delivery at a set time, much more reassurance, and contact confirming that the problem was being resolved.
Similarly, when ordering a relatively simple software upgrade or rolling out servers, IBM customers do not require (or want) a complex personal service. They simply want a low-cost and efficient service.
However, when looking at a major consulting engagement, the same client will want to talk with potential suppliers and become confident of their capability and approach before making a decision.

3. Handling the channel-hopping customer
To add further complexity to the issue, the same customer at different times will need to be served by different channels, sometimes in the same transaction. Many REI customers enter the store with information gleaned from the company’s website to make a purchase that they could have made online. Yet they still complete their purchase at a kiosk or at the till. Similarly, the use by retailers of in-store giveaway catalogues to point people to their virtual online stores is a very powerful traffic generator, as several contributors to the research forum have attested.

Once upon a time, banking meant going to a bank. Then ATMs, cash-back (enabling your local store to provide cash when you buy something from them) and call centers appeared, but the branches didn’ t go away.
The Internet, mobile commerce and interactive TV were then added to the ways in which you could access your account, but the branches still didn’ t go away. And, while text messages telling you that you’ re about to go overdrawn might be useful, no-one has yet suggested the pure play text-messaging bank! The management challenge of this range of choice is immense. Customers will often make use of many of these channels in one interaction with their bank – think of the channels you use when deciding on a mortgage, or looking at an investment.
In these situations, it becomes important to understand how customers are identified and how up-to-date a customer view is needed in each transaction to ensure good customer service and effective insight and revenue generation.

Some of the leaders in this space are the Canadian banks. In Canada, banks like the Royal Bank of Canada understand this challenge and, in addition to sophisticated segments that have been operationalized through core channels, they make sure, for instance, that their contact-centre agents are able to see what the customers can see on the web and even talk them through the web channel to complete a transaction if a customer gets stuck and uses the ‘call me’ button on the website.
We are still in the early days of managing the channel-hopping customer effectively, and few institutions can manage information-handling in anything but selected instances. However, this offers benefits to the business that does do it – and regardless, this kind of behaviour needs to be planned for in order to avoid leaving costly holes in the strategy through which customers fall.

4. Validating the strategy
The validation of any strategy needs to consider carefully the impact on customers of the change envisaged. This helps to avoid gaps, and to ensure that customers’ needs as well as your business goals are being met.
Validation is needed both at the inception and through the multichannel strategy change, and can be provided in many ways – for example, customer research, pilots, competitive observation, benchmarking in parallel industries, and iterative customer feedback.
Revisiting customer behavior and needs and how well these are met by each channel helps to do this. It was this understanding that led Cisco to push as strongly as it did into online service and support. The success of Cisco’s automated online approach to answering questions, diagnosis, solutions and assist, and the provision of commerce agents for configuring, pricing and ordering online, is down to the extent to which its technically very skilled buyers feel comfortable in using the web channel.
Without this level of customer appeal it would not have been possible for Cisco to have raised customer satisfaction through the approach and to have successfully led 90 percent of its customers to draw on the web system for general marketing and enquiries and technical support.

Another powerful tool in both design and validation is scenario analysis. These pen-portrait scenarios can be used creatively and analytically, and can help to shift the mindset inside the business markedly if they are well defined – something that is vital for the successful execution of the strategy.
The outline of the character and needs of the key decision-maker in each Hotel Recreation and Catering businesses (HORECA) operation was called out on two dimensions. The first dimension was a business-like interaction to relationship-based interaction, and the second ran from a high to a low need for advice and support. When overlaid with examples, research and illustrations, the portraits helped account staff to see the value of the differentiated approach and segment the customer base. It also enabled a rich dialogue to be initiated over sub-segments and service standards that surprised channel managers in what was seen to be a very conservative industry.

Key aspects for the multichannel strategy metrics
In a multichannel organisation, measurement is vital not only because of what gets measured but also because how it is measured, and therefore the amount of attention that gets paid to it. Metrics have always been one of the most contentious and challenging areas of discussion.
Choosing what to measure is one of the most powerful means organizations have of making their strategy happen. Tesco has famously used its ‘steering wheel’ to drive forward its business over the past 10 years. This balanced scorecard of metrics divides the business into four sections – customers, operations, staff and finances – using a ‘traffic light’ system to monitor performance, and is carried philosophically into the management culture of the business.
Effective metrics work powerfully, especially those that choose a limited and prominent set of key indicators to target and chart operations. However, poor measures have an equally powerful effect.

There are many critical issues in the challenge of setting the right metrics. The intertwined issues that need to be resolved within any business cover many topics:

  • Defining the critical aspects of multichannel performance to measure for each operational area. This is to avoid the sensation of drowning in data that can easily be created by the capability and ingenuity of the many new systems and the multiple sources of information that exist. The increasing capability of systems to produce data in real or near real time will only make this worse.
  • Balancing the internal and external metrics to create a fuller picture of what is actually happening for all stake-holders in the system. These include customers, frontline staff, operational management and the strategic managers of the economics of the business.
  • Deciding which metrics are to be linked to individuals’ reward and recognition and how these will be used. There is always a difficult balance to be secured between ensuring an accurate picture of what is happening and incentivising individuals to perform more strongly.
  • Managing the trade-offs between optimizing pieces of the multichannel operation. This can happen within channels, such as when gathering additional data on customers (for research or more informed service); it inevitably raises average call time and therefore oper ational costs and capacity issues. When dealing with benefit payments or support services, governments need to trade off compliance issues, which are often better dealt with face-to-face, against the cost of delivery, which is almost always better dealt with remotely. Equally, trade-offs need to be made between channels. It was only after the separate web channels had started to enable customer live parcel tracking that the logistics companies began to appreciate how significant an impact it had on contact-centre volumes. Similarly, banks all over the world constantly reflect on the trade-off between providing efficient automated service points and promoting ATMs, and their desire to build contact with their customer base person-to-person in order to provide higher value (and more risk-laden) investment and savings services.
  • Understanding the meaning of key performance indicators. There have been many consumer goods companies that have been challenged, critiqued and pressured by retailers on delivery metrics (full load, on time at distribution centers and stores), only to find that differences in reality and the system measured delivery reflect time cut-offs towards the end of the day and inefficiencies in the processing of delivery logs.
  • Preventing unhealthy competition between channels. In large, multi-product, multichannel operations, this is one of the key challenges.

Metrics both help and hinder because of the way that they try to promote accountability. The success of a business-to-consumer Internet channel cannot be assessed purely on the basis of sales made on the website. One department-store chain, when tracking customer behavior, found that for every pound of revenue it takes on the web, three pounds are spent in the store after browsing online – so it works equally hard to help these customers through such facilities as store locators and information on the nearest store with a particular product in stock. Similarly, it found the top driver of traffic to the site was brochures and flyers provided in store. In the US, around two-thirds of Internet purchasers sometimes browse in store and then buy online, and there are indications that this multichannel behavior is increasing rather than staying stable.
Resolving all these trade-offs properly is not possible. The best companies simply manage to get the right balance between them to provide clarity in the channels about how to behave to satisfy customers and business needs.
Examples of different approaches include IBM’s balanced scorecards and careful measurement of contributions by each channel through the sales opportunity pipeline in order to assess more effectively the capacity, role and value of each player in its multiple channel model. This is a complex but data rich model for a large, integrated business. Others have taken a much simpler metric approach.

Some of the most innovative organisations have made great use of metrics to help in not just the optimisation of ongoing performance but also in the execution of innovation in the channels area, and ensured that technical fissures or information holes have not undermined the strategy for engaging customers.