March 29, 2007

Multichannel Forensics And Executive Leadership

Recall that there are two key elements in Multichannel Forensics.

First, how well do you retain your customers?
  • If you retain more than sixty percent of last year's customers (in other words, more than sixty percent of last year's customers purchase again this year), you are in Retention Mode.
  • If you retain between forty and sixty percent of last year's customers, you are in Hybrid Mode.
  • If you retain less than forty percent of last year's customers, you are in Acquisition Mode.
Second, what do you customers do after they purchase from you?
  • Do they only purchase your products, brands or channels (called Isolation Mode)?
  • Do they like to try out other products, brands or channels (called Equilibrium Mode)?
  • Do they switch to other products, brands or channels (called Transfer Mode)?
  • Do they switch back and forth between products, brands or channels (called Oscillation Mode)?
The combination of modes determines the business strategy for a product, brand or channel.

Let's evaluate Circuit City, as an example. It is well documented that customers shop Circuit City via the online channel, then either purchase merchandise in-store, or purchase online and pick up product in the store.

Retail executives manage channels that have very different dynamics:
  • The retail channel frequently operates in Retention/Isolation Mode. In other words, last year's store customers purchase in-store again this year, and are not likely to shop other channels.
  • The online channel frequently operates in Acquisition/Transfer Mode. In other words, last year's online customers are unlikely to purchase online this year --- instead, the customer shifts purchasing to the store channel.
When business units operate under vastly different modes, leaders are needed to complement the mode of the business unit.

The leader of the online channel should be collaborative, one who does what is best for the total business. Her bonus structure should be based on her ability to facilitate customer purchases within any channel, not just her channel. The strategic development of her channel should be crafted around the natural behavior of her customer --- to shop in stores in the future.

The leader of the retail channel can be a different individual. Teamwork skills and collaboration may not be as important, because this individual has customers who are not likely to switch to the online channel --- and if the customer does switch, it is only to get information about retail merchandise.

Multichannel retailing is all about exploiting the strengths of each channel. It is not about "sameness", not about replicating the customer experience the same way in every channel.

This holds true for the leaders of each product, brand or channel.

In the Circuit City example, it may make sense to have a very experienced leader manage the online channel. This leader should be well versed at collaboration, consensus, humility, leading through others. This leader should be comfortable with not getting credit for all the good she does to make other leaders look good.

Conversely, it may make sense to have newer executives work in products, brands or channels that are in "isolation mode". In these instances, the leader has control over things, and has fewer moving parts to worry about.

All too often, we assign new leaders to smaller business units, business units with the least "risk". In reality, we should think about putting our most talented leaders in the most challenging roles. Those roles tend to happen in "equilibrium" or "transfer" mode.