September 04, 2007

Multichannel Compromise

If you've managed a catalog business in a retail environment (and for my e-mail readers, just substitute the word 'e-mail' where you see me write the word 'catalog'), you are probably familiar with the term 'Multichannel Compromise'.

'Multichannel Compromise' refers to a situation where you sub-optimize your channel, in order to benefit the entire business.

Here's an example. A multichannel retailer has a catalog title that is very good at driving sales to the telephone, and is good at driving sales to the website. The creative presentation of merchandise causes customers to not spend money in stores at a rate desired by store managers.

The store managers band together. They demand that the catalog marketers calibrate the creative presentation of merchandise to be more aspirational. The store managers get their way. The CMO works with an ad agency to present merchandise in an aspirational manner.

The traditional rules of catalog marketing go out the window. In-home dates switch from Mon/Wed to Wed/Fri to benefit stores. In-home dates switch to dates when floorset changes occur in stores. Prospecting is done within a 25 mile radius of a store. Merchandise that sells best in stores replaces merchandise that sells best over the telephone.

An A/B split of the file is used, testing the old creative/strategy against new creative/strategy developed by the ad agency. Here are the results:

Multichannel Catalog Results

Phone Web Retail Totals
Pre-Optimization $3,000,000 $1,500,000 $500,000 $5,000,000
Post-Optimization $2,250,000 $1,000,000 $2,250,000 $5,500,000
Increment ($750,000) ($500,000) $1,750,000 $500,000

Telephone sales tank --- they decrease by twenty five percent. Incremental online sales decrease by a third.

But retail sales sizzle, making store managers happy.

In total, the aspirational creative execution yields an increase in sales. The CMO agrees that this is the best direction for the brand, permanently changing course.

This decision drives a chain reaction of events. At the call center, a third of the associates are downsized, as catalog sales are less of a priority.

At the distribution center, job cuts also occur, though they aren't as deep due to all the online volume generated by online marketing activities.

In the creative department, employees feel demoralized, as they are now required to implement the creative treatment advocated by the ad agency.

Management is happy, because store expenses are being leveraged with the increased sales generated by the new catalog program. Management is also happy, because sales increased with the new strategy. Management considers this a "multichannel success story".

Have you experienced "Multichannel Compromise"? Was it beneficial for your business? Was it beneficial for your career?