April 09, 2009

Multichannel Interaction, Multichannel Forensics, Cannibalization

George speaks of a term we talk about all the time here in MineThatData Nation --- it is the essence of Multichannel Forensics, a term called "Multichannel Interaction". In the old days of direct marketing, we called it "cannibalization".

Let's think about this in an old-school sense. You need to purchase a lawn mower this weekend. There are two Home Depot stores within driving distance, and one Lowes store within driving distance. You are brand-loyal to Home Depot. Home Depot closes one of the two stores that are within driving distance.

Which store will you shop at? Home Depot? Lowes? Or will you simply not purchase your lawn mower?

If customers are brand loyal, they will transfer their dollars from the Home Depot store that closed to the Home Depot store that is still open.

If customers are not brand loyal, some will transfer their dollars from the Home Depot store that closed to the Lowes store that is still open.

Both the remaining Home Depot store, and the Lowes store, will experience sales increases with the closure of the Home Depot store. This is the definition of cannibalization --- the store that closed was cannibalizing existing stores.

We're seeing this dynamic, in real time, with the closure of Circuit City stores.

This dynamic happens online all of the time --- and guess what? We seldom measure this dynamic! WHY? Hey Web Analytics professionals, why don't we spend more time focusing on what George calls "Multichannel Interaction"?

My Multichannel Forensics work shows that when you remove one online micro-channel, you don't lose all of the sales that the micro-channel previously captured.

For instance, if some imperial wizard were to shut down Google for one day, the sales that would normally happen via Google are not all lost. Some customers would shift their search activities to MSN or Yahoo!. Many customers would purchase without the aid of search. Some customers would not shop at all.

Many clients ask me to illustrate what happens when one micro-channel is shut down (usually a dramatic slowdown in online marketing or the elimination of catalog marketing). The sales never disappear. A percentage flow out into the ether --- much of the sales (often between 30% and 70%) redistribute across the micro-channels most aligned with the channel being discontinued.

For Web Analytics professionals, this is maybe the most fertile ground that exists. Cannibalization is happening on your own site --- when you introduce a new product line, do you believe that all of the sales in the new product line are incremental, or do you believe that customers transfer dollars from old merchandise lines to the new product line?

These are wonderful times to be a Multichannel Forensics professional!

1 comment:

  1. Anonymous7:43 PM

    Kevin,
    Surprised there are no comments to this one---how's this track in your top 100 viewed/forwarded posts?
    I ask as the questions are very relevant to what is going on in the retail world.
    Macys internet grew 29% last year to roughly $950 million. That's $200 million in sales---but their same store sales are declining month after month. Are internet sales cannibalizing their store sales? Or will those stores come back after economy recovers and internet continue to grow?(yes, folks, economy will recover).Or a combination of both?
    Similar conversation going on at several retailers late to the world of Amazon. Note the number of retailers reporting dismal sales but quick to point out the improvement in their net sales--even retailers with horrible websites!
    K

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