July 15, 2007

Multichannel Retailing Week: Google

Over the next ten years, multichannel retailers will come to terms with the fact that they have been given the unique challenge of managing a business partner named "Google".

Let's use a parable to describe the situation we now face.

Pretend you are Eddie Bauer. You have a store in a favorable mall. Throughout the history of your business, you teamed up with the mall developer and your competitors to create an experience that was hopefully favorable to your customer. You marketed to your customers. Via your 'brand proposition', you built a loyal customer base that drove your sales increases, and accounted for your profitability.

Then one day a person set up an information booth at the entrance to the mall. This person categorized information about every retailer in the mall, including the items being sold in each store, the price of the items being sold, and any discounts/promotions that are available. If customers were displeased with their experience, the information booth documented the complaints.

The information booth never forced itself on anybody. It created a simple little sign that said 'Free Information'.

Within a year or two of setting up the booth, one out of every five visitors to the mall stopped at the booth for assistance. Visitors were free to ask any question. The information booth freely gave answers to visitors. The information booth became amazingly efficient at answering all questions, no matter how long the line of visitors in front of the information booth.

The retailers in the mall were fascinated by this information booth. Seeing the potential power of the information booth steering new customers to each store, they began to give varying sums of money to the information booth. In exchange, the information booth agreed to prioritize certain bits of information favorable to each retailer. The information booth would not tell any of the retailers how much money each retailer spent. The information booth would not tell any of the retailers how it decides which bits of favorable information were prioritized over other bits of favorable information. Retailers would have to stand next to the information booth, and physically watch how visitors interacted with the information booth.

Soon, each retailer realized it had to pay this fee to the information booth. The retailer had no choice. If it did not pay this fee, then its own customers could defect to other stores in the mall, because the information booth would steer them away from the retailer not paying the fee.

Visitors to the mall realized that they were not getting unbiased information from the information booth. Seeking to help each individual visitor, the information booth subdivided into two mini-booths. One mini-booth had free information, the other mini-booth essentially had brochures of information from the retailers in the mall, with those brochures coming from retailers paying the most money on the top of the pile. Few visitors wanted to wade through the piles in either mini-booth.

Before long, the retailers figured out that it would be really nice to be included in the mini-booth that offered free information. The retailers hired special individuals to figure out how the information booth prioritized free information. Once these special individuals learned how the information booth prioritized free information, they handled day-to-day prioritization for the retailer. These special individuals stayed on top of all the changes that the information booth utilized to rank piles of information.

Eventually, the retailers in the mall figured out that they were no longer driving significant sales increases. Eventually, the competitive advantage generated early in the relationship with the information booth was offset, because every retailer paid the information booth to prioritize information. Big retailers paid large sums of money to compete in the paid mini-booth. Small retailers paid the 'special individuals' enough money to compete in the free mini-booth.

'Back in the day', retailers paid money to drive customers to the mall parking lot. Once the customer entered the mall, each retailer competed for customer loyalty.

Today, retailers pay money to drive customers to the mall parking lot. Then, retailers pay the information booth or special individuals a sum of money to enter the mall. Once the customer enters the mall, the customer has a wireless connection to the information booth, a wireless connection that further directs the customer toward the retailer that best leverages the dynamics of the information booth.

This parable illustrates the complex, necessary, and costly dance that multichannel retail will (in my opinion) partake in with Google over the next decade. When all multichannel retailers figure out how to work with Google, figure out how to optimize their website for natural search, or pay a sufficient fee for paid search, any competitive advantage will be lost. At that time, Google has simply figured out a way to extract a portion of the profit multichannel retailers used to generate.

It will be very exciting to see how we as multichannel retailers manage this evolving process. Will we further invite Google into our businesses by giving them full access to our purchase transactions (Google Checkout) and our inventory systems (Item Availability And Keyword Targeting)? Or will our profit and loss statements become challenged, causing us to identify new platforms for enabling customer search? If we take that path, will the customer come with us?

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