May 12, 2008

More About Secret #36: Channel Compromise

Take the example of Bloomingdales killing their direct-to-consumer catalog from a few days ago.

Cataloging and retailing have a love-hate relationship. If your definition of cataloging is "advertising", then the relationship is love. You merchandise a book in a brand-right manner, you inspire customers, you treat the catalog as a cost center, and you drive folks into a store.

But if you want a traditional catalog business, one that drives customers to a website or to the phone to place orders, one that acquires new customers, and you have a physical retail presence, you have a hate relationship!

Maximizing the productivity of the catalog conflicts with the premise of inspiring a customer to visit a store. You want the customer to trust that the size eight dress will fit when it arrives by mail in four days? You better write copy that describes it well, and have photography that gives the customer confidence in what she's buying --- she doesn't want to waste her time returning the item!!

But the very act of copy and photography stands in contrast to the romance required to get a customer to get in her 20mpg car and drive an hour to the nearest store --- her trip might cost $24 in gas alone!

So you have channel compromise. If you walk a fine line between selling via phone and selling in a store, neither channel benefits (which means, by the way, that the customer doesn't benefit).

In the retail world, this leads to killing the catalog --- catalogs drive a small fraction of the sales of a retail store. The catalog becomes a cost center. And there are a lot of forces that want the those catalog dollars in their cost center --- online marketers first and foremost!

However, the next channel to be compromised is e-commerce. More often than not, the website is in equilibrium or transfer with retail (meaning website customers like to shop in the store), while the store is in isolation with the website (meaning store customers don't like to shop online).

With the catalog gone, irresistible forces drive the website into an aspirational brand marketing vehicle. This shift in focus brings a different customer to the website, compromising the e-commerce channel (and by the way, e-commerce is a very different channel than your website is --- more on that some other time). In time, you'll have an entertainment and information-based website that supports a store. Sure, e-commerce will still exist, but it won't be optimal.

Channel compromise is everywhere. All too often, channel compromise results in a sub-optimal level of sales and profit. Our job as leaders is to decide upon a primary channel that must be optimized, or to allow each channel to thrive on its own merits. Any compromise in-between these options results in compromised sales and profit. Or at least that's what the data I analyze tells me!

Hillstrom's Multichannel Secrets ... Buy The Book!

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