The Multichannel Challenge

Hugh Wilson, Rod Street, Lindsay Bruce

• Publisher: Routledge
• Year: 2008
• eBook ISBN: 9781136356704
• Topic: Business
• Subtopic: Management
• Index: Business

While innovation in products and services continues apace, today's competitive strategy is equally based on innovation in the route to market. Tesco.com, Direct Line, First Direct and easyJet are just a few examples of innovative channel strategies as a key component of the value proposition. We find ourselves in a multi-channel world. This book is drawn from the experience of major companies such as IBM, First Direct, Taylor Woodrow and BT. Lessons are explained clearly: be Multi not multiple; channels as weapons; think combinations; design from the top, but think people and measure it. The key concepts are backed by carefully tested practical advice from making organisational change to understanding channel metrics. Based on work from Cranfield's world leading Customer Management Forum, this is the essential practical guide for senior management in key areas like marketing, sales, customer services and strategy.

Part 1The case for multichannel

Chapter 1The importance of channels

DOI: 10.4324/9780080570129-2

Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat

Sun Tzu

Another book on channels?

Yes, indeed; but with good reason.

Channels are still one of the least well exploited areas of organisational effectiveness, underestimated in their significance by many organisations. Indeed, it is only in recent years that sectors such as the government, retail and construction have started to pay attention to the opportunities for advantage presented by them.

Even then the importance of a multichannel strategy is underestimated, and the development of management tools and approaches to make effective decisions is still in its infancy. Yet the need to develop and apply these is not diminishing but growing in the face of marketplace changes that affect most categories across developed economies.

The Voice

For one of the authors, a reminder of the importance of a multichannel strategy is provided every day after getting out of bed … by the shower!

The shower in question is periodically prone to seizing up and offering little more than a cold, icy dribble of water. This is not a great start to the day! A combination of local water composition and use seem to be the trigger. However, it has proved to be an easier problem to resolve than the multichannel service delivery that inevitably seems to flow from the company that supplied the shower.

An initial telephone call to the shower manufacturer’s helpline – a convenient and popular channel for most service requests (and only found because the installation booklet was left in the house by the previous owner and Google provided up-to-date contact details) – was answered cheerily by a voice that seemed not in the least bit surprised to receive a call.

The Voice then proceeded to ask lots of difficult questions that, given the shower owner was in the office rather than the bathroom, seemed a little difficult to answer: ‘What shower model is it?’; ‘Is it a pumped unit?’; ‘when was it installed?’. These are the sort of challenges that are difficult to cope with before a couple of coffees, and the kind that invariably prompt a desire to phone a friend (often the friendly father-in-law who knows all about these sort of things!).

No sooner had we finished these mental gymnastics – often on the following day, after the necessary research had been conducted – than The Voice would conclude the call by explaining that she would arrange for an engineer to call and send an appointment card in the post.

It only took one experience of this to recognise the weakness in the design of this multichannel process. The card arrived the following morning, naming a time and date that was totally inconvenient. A further call to The Voice was needed, and she seemed to think this was no problem and said she would reorganise it. Another card came the following day with another impossible date. It required three calls to secure a convenient time, and a wait of nearly 10 days for the shower to become operational again.

The process illustrates how multichannel customer experiences are ill-thought through. The engineer and his schedule were of paramount importance in the life of the enterprise – his timetable was optimised to enable him to cover the geography easily (and maintain his utilisation), and his boss was clearly senior to the customer service head that looked after The Voice.

It took a couple of years and several bouts with The Voice before it became obvious that there had to be a better way to resolve this challenge … buy the necessary tools to fix the shower!

Three channels – phone, post and face-to-face delivery – were coordinated in this one service interaction, but insufficient thought and priority had gone into the design to ensure a process that would work for either organisation or customer, and would optimise customer experience and profitability.

The outcome? Excessive costs (multiple calls to the contact centre and, despite their endeavours, suboptimal utilisation of the engineer), lost revenue (no more call-outs and spare parts) and a lost customer (we have made a note not to buy another shower from this group). In short, a wasted opportunity all round.

There has to be a better way, and this book should help readers to construct that for their own organisations.

Here are four reasons why what we all learned in business school about channels is no longer enough.

Channel decisions need to be taken strategically

Channels have always had the power to transform markets. They are the fundamental drivers of consumer access to business, and their composition has a profound impact across both the revenue and cost base of the enterprise.

This is most readily demonstrated when we see rapid change in the structure of channels, such as happened with the advent of the railways – a physical channel whose arrival transformed business back in the mid-nineteenth century.

In 1850, the USA had 9,000 miles of railways – the largest network in the world. However, over the course of the next 10 years an additional 21,000 miles were laid across the country, creating a network bigger than the rest of the world combined. The railway breached many natural barriers – rivers and mountain ranges – crossed the continent, and brought fast communications alongside it with the telegraph.

The impact of this new channel and its close cousin the telegraph were enormous:

• All transport costs fell sharply (even on the roads and canals, where prices were reduced in order to survive).
• Traffic on the rail network grew quickly, despite its premium price, making those towns at the rail junctions very prosperous, and withering those it bypassed. As a result, places like Chicago grew more than threefold in the 1850s.
• Transportation times were decimated: New York to Chicago took 2 days to travel rather than 20; shipment times from Cincinnati to New York fell from 50 days to 5.

The impact on markets was massive! Price differentials, reflecting the imperfections in marketplace access and information, fell sharply. For example, the difference in wholesale flour prices between New York and Cincinnati fell from $2.48 to 28 cents. Information, in the form of newspapers, mushroomed as the instant information from the telegraph and rapid train transport increased circulation twice as quickly as population growth.

New industries were born from the changes. Textiles, footwear and firearms all grew rapidly on the back of the improved communications and access to wider markets. In many ways the growth helped lay the foundations for the strength of the US economy for the next 150 years, and enabled the scaling up of an industrial approach to business. All this came about from the changes initiated by a key channel that enabled much easier and lower costs of interaction.

In many respects, there has been a similar scale of impact from some of the changes in channels that we have seen over the past 10 years (although this is hotly debated by analysts). The significance of the Internet as it has taken hold has been no less profound, even if many of the dotcom start-ups have gone the same way as many of the rail companies did in the USA after their decade of growth.

Andy Grove (ex-Intel Chairman) is famously quoted as having said that, ‘in the future, all companies will be internet companies’. This is certainly coming to pass as more and more businesses realise that this means of communication is having a major impact on consumer and business behaviour, providing ubiquitous information (where did you last look when you did not know something, or wanted to research a product?), opening up new digital channels (to your bookshop, bank or auction house and many other businesses) and creating an increasingly digital society that encompasses not just trading and communication but also information and social networks.

A look through the famous names in the business world quickly reveals many that are actively exploiting this new channel – Amazon, Cisco, Tesco, IBM, Capital One, First Direct. Companies compete as much with their innovative channel strategies as on innovative products or services, and, while many of the dotcoms have fared poorly, more and more web-inclusive, multichannel businesses have started to capitalise on the changes in the way that businesses and consumers want to interact.

Even in well-established channels, the innovative use of channels treated as an integral part of the business proposition has made fortunes. Tesco is well-versed in using its channel strategy to defend and attack markets. One of its many initiatives has been the use of its Clubcard, launched in 1995 and now established with 80 percent of its shoppers, alongside the development of Tesco.com to successfully push back Wal-Mart’s advance through Asda in the UK. It already has an online business which was worth over £1bn in sales by 2006, boasting 220,000 weekly deliveries across the UK and 750,000 regular customers.

Starbucks’ meteoric rise to pre-eminence in the global coffee market as a specialist roaster and brand was driven by its differential channel strategy: a clear picture of the experience that the company wanted to give the consumer in store. Similarly, First Direct (a subsidiary of HSBC), launched 17 years ago as the UK’s first telephone bank) made its mark through its channel strategy and has continued to innovate in this area since – recruiting 75 percent of its customers through electronic channels, using text messaging ahead of other retail banks, and taking its customers through a truly multichannel experience with web, email, phone, text, paper, kiosks and outlets integrated to provide the most recommended service of any provider year-in and year-out for over 10 years.

It is no different in the business-to-business space, where companies like BT in the UK have transformed their approach to major customers through the use of a multichannel approach, and delivered benefits to customers and shareholders alike (see Chapter 5).

Yet despite the significance of channel decisions, many organisations still treat them tactically. They often look at their channels as being fixed elements in their strategy, dictated by their current situation and market position. Rarely do other elements of the classical marketing mix – like price or product/service – end up being treated similarly. These are almost always reviewed carefully at an operational board level before changes are made; there is multifunctional involvement in agreeing the decisions; and the consequences of actions are pored over and performance reviewed carefully thereafter. It is not so with channels. The consideration of them is rarely called out at such a senior level, they are not reviewed regularly, and key decisions are often taken within one functional silo or another.

It is this lack of top management focus that leads to strange customer experiences such as that described above regarding the shower. It also leads to other customers’ experience of channel gaps. These gaps emerge between sales and service channels; between the web channel and the customer-care centre; or even between the direct mail that drops through the door which treats the recipient as an anonymous prospect and offers a deal that is better than the one they already have (although not the direct selling bit!), as a loyal customer with the same company.

Channel decisions are strategic, and their consequences can be hugely significant. Engage in dialogue with any consumer products supplier, and very quickly they will share the challenges of dealing with the new international behemoths – Wal-Mart, Tesco, Carrefour or Metro – whose aggressive negotiating position and increasing market power have systematically eroded the suppliers’ share of value-add over the past 20 years. The strategic impact of these retailers on suppliers’ growth, position, required strategy and profitability has been enormous.

The opportunity to break out of the box has been there, but has not been taken. Food service operations, convenience, impulse and vending channels, strategic engagement with the leading retailers on category and supply management, franchise and downstream distribution acquisition have all provided opportunities that few suppliers have really engaged with. The result is that, for many, they have been increasingly boxed into a slower growth path, at a greater distance from the consumer and with lower margins. Few have executed their strategic decisions in the channel area in as timely and effective a way as a Pepsi or a P & G, to build additional or alternate routes to market for consumer engagement, research and selling. This is not to say that the opportunities are not still there. Who knows where the 2005 purchase of Body Shop by L’Oréal might take that leading consumer goods giant? Or where developments in food-purchase patterns might take suppliers?

Too often, strategic moves are made by industry outsiders – Dell, Direct Line, Starbucks, Amazon, Expedia – rather than those enmeshed in the market. Their impact is often only appreciated after the decisions have evolved and a conventional channel approach has been undermined by an innovative outsider.

Dell’s approach to both business-to-business and business-to-consumer channels permeates its business model, and has historically enabled it not only to offer product at lower cost in comparison with competitors whose business model is wrapped up with resellers, but also to offer fresher, more tailored specifications that hav...

Table of contents

• Cover Page
• Half Title Page
• Title Page
• Copyright Page
• Dedication
• Table of Contents
• List of Figures
• List of Tables
• Acknowledgements
• Foreword
• Introduction
• Part 1: The case for multichannel
• Part 2: Developing multichannel strategy
• Part 3: Making multichannel work in practice
• Index