Multi-Channel Shopper — Profitability Cause or Effect?

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For the last two to three years there has been increasing interest in ”multi-channel retailing” and “multi-channel shoppers”. This February, Etail 2005, like many online retail conferences in the last couple of years, is themed “Mastering the Multi-Channel Experience”.

Why is there so much interest in the multi-channel topic?

First, it’s a difficult problem to solve: Multi-functional, multi-location…systems, data, policies, processes, and P&Ls…oh my!

Second, it has been reported there is big opportunity in growth and profitability with a multi-channel strategy. As an example, Jim Okamurama of J.C. Williams Group, in a recent MultiChannel Marketplace Newsletter, said…

“There is a growing body of evidence confirming that consumers who shop in more than one channel spend more money. At J.C. Penney, for example, the single-channel shopper spends $157 to $201 a year on average, while the consumer who buys through the catalog, in a store, and online spends $887. This is consistent with results from other retailers that show tri-channel shoppers spending four to six times more money each year than the single-channel consumer.”

My question: What is cause and what is effect? Does a customer spend more because the company has multiple channels? Or do the best customers use multi channels?

I haven’t fully researched other studies, but here’s my logic as to why the data may be skewed…

I’m sure J.C. Penny, like other direct retailers, sends catalogs to their most profitable customers first and most often. I also know, in general, that online buyers are more savvy and spend more than other shoppers. Ergo, shoppers that buy from direct mail, online, AND in the store are more profitable to the business. Of course there’s a 4X difference in revenue per customer for multi-channel shoppers. The remaining customers may have less disposable income, may be starved of a catalog, and/or may not be comfortable buying online.

This does not diminish the importance of a multi-channel strategy, but it may not transform ordinary customers into profitable ones. Rather, a tighter integration can improve your chances of keeping the profitable customer — perhaps even attracting some new ones.

However, the data above suggests that you look at profitability distribution of your customers (does the 80/20 rule apply?). Understanding the profile of loyal, frequent, profitable customers is the first step to finding more of them. Then, a multi-channel strategy is one of many strategies to consider in building and sustaining a profitable customer base.

3 Responses

  1. Devin Reams says:

    Hi Sam. I like your analysis and agree with your logic. If you can’t get a customer through one channel what makes you think they’ll use two or three? Always a good read..

  2. R says:

    I’m a student, and in my book for Retail class, it stresses many times similar statistics about how customers using more than one channel spend more than double those who just use one channel, and I share your thoughts on that.
    Perhaps these profitable customers are just as profitable with the single channel, but since they are loyal customers, they use all the channels to purchase.

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