Finding the Right Fit

Sixty-five percent of all shoppers now shop and browse both online and offline.

The past holiday shopping season was notable for several reasons. Discount retailers cut prices to please Wall Street, while luxury retailers sold champagne and caviar like hotcakes. Gift cards became all the rage. But perhaps most important in terms of customer strategy was the 5.7 percent jump in 2004 multichannel holiday sales to $222.3 billion, the strongest showing in five years. Last year also marked the first year that multichannel shoppers became a majority. According to Forrester Research, 65 percent of all shoppers now shop and browse both on- and offline.

Retail and beyond
If they didn't already, companies now realize the need to provide consistent customer experiences across multiple channels. Overall retail sales numbers were impressive last year, but two sources warn of a coming crisis for those unable to take customer strategy channelwide. The first warning comes from the American Consumer Satisfaction Index (ACSI), which recorded a 3 percent decline in the retail industry's customer satisfaction rating from the previous year, to 72.6 percent. The rating includes results from both online and offline shoppers.

And retail isn't alone. The second warning comes from Forrester Research. A January report found that companies failed to deliver satisfactory experiences in every area – from the Internet to e-mail to cross-channel interactions and phone self-service. Only 27 of the 300 reviews deemed the complete customer experience as satisfactory in the cross-channel category.

Two new focus areas: entanglement and migration
Overall sales numbers show that retailers have exploited the opportunity to attract customers across channels. But sellers have not taken advantage of the chance to learn about those customers and their attitudes and behaviors. Integration of channels has crossed the line from operational coordination initiative to essential customer strategy. Companies that are leading the way are focusing on two concepts: entanglement and migration.

Retail banking is a good example of how multiple channels can be used to entangle customers. According to a report from Keynote that surveyed 2,000 customers from America's top 10 banks, 56 percent of customers value online banking and bill payment services more than they value branch locations (the top pick of 45 percent) or ATM convenience (52 percent). That's good news for banks because an in-bank transaction costs between $1 and $4, while an online transaction averages less than a nickel. Celent, another leading financial services research provider, predicts that 80 percent of all major banks are planning or are currently engaged in projects that will integrate branches, online banking, and contact center channels for applications ranging from transaction data to compliance risk to profitability analysis.

At the next strategic level, companies capitalize on entanglement to identify and measure their most valuable customer groups and offer them a higher level of customized services. "Banks should be looking at their channels from the customer's point of view," says Celent analyst Isabella Fonseca. "They should know which channel provides the most benefit for different types of customers. Ultimately, they will be able to do it well and that will improve customer experience, enable a greater share of wallet, and retain the most valuable customers." Banks and other businesses that fulfill Fonseca's model will broach the newest strategy in multichannel integration: migration.

Multichannel migration
Most companies know how much money they spend on operations, sales and marketing per channel, as well as what revenue they derive from every channel. So on a basic level they know their return per channel. But what if they could identify the most valuable customers per channel? The least valuable? The most "growable"? What if they also could define the most important needs of these key customer groups and wrap multichannel messaging around them? Then they'd be ready for multichannel migration. Migration is the science of identifying and measuring key customer groups by channel, then influencing use of the channels that will provide the best experience for them and the most profitability for the company.

One company that has traveled farther than most down the multichannel migration path is Minneapolis-based mattress retailer Select Comfort. Its net sales in 2004 increased 22 percent to $558 million, with a 16 percent increase in same-store sales. Select Comfort has 370 stores, catalogs, a contact center and a highly evolved Web site. To assess the value and needs of its customers, the company has created the equivalent of a sleep personality test. It asks interested customers to fill out more than 20 questions about their sleep habits. How long do they sleep? What side do they sleep on? Do they sleep on their shoulder? Do they toss and turn at night? This all ends up in a "sleep comfort score" that Select Comfort uses to determine the mattress and accessories that are right for each customer.

And then consumers hit a button and buy the mattress online, right? Wrong. "This is an experiential product," says Senior Marketing Manager Carol Ott. "We want customers to come to the site and spend a lot of time on the site, but then we want them to go to a store and try the mattress out." Sales increase at Select Comfort when a customer is pushed from the Web site to the store. After the purchase, customers are guided back online to encourage participation in Select Comfort's "active owners" program. The program awards discounts to customers who refer a friend, and it feeds information via e-mail and direct mail to customers about new products and accessories in an effort to retain customers until they're back in the market for a new mattress.

Keys to the kingdom
Entangling customers across channels and causing them to migrate to the channels that provide the most value to company and customer will be a competitive necessity by the 2005 holiday season, according to several analysts. But only the businesses that reach two important goals will be truly successful with their multichannel strategy.

The first goal is creating the "hero" customer. This is the ultimate multichannel customer who buys from a company via the Internet, contact center and store; gives positive feedback on products and services; and registers personal and product information online. Industry experts say this customer will spend 30 percent more over the course of a year than a single-channel customer. According to Forrester Research, that translates to $458 more per customer.

The best way to create these "hero" customers is by achieving goal No. 2: Ensuring a quality customer experience across all touchpoints. Look at each touchpoint as a customer magnet; if they're strong magnets, they'll attract and hold customers.

And above all, be consistent. Customers expect a satisfying experience whenever and however they interact with any company. Multichannel integration won't guarantee that, but without it you don't stand a chance.

Bio: Don Peppers and Martha Rogers, Ph.D. are co-founders of Peppers & Rogers Group, a management consulting firm recognized as the leading authority on customer-based business strategy. Together, they've co-authored five best-selling books on the subject. Their firm helps its clients worldwide create and execute customer-based initiatives that make a bottom-line impact. Visit Peppers & Rogers Group online at www.1to1.com.

Don Peppers and Martha Rogers, Ph.D.
co-founders of Peppers & Rogers Group