The Multi-Channel Paradigm: Reaching Customers with a Consistent and Integrated Experience


Dominic Citino
Retail Solution Specialist
Microsoft Corporation

Frank May
Industry Manager
Microsoft Corporation

April 2006

Applies to:
   Microsoft Smarter Retailing
   Application Architecture

Summary: This article provides an introduction to multi-channel retailing, and discusses the advantages of a unified multi-channel architecture. (5 printed pages)


Unifying a Multi-Channel Architecture


Providing a consistent and integrated experience for customers has never been so critical. Retail customers are increasingly well informed, leveraging a vast amount of information applied to product research and comparison shopping. Beyond the information available to customers today, the avenues available for sales execution, traditionally viewed as point-of-sale, extend well beyond the traditional cash register.

Multi-channel retailing extends to all aspects of the buying experience where the customer and the retailer can interact. This can include such processes as product research, product comparison, product inquiries, and wish-listing. A critical component of the multi-channel experience includes the actual purchase, where the customer uses methods that are most convenient for them, including the use of their preferred method of payment.

Armed with information and a demand for superior convenience, customers expect a seamless experience. Customers expect that product availability, brand presence, pricing, general product information, and purchasing options will be consistent, regardless of the channel. This shift in approach requires that retailers adopt a point-of-service mentality. This imperative demands that retailers meet customers where they are and provide a customer-centric buying experience.

At the heart of today's retail environment is the need for retailers to not only exist, but to thrive in a multi-channel environment. Multi-channel retailers provide multiple methods by which interaction with customers can occur. A chance to interact effectively with a customer increases the opportunity for a sale, while the opposite represents a missed opportunity. The opportunity to reach customers no longer ends when the store closes.

The aggregate data supporting the multi-channel retail paradigm are compelling.  According to Forrester Research:

  • On-line sales are expected to hit $202 Billion in 2006
  • 56% of the 74.4 million on-line customers have made a purchase, representing 39% of the US population
  • On-line sales are expected to grow at a 14% CAGR through 2010

Also compelling are the data regarding the multi-channel demographic:

  • Multi-channel customers spend more than single channel customers
  • Multi-channel customers spent $100 billion in offline spending after researching purchases in 2004
  • 53% of retailers identify multi-channel customers as more profitable shopping across channels
  • Multi-channel customers defect from brands at a 50% rate
  • 65% of US customers have purchased a product offline after researching the product online

Obviously, establishing a presence in a channel is part of early adoption in multi-channel. For example, establishing an in-store kiosk for product research, or a establishing a Web presence to view product information and make purchases are early steps for a multi-channel retailer. The most effective retailers go beyond simple presence, and create an integrated, customer-centric buying experience that creates business value (see Figure 1). These enhancements represent real opportunities to enhance the overall customer interaction experience.

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Figure 1. Multi-channel retailing (Click on the image for a larger picture)

To offer this experience to customers, retailers must integrate systems that may otherwise be disconnected. For example, to provide in-stock or available-to-promise (ATP) data for a Web presence, retailers must connect systems that provide real-time inventory calculations, including movement through distribution and other sales channels

To achieve and maintain a competitive advantage, multi-channel retailers must build a unified operational infrastructure. The key focus of this infrastructure is to provide data integration and interoperability across all channels. Retailers can leverage a unified operational infrastructure to create the consistent and integrated experience demanded by today's multi-channel customer.

Unifying a Multi-Channel Architecture

Common back-end systems are the key to cost savings, operational agility, and the increase of value to the customer. The look and feel of a website, catalog, or even a store can change over time. The ability to add new value to the customer by providing product information, loyalty functions, or account information must exist. Adding new businesses and customer value to a single set of enterprise supply chain, operational, and financial application sets is the key to success. The following are among the key areas to be addressed:

  • Product Information Management (PIM)

    The management of items through a product lifecycle and the maintenance of one set of authoritative item information for the enterprise is the starting place for efficient systems. Any selling application should ultimately draw its item information from this source. Channels may share items, or they may not, but the single source of "item truth" goes a long way to creating efficiency in the retailer's selling system portfolio. This common area includes the content management sub-application that is typically discussed in an Internet commerce application arena. PIM provides efficiencies not only within a retailer's organization, but also in its communications with partners, such as suppliers.

    New item introduction, leveraging PIM as the item data mechanism, ensures that new item data flows quickly from supplier to retailer, with a maximum level of accuracy.

  • Inventory and Warehouse Management

    Channels may draw from a single inventory, or separate inventories may be allocated. These are business processes that dictate how applications need to act and where they need to go for their data. However, the basic ordering, tracking, receiving, and shipping functions need to be the same throughout the enterprise. A store ordering application needs to draw replenishment inventory just as an Internet commerce application does in order to satisfy customer orders.

    While the distribution center-to-store fulfillment process differs in some ways from the distribution center-to-end customer fulfillment process, tight systems integration can ensure that all systems are kept updated. The workflow that begins with order acceptance and culminates with final delivery must integrate into the retailer's standard ERP and fulfillment systems.

  • Customer Information

    A common customer file that is shared by all channels is a major goal of many retailers. This means that all channels' sales applications must both access and feed this single data store. The ability to differentiate a customer experience will largely depend on this data and its accuracy. The ability to customize promotional offers or track purchases for the creation of a reminder list will require that detailed shopping basket–level data be kept on each customer. Managing CRM data across all channels will allow the retailer to create a consistent experience for the customer at all relevant touch-points.

  • Operational Systems

    Operational systems such as Human Resources or Labor Scheduling need to be shared wherever possible. While tasks are different between operating units, common applications will allow reporting and sharing of resources where appropriate. Remote access to common operational applications is another potential area of cost savings and operational flexibility.

  • Financial Systems

    Payment systems are an obvious area of synergy. A request against a customer's debit or credit card for payment should utilize the same application code, if at all possible. The ability to reconcile payments and report consistently is an area where savings can also be accrued. Financial applications should also be common. This requires the use of standardized messaging that allows an XML message to consistently convey sales, expenses, or other financial transactions. A single accounts payable, accounts receivable, and general ledger application set should be utilized.

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Figure 2. Sample multi-channel product view (Click on the image for a larger picture)

Microsoft Smarter Retailing enables the multi-channel retailer to meet customers where they are, by providing all of the components necessary to create a consistent and rich experience on the front end, while enabling all of the integration of back-end systems. The confluence of a rich front-end experience and an integrated back-end systems framework allows the strategic multi-channel retailer to deliver a superior point-of-service experience.