Online
retail, on the other hand, is thriving. Retail sales through digital channels
(including mobile sales) increased by a massive 23% in 2015. Much of these gains
have gone to online retailers. Amazon is the biggest beneficiary, now accounting for 26% of all online retail
sales. What is more, as it continues to expand aggressively into new categories
like grocery and fashion, Amazon’s existential threat to
traditional retailers is greater than ever. Just ask Alexa.
Omnichannel strategy is a
panacea for a difficult environment
Under
these hostile conditions, traditional retailers have staked their futures on
omnichannel retailing. The omnichannel strategy hinges on the idea that
providing a seamless shopping experience in brick-and-mortar stores and through
a variety of digital channels not only differentiates retailers from their
peers, but also gives them a competitive edge over online-only
retailers by leveraging their store assets.
Such
thinking assumes that despite its costs, there is significant economic value to be gained from
providing digital channels to traditional store shoppers, and fusing the
shopping experience across channels. Retailers are counting on an omnichannel
strategy to be their “killer app.” But is this true? Are omnichannel shoppers
more valuable to retailers?
We
set out to answer this question by collaborating with a major U.S. company,
which operates hundreds of retail stores across the country. We studied the
shopping behavior of just over 46,000 customers who made a purchase during the
14-month period from June 2015 to August 2016. Customers were asked about every
aspect of their shopping journey with the retailer,
focusing on which channels they used and why. And they were also asked to
evaluate their shopping experience. Of the study participants, only 7% were
online-only shoppers and 20% were store-only shoppers. The remaining majority,
or 73%, used multiple channels during their shopping journey. We call them omnichannel customers.
Omnichannel customers are
avid users of retailer touchpoints
Our
findings showed that omnichannel customers loved using the retailer’s touchpoints, in all sorts of combinations and
places. Not only did they use smartphone apps to compare prices or download a
coupon, but they were also avid users of in-store digital tools such as an
interactive catalog, a price-checker, or a tablet. They bought online and
picked-up in store, or bought in the store and got their purchases
shipped. In what follows, we count each app, digital tool, and shopping
venue provided by the retailer as a separate channel.
The more channels
customers use, the more valuable they are
Our
study’s results are revealing. They show that the retailer’s omnichannel
customers are more valuable on multiple counts. After controlling for shopping
experience, they spent an average of 4% more on every shopping occasion in the
store and 10% more online than single-channel customers. Even more compelling,
with every additional channel they used, the shoppers spent more money in the
store. For example, customers who used 4+ channels spent 9% more in the store,
on average, when compared to those who used just one channel.
Surprisingly,
conducting prior online research on the retailer’s own site or sites of other
retailers led to 13% greater in-store spending among omnichannel shoppers. This
finding goes against the grain of the conventional wisdom that
spur-of-the-moment, impulsive shopping bulks up the topline of traditional
retailers. Instead, our findings suggest that deliberate searching beforehand led
customers to greater in-store purchases. And it also flies in the face of
conventional thinking about showrooming, which is that traditional
shoppers conduct their research in the store and then buy online. Instead, we
find that this retailer’s omnichannel shoppers are engaging in webrooming behavior, which has become
especially prevalent among Millennial shoppers.
In
addition to having bigger shopping baskets, omnichannel shoppers were also more
loyal. Within six months after an omnichannel shopping experience, these
customers had logged 23% more repeat shopping trips to the retailer’s stores and
were more likely to recommend the brand to family and friends than those who
used a single channel.
There
is one important caveat to our findings. The correlations we report here shouldn’t be confused with causation. We
can say from our study that omnichannel shoppers are more valuable to the
retailer with confidence. But whether such customers were loyal and engaged
with the retailer to begin with or whether the richer, multi-touchpoint
shopping experiences of its omnichannels led them to spend, return, and
advocate more remains an open question. Regardless, our study firmly endorses
traditional retailers’ logic of embracing an omnichannel strategy and using it
as a differentiator to fight the online retail onslaught.
In
today’s channel-rich environment, omnichannel capabilities drive the engagement
of core shoppers with the retail brand and ultimately draw them to the physical
store. Traditional retailers with physical stores will do better not only by
leveraging the power of the online world, but by synchronizing the physical and
the digital worlds to provide shoppers with a seamless, multi-channel
experience that online pure plays simply cannot match
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