Monday, 4 November 2013

Sharing the credit - the enemy within

Continuing my series briefly looking at organisational impacts of multichannel.

In a previous post I took a look at the basic stages of organisational development as a retailer becomes "more multichannel". On of the first aspects of this journey that typically needs attacking - and realigning - is the question of incentives and KPIs. Put more crudely: "whose sale is it anyway?" This is part of a wider topic of avoiding "channel conflict" i.e. ensuring that your channels collaborate and not compete. Incentivising appropriate behaviour throughout your organisation forms an essential part of a channel conflict avoidance strategy.

Firstly, let's take a look at how NOT to do it. Apologies for a screenshot in German, but I think it's pretty clear what's going on:

Ah yes, we have stores. And it's not fair if the website "steals their sales" so let's make sure that we show a more expensive price online than for the stores, and so defeat this invading enemy. Plausible, except that our brand slogan is "I'm not stupid" (because I shop here and it's great value); and now you can see quite how stupid you would be to shop online. And in fact, the site let you change your home store and see that the price was different in Vienna than in Salzburg. As you can imagine, this concept (Media Markt Austria in early 2010) didn't last all that long.

I'm not entirely sure why they needed expensive consultants to tell them this wasn't sensible, and in fact that the answer was fairly simple: whenever a sale gets made online, a store should get the credit. Different clients I've worked with use slightly different rules, but the basics are always the same: online sales are split, usually geographically by delivery postcode, and the benefit from those sales, either directly as increased sales/margin or indirectly in some sort of "commission", is allocated to the nearest store.

This has the benefit of neatly dealing with all those cross-channel stories too. Online sale, return to store? No longer does it make the store look bad, because the store "got" the sale in the first place. (OK, you might have to increase the acceptable KPI for stores because online sale typically generate proportionately more returns, especially in categories like fashion). Similarly collect-in-store is dealt with. Whose sale was it? Obviously the store where the collection took place.

Such approaches do need a little bit of dexterity in back-end accounting. Typically this is done by treating the website sales as "virtual". In other words, any ecommerce team-members that might be targeted on online sales still get credited for their efforts by accumulating the sales which pass through the website, but these sales are not rolled-up into the overall P/L (because the store sales are used for this), they are just tracked for KPI purposes.

Overall, it's another big change from traditional brick-and-mortar only: store managers and store staff need to really care about the website and regard it as their friend not their enemy.

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