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.

Amazon: the first chink in the armour?

OK, I know I'm probably a bit slow with the flow here, but did anyone else think that the announcement by Amazon that marketplace sellers - in the EU at least - will now be able to sell their products cheaper on their own site than on the Amazon marketplace is more strategically significant than it might look at first reading? (See for example the story as reported on the BBC news site).

The trouble with Amazon is that too much of it looks more and more like a play on price alone, albeit one powered by the cash-cow of its awesome core media/books business. It looks more an more like 4 separate animals, although of course being able to leverage a single CRM view has to be a huge boost:

1. cash cow media/books; even here it is obsessed with being the cheapest. When did you last see a seller listing cheaper than Amazon itself, assuming Amazon holds the title at all? Or take a look at the royalty rates for publishing on Kindle; basically there's a massive incentive to keep the title at < $10, and you absolutely have to commit to being cheaper than the print version
2. 2nd rate (and generally expensive for Sellers) marketplace; eBay, Allegro (in countries where eBay hasn't made it) are usually the #1
3. Reasonable IT services business, into which it is pouring investment
4. Retailer outside media/books: totally a play on price, and dominated by the nightmare category of consumer electronics. The website isn't even that good at selling presenting this stuff (OK it is evidently good at selling lots of it). Margins, given how coy Amazon is on the topic, are evidently a big issue

Now that the "last man standing" multichannel retailers are starting to fight back properly - viz Dixons making a profit again at last, or Best Buy making proper price promises - then maybe, just maybe, price price price can't continue to be the be all and end all of Amazon's business. It certainly wasn't where it started in books.

It's just had to back down in a very small way. Is this the thin end of the wedge? Maybe the fact that it is preferring to invest in the services side of the business in preference is a sign that Amazon itself is reading the tea-leaves the same way.

Product Data is the New Logistics

Continuing my series briefly looking at organisational impacts of multichannel.

In my last post, I proposed a nice organisational direction leading through various stages until true multichannel is reached. Unfortunately this usually falls at the first hurdle: new organisational disciplines which didn’t exist prior to multichannel, and – here’s the rub – don’t obviously fit anywhere in an existing retail organisation and/or nobody “wants” them.

Many new disciplines – SEO for example, or email marketing – tend to drop nicely into place. In the early days of “Multiple Channel” retailing, with a Rebellion or Distributed organisational model (see my previous post) SEO activity will sit in an eCommerce team itself. Later on as the organisation matures, it will move naturally into Marketing.

Others, such as managing a Fulfilment Centre specialising in single-pick customer orders (as distinct from bulk retail replenishment) tend to land naturally in their primary discipline from day 1, in this case Logistics.

The “bastard discipline from hell”, as everybody who has ever been involved in a new eCommerce implementation knows all too well, is Product Data Management. It is always on the project critical path. And nobody ever wants to own it, either during implementation or afterwards in business-as-usual. It’s one of those tasks you can never do well, only do with varying degrees of less-badness, so there’s no reward. It’s horribly labour intensive, so there’s lots of cost. And it’s completely new, a discipline that simply wasn’t required before online channels came along.

Where should it sit in the organisation? It could sit in “eCommerce”. This, to me, is one of the tests I use early in an engagement to understand how multichannel a client is. If they still have Product Data Management in some sort of eCommerce leper’s camp, safely isolated from the rest of the organisation, then I can be pretty sure a client is organisationally pretty immature.

It’s often forced into Commercial or Buying teams. The argument is that these are the people with the relationship with suppliers, so these are the people that can source the data. While this is true in a way, I’m not sure I’ve ever worked with a Buying team whose primary competence is Business Process/Administration. On the other hand, at least these teams have a strong focus on sales (usually! – and yes I have worked with at least one retailer where Buying didn’t appear to have a sales target…). And lousy product data online usually equates to lousy sales.

My favourite example of lousy product data ensuring lousy sales, from some years ago now so I think I can use it without causing blushes, is this product sold by a major DIY retailer:

“What size are these doors?” is fairly fundamental. Worse still, the question had actually been answered on the forum, with a precise and accurate answer… by one of the retailer's buyers for the Doors category.

So, if Product Data Management doesn’t belong in eCommerce, or in Category Management, where else? Well, some sort of dedicated admin team is possible. But where should it report to? It’s unlikely to be big enough to merit a top-table seat in its own right, so it’s still left looking for a home.

Take a closer look at it. What does it involve? Well, it’s very business process driven, standards and compliance are essential, flow management is important, just-in-time-delivery is a core competence, it’s about getting something from suppliers, and you are always working to serve demanding sales channels… sounds very like logistics / supply chain doesn’t it? The difference is that instead of a physical supply chain via warehouses, there’s a virtual supply chain via data warehouses.

 

I do indeed know of organisations that do this (I say this hastily before I get hostile comments posted by irate Logistics Directors).

But it’s also perhaps the strongest illustration of another key consequence of become Multichannel: very new disciplines in traditional functions. Logistics is the New Marketing has been one of my themes in these posts. Here’s a related one: Product Data is the New Logistics.

4 stages in the evolution of the multichannel organisation

As promised in my last post,  I’m going to take a look at a few of the many other impacts that going multichannel has on a retail organisation.

A high level overview seems like a good place to start. I typically see the following models, either in action, or – unfortunately – more often in aspiration, when I work with clients:

 

 

I’d like to say that the Rebellion model – where a small number of people, typically from I.T. and Marketing conspire together to drag a retailer online – is already dead. In actual practice, a version which I’ll call Sponsored Revolution seems to be alive and well. In its typical manifestation, there is indeed a general top-management mandate for adding new channels, but this does not translate into altering individual targets and KPIs, and so the implementation project team or eCommerce team has to spend a disproportionate percentage of its effort wheedling co-operation out of the rest of the organisation. To give a specific example, it is very difficult to persuade an individual buyer to devote 20% of his/her time to developing the range for online, or (worse) helping with product data management, when it is expected that only 3% of sales, and therefore 3% of his/her existing targets, will be met from online sales in the next 12 months.

The Distributed model is the one I encounter most often in actual practice (although this might be a biased reflection of the developmental stage of organisations that typically engage me). A small dedicated team looks after driving the new channel(s), but has a clearly defined mandate to use certain resources from existing business teams. To use the same example, the buyer would have a specific target for new channel sales, and a clearly stated guideline regarding the expected time commitment.

 In the Focussed model the eCommerce team is dispersed back out into its wider departments again, but the idea of managing specific (usually just new) channels persists, usually with a skeleton coordinating team. For example, the team responsible for online customer-service would now report into general customer-services, but would still retain a distinct identity and a strong affiliation with the online channels. I actually can’t think of a real-world example of the Focussed model implemented in toto, possibly because it is rare to encounter an organisation which is matrix-managed across the majority of its functions, but partial implementations are very common.

 Finally, we reach the point where the distinction between channels ceases, a true Multichannel organisation. For example there are not two groups of customers, there is one group of customers – “our customers” – and so the existence of a separate marketing team makes no sense. Yes there may be channel-centric technical specialists, for example experts in SEM or Affiliate Marketing, but every discipline has its technical specialists, and the task of management is to coordinate them towards achieving the same organisational goals. One day I will work with a retailer that is truly Multichannel in this way; I haven’t yet encountered one!

In practice, retailers make these transitions at different speeds in different areas of the business. It’s not uncommon to see something like Multichannel buying, Focussed marketing, and Distributed logistics. It’s important that this is a deliberate choice, not an organisational accident or worse still a kind of Darwinian struggle for channel supremacy.

 

 

From Buying to Trying

In my last post - from McJobs to iJobs - I considered one possible organisational impact that Multichannel could have on "traditional" retailers: the upgrading of roles at the point-of-sale. Of course this will have wider consequences: staff performing more complex roles need to be managed in more sophisticated, and probably less top-down process-driven, ways.

This has led me to consider where else in the organisation this increase in role-complexity might hit hardest, and I'll be looking at a few of these in my next few posts. For the first of these, I want to consider the opposite end of the product-lifecycle in a retailer: Buying.

As Amazon puts it "we... focus on selection, price and convenience". Most multichannel retailers, in fact, attempt to offer a much wider range of products online than they do in stores; "thin" categories, which might work as end-of-aisle or next-to-POS takeaways in a store environment, just don't cut it online. Customers expect "total" ranges where they can browse a complete selection.

Suddenly the poor Buyer needs to buy 3 times the previous range of products.

To make matters worse, top-sellers in store could be very low price-point articles. And these aren't going to work online, because of shipping charges, unless they can be sold as add-ons. The required range profile is typically slightly different.

The Buying organisation faces a dilemma: each category buying team now has to buy more articles. So is the best way to do this to create two teams, one buying for store-only (or core articles for both channels) and one buying for the online range only? Or is the best approach just to make the job more complex? What you definitely can't do is stand still...

 

 

In practice for a true Multichannel retailer (as distinct from a Multiple channel retailer), the answer is best summed up in a quote from Philip Clarke at Tesco:

 

"As we look forward, I think our larger stores will have a bit more food space, a bit less general merchandise space, and a bit more clothing space."

 

In other words, range planning has to be a multichannel process. Inevitably that means a more complex process. And in turn, that means more complex roles.

 

More complexity buying the assortment, more complexity selling the assortment. The obvious question is what about in the in-between processes, and that's what I will look at in my next post.

 

 

From McJobs to iJobs

My attention was drawn last week to two intriguingly opposing articles. First of all, the usual gloom and doom on the high street message, this time articulated in terms of vacant properties etc, published by the Centre for Retail Research.

The direct correlation between the growth of online sales and the decline of high street sales is spelt out. The article demonstrates a reduction in the proportion of consumer spending on the High Street from 50% to 40% coinciding with a rise in consumer spending online from 0% to 12.7%.

Once again we see a key principle – online retail does NOT create extra money in consumers’ pockets, it just represents a spending shift. Figures in the UK are distorted somewhat by the existence of a large online grocery sector, unlike anywhere else in the world. But if we focus only on non-food, the picture is quite clear:

 

 

As the research goes on to state, national coverage now requires far fewer stores. A truly multichannel strategy to reach all customers via a properly blended online/offline offer does the job just as well. The key quote: “retailers with a strong web offering now need just 70 high street stores to create a national presence compared to 250 in the mid 2000's”.

And what about those retailers with the strongest web offering of all – the online pureplays? Well that’s where the other articlecomes in. It seems a pureplay isn’t really a pureplay after all, you need a showroom. If you can do like Amazon and use brick-and-mortar retailers as your showroom in a kind of parasitical price-scalping mode, then this is undoubtedly extremely efficient – you get the showroom, someone else gets all the costs of the stores. If you can’t, what can you do about it – seems like the best thing to do is… open brick-and-mortar stores. OK, maybe not traditional stores, more, well… showrooms.

In many ways we’re already familiar with the concept. What more is an Apple store really than a high street showroom? OK, you can buy the products there, but they are much more places where you can look at the product, get service on it, and get someone to explain it to you.

To do that, of course they need a different kind of staff. No longer are the staff there primarily to perform the mundane tasks of shelf-filling and cash-taking. The essential requirement for a staff member in an Apple store is to know more than the customer. And not just any customer, but a customer who has spent time researching the product already online – an expert customer.

What these two articles taken together suggest is that we can expect another strategic shift on the high street – from McJobs to iJobs...

 

 

 

Social Media Explained...

I've just come across this while hunting for something serious to write about for my next post, and I can't resist reposting it here!

Social Media Explained