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: Introduction"> Richard Ehara Is a Demon Customer.

When the 37-year-old consultant from El Cerrito, Calif., decided to buy a video camera last spring, he researched the product online, did the rounds of the retail electronics stores, asked countless questions of in-store sales reps, and rigorously tested several models. Then he went home and bought a Sony PD170 online, at a substantial discount, from B&H Photo. "It made no sense to buy a $3,500 video camera in the store, when I could save about $350 in sales tax by buying online," he says. "I used the extra $350 to buy accessories such as a bag, lens filters and batteries."

Mr. Ehara is a retailer's worst nightmare. He is not burdened by traditional marketing traps such as brand loyalty or customer service. Demon customers will carry out research at brick-and-mortar stores, tying up sales reps for hours at a time. They'll even purchase a product, test it at home for a week, and return it to the store for a full refund. Then they'll find the cheapest possible source from which to buy it, be it online or off.

Mr. Ehara is not alone. Nearly 70 percent of Internet shoppers admit to browsing in traditional retail locations before buying online, according to a recent survey by the Annenberg School Center for the Digital Future, at the University of Southern California. And the opposite is also true. About two-thirds of today's shoppers do extensive research online, and then pop out to their local mall and buy the goods in person, according to Forrester Research Inc. These multichannel shoppers accounted for in-store sales of more than $100 billion in 2004.

The numbers show that over the course of a single purchase, customers frequently cross over between the online and offline worlds. In fact, between the time they start their research and when they make their purchase, half of all multichannel shoppers switch brands, according to Forrester. That's because most retailers have made little or no attempt to coordinate their online and in-store operations. In many cases, the two are treated as completely separate business units. Some retailers, such as Victoria's Secret Direct, won't even allow online purchases to be returned at stores. Toys "R" Us goes a step further and farms out its entire online operation to Amazon.com.

Without better alignment between their online and offline efforts, retailers are missing a huge opportunity. According to the U.S. Department of Commerce, electronic commerce accounted for $15.7 billion of the $919 billion in retail sales during the second quarter of 2004, and that figure is rapidly increasing. Online sales are expected to jump 27 percent this year over last year, according to Forrester Research. In response, retailers are investing about 2 percent of their revenues in information technology, reports an IBM Business Consulting Services 2003 retail survey of CIOs. Yet the endemic lack of loyalty the Web has spawned is costing retailers nearly $50 billion a year in lost business, says Carrie Johnson, a senior analyst at Forrester. "It's more than just losing a sale here or there," says Johnson. "Most companies will tell you that multichannel customers spend more than others." And with the holiday season upon us, when retailers rake in as much as 40 percent of their annual revenue, the issue of how to market to multichannel customers is on everyone's mind.

"The problem is that retailers have focused on what they want to sell, not on what their customers need," says Joe Gagnon, retail leader of IBM Business Consulting Services, based in Armonk, N.Y. "That's because most don't have the information they need to make you an offer you won't want to refuse." Gagnon believes that many retailers will live and die on their ability to personalize their offerings and integrate their channels. That's because he sees the retail markets rapidly fragmenting, with customers migrating to low-cost and discounted retail operations, such as Wal-Mart Stores Inc. and Costco Wholesale Corp., at one end, and high-end specialty providers, such as San Francisco-based Williams-Sonoma Inc., at the other. For the retailers in-between, a tightly integrated, multichannel customer experience could be the difference between competing and closing up shop.

Meanwhile, as a new breed of independent Web site arrives, the temptations of disloyalty just keep growing. Shoppers have long been able to research such items as consumer electronics products on a variety of sites, such as CNET.com, ShopLocal.com, Froogle.com, SlickDeals.net and NexTag.com, which provide price comparisons, detailed product information, insider tips and consumer feedback—all the information shoppers need to make ultra-informed buying decisions, whether they buy online or from a brick-and-mortar store. But now these sites can provide even more confidential information, such as which items a retailer is currently selling at a loss, which retailers have the most favorable return policies, and which have planned upcoming sales. The independent sites, though they don't sell the merchandise themselves, are happy to help. "If they spend time on our site we're winning," says Rafe Needleman, CNET's editor of business buying advice, "because they use our content and they view our advertisements." The irony is retailers have helped spawn the very sites that are now undermining their margins: Desperate to cater to the increasing numbers of sophisticated online shoppers—whom Forrester says are wealthier and buy more—retailers will pay somewhere between 5 cents and 40 cents if the consumer clicks through to their site from an independent site.

Are retailers finally catching on? Suddenly, the industry is abuzz with the phrase "multichannel marketing." As the threat of the demon customer grows, businesses are learning that, in order to create some semblance of brand loyalty, they need to exert greater control over the process by which their customers research, buy, pick up and return their goods across multiple channels. At the very least, tighter integration of the on- and offline shopping experience can lead to improvement in customer satisfaction. Otherwise, says Forrester's Johnson, "disloyalty will continue to reign."

Still, it remains to be seen if even the most sophisticated multichannel strategy could reel in the likes of Richard Ehara, or whether it's even worth trying.

This article was originally published on 12-01-2004
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