Business model match-up

Multichannel marketing has been with us for the past decade, thanks to the advent of the e-commerce channel. Each brand, and the customers who shop each brand, evolved into one of at least six different business models.

Simple online presence
These businesses generate the vast majority of their sales from customers who send orders by mail or by calling a sales representative in a contact center. A catalog inspires the customer to order. The online channel is not a significant driver of sales for businesses in this situation. The customer does not use the online channel as a shopping vehicle. At least 80 percent of the net sales happen through the mail and telephone. The average customer age is frequently 55 years old or older.

Online order form
These are catalog businesses that use cataloging as the primary marketing vehicle but provide a robust online experience that causes customers to place their orders online. These businesses struggle with the concept of being multichannel because all analytical work indicates that the catalog drives 80 percent or more of online sales. In reality, these businesses are not multichannel but catalog businesses that take orders online. Still, it is not uncommon for these businesses to generate half of all orders online.

True catalog multichannel model
This is the least understood of all business models. These are catalogers who generate at least half of their annual net sales online. However, these catalogers typically believe that the catalog is responsible for driving the online sales. In reality, the online channel developed a foothold in these business models. If catalogs were not mailed to customers, online orders would happen anyway.

Company reporting and match-back reporting indicate that the catalog drives online sales. Yet sophisticated mail or holdout catalog testing indicates that at least half of the online sales would happen regardless of whether catalogs were mailed, suggesting that these brands are significantly over-mailing customers. These businesses have robust e-mail, paid- and natural-search, affiliate, portal and online-marketing programs that generate incremental sales. It is this business model that many industry experts and consultants target when they talk about multichannel marketing.

Retail business, catalog heritage
These businesses practice true multichannel marketing but with a strong focus on return on investment. The catalog heritage drives measurement of all advertising activities across all channels. If an aspiring person wanted the best multichannel lab in which to build multichannel skills, these environments provide the best place to gain valuable, portable multichannel experience, be it in catalog marketing, online marketing or retail marketing.

Online business, retail heritage
Neiman Marcus, Saks and Macy’s fit into this business model. The online channel is complementary to the store experience, as the stores are responsible for the lion’s share of sales and profit. Management says the right things about multichannel marketing and invests in the online experience. That being said, the purpose of being multichannel is to do everything possible to please a store customer.

This strategy can lead to sub-optimization of the direct channel. Over time, these businesses will lead the online industry in “entertainment.” The online channel and supporting catalog channel will likely become the entertainment and informational arm of the brand. Of course, a giant retail presence will cause a ton of traffic to migrate online, driving a huge volume of online sales.

But the online sales will not be driven by brilliant online-marketing or catalog-marketing strategies. The online sales will happen because the online channel acts as the entertainment and informational arm of the retail brand experience. There’s nothing wrong with this. But it does require a very different set of marketing skills, skills more congruent with branding and less congruent with traditional online and catalog marketing. Social-networking skills are valuable in these models.

Online pureplay
These businesses are fundamentally different from the five models described above. These businesses were born online and use a marketing strategy fundamentally different from other businesses. Traffic is driven by online-marketing strategies. To compensate for what I call “channel disadvantage,” that is, not having catalogs or stores, these businesses use free shipping, free returns and rock-bottom pricing to gain a competitive advantage. These businesses need to grow to a size large enough to overcome margin- and shipping-revenue shortfalls. The online-marketing departments in these companies offer spectacular laboratories for learning online-marketing strategies. If I were a college student today, this would be one of my primary industries to target for employment.

Strategically, it is very important to understand where your business model falls on this continuum. The way you use multichannel marketing and advertising strategies is highly dependent upon the customer base you have, coupled with your heritage and objectives.

Traditional cataloging strategies are frequently not congruent with brand-based retail models and online pureplays. Online marketing makes less sense in the short term for simple online presence or online-order-form models. Customers using these are not willing to shop on the Web without the benefit of catalog merchandise presentation.

Match-back analyses and analytical expertise are probably most critical in business models three and four. Catalog businesses that migrated from model one to model two to model three have the best opportunity to overcome postal increases, because the customers shopping these businesses will purchase online if catalog frequency is reduced.

Each business model needs different expertise to maximize sales and profit. Which one does your business fall into?

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