The Hindu Business Line : Be future perfect

The first decade of modern retail in India has been characterised by a shift from traditional kirana shops to new formats including department stores, hypermarkets, supermarkets and specialty stores across a range of categories. Modern retail formats have mushroomed in metros and mini-metros. In the last few years, modern retail has also established its presence in the second-rung cities, exposing residents to shopping options like never before.

However, even as modern retailers garner share from traditional channels, there is a larger role they would be required to play in boosting consumption levels. Figures suggest that the total turnover of the sector is around Rs 10 lakh crore, of which 2 per cent is contributed by the organised sector. During the last decade, India's middle- and high-income segment notched up an impressive 105 per cent growth. This segment has been triggering the demand for consumer goods. Increased awareness, free access to information and choice in competing products and services are making customers redefine the retail business. They are on the lookout for convenience, speed, efficiency and a wide range of products. Retailers need to explore different channels of retailing to cater to customers' needs. The days of brick-and-mortar's limited potential are fading and retailers need to tap the immense opportunities that other channels offer.

Modern retailing has brought us the concept of shopping for many things under one roof. Malls are providing `shoppertainment' (shopping and entertainment). Pricing and shopping experience are the key differentiators, though they may not go hand in hand. Many of today's hardworking customers have lesser time to spend despite the growth in income. Hence, more than the shopping experience, customers are looking for value and convenience.

Driven by increasingly intense competition in an increasingly global marketplace, retailers must seek new ways of capturing the hearts and minds of consumers. The traditional levers of price, selection and location — although still important — are no longer sufficient as bases for competitive differentiation. Retailers should be focused on improving the end-to-end shopping experience, boosting sales and winning customer loyalty by connecting to the shopper in every possible way.

Multichannel retailing is all about giving the customer a choice of which shopping channel he or she wishes to purchase products through. The most popular shopping channels include the stores, Internet and catalogues and telemarkets (including mobile shopping).

The Internet is fast catching up as an alternative channel. It is expected to grow at a CAGR of 79 per cent to Rs 2,300 crore this year. The two key segments in this sector are companies with a solely online route like Rediff.com and Baazee.com, and traditional brick-and-mortar companies using this as a new channel, like Indian Railways and most airlines.

There are three key drivers for online shopping catching up in India.

Internet and PC penetration

India's middle-class is mushrooming, with growing purchasing power and limited personal time.

Increasing usage of credit and debit cards coupled with a growing young population who spend significant time online.

Online shopping in India is now dependent on the eagerness of Indian retailers to think out of the box, build on their existing strengths and becoming truly multi-channel retailers. The challenge is to make customers look beyond the informative and functional online activity such as matrimonials and direct them towards online shopping for travel, entertainment, lifestyle and food and grocery.

Convenience of online product research, comparison shopping and competitive pricing are driving consumers to make online purchases.

Tele-retailing

Tele-retailing facilitates customers shopping from home over telephone and making payments by cash or credit card. In India, HLL has tapped this market well, with Sangam Direct, a Hindustan Lever service that lets customers choose and shop from a wide range of over 3,500 grocery and household products. Consumers can practically shop for all household need from the comfort of their home at prices lower than MRP.

Tele-shopping

These infomercials are typically aired between programmes or in a 15-20 minute slot in which all the products are displayed. In India, the major players are Asian Sky Shop, TSN, TVC and Telebrands. However, the market for such a medium is still in the embryonic stage.

Catalogue shopping

The catalogue is a popular non-store format which offers the convenience of studying the contents and then placing orders. The role of the catalogue has undergone many changes after the advent of the Internet. The advantage to a customer is that she can go back and refer to the contents at any time. Also, it is easier to compare and contrast the alternatives available. Catalogues are powerful tools that assist retailers in their relationship-building exercise. Examples are eBay and Home Depot. In India, currently fast food retail chains such as Pizza Hut and Pizza Corner aggressively use this form of retailing.

Each channel offers its unique proposition. While stores channels offer a touch-and-feel experience, the catalogue enables the customer to browse through the contents as and when required. The advantage with the Internet is that one can go through the wide assortment of items before narrowing down the choice to a select few and then getting in-depth information on the chosen items.

Need and significance

As customers increase their use of the Internet channel and hunt for convenience, retailers must understand that multichannel buyers form a valuable segment. Failure to anticipate their consumers' needs and create a cohesive experience across all channels will waste not only marketing dollars, but also alienate the company's best customers. Retailers must learn to leverage the strengths of each channel to serve a given customer.

They should adopt multichannel retailing to:

Grow market share

Increase customer base

Offer convenience

Achieve cost reductions through economies of scale, supply chain efficiencies, and logistics

Improve customer analytics

Open new revenue streams through effective cross-sell and up-sell

Reduce cycle time between order and delivery

Lower fulfilment cost

Improve demand planning

Retailers must provide a seamless multichannel experience for their customers, but specific channel integration strategies differ for various product categories. Today, customers can order in any situation - by catalogue or through Internet, in the shops, through mobile phone, or TV. According to various studies conducted in the US, shoppers who use multiple channels tend to spend more and be more loyal. For this, they become the most valuable consumers within a retailer's customer base. Two core value propositions of multichannel retailing are:

Greater convenience: For some customers, greater convenience means faster access to information; for others it means the ability to purchase from home without having to deal with salespeople, for some it means taking their own time to decide and for some others, it means easy decision-making with the help of the retailer's tools.

More targeted and actionable information: Access to information seamlessly combined with advisory tools and `personalised' suggestions will increasingly drive consumer choice. This hybrid of information and advice will become important as the multichannel shopper pool includes more advice-oriented individuals who want to feel they have made the right decisions.

Challenges

It is very important for the retailers to effectively analyse the customer information across various channels so that strategies can be planned to increase the share of wallet. Each channel represents a significant financial commitment. Customers must be cultivated and serviced from the moment they first enter the channel to when they express complete satisfaction with their purchase.

The following are some of the key challenges faced by the retailer:

Secure payment gateway (especially in Internet retailing)

Inability to effectively target cross-channel marketing efforts due to lack of comprehensive customer behaviour data

Difficulty in optimising the supply chain due to multiple, disjointed order management systems

Failure to provide a flexible and convenient shopping experience

Little or no experience in handling online sales

Inconsistent pricing, branding and merchandising across channels

Lack of visibility of inventory and demand aggregation across channels

Lack of integrated order management and demand planning and fulfilment system.

However, going multichannel, the retailer should not ignore the critical part: the customer. Customers have become more sophisticated and expect a retailer to recognise them. For example, customers expect to return products to stores that were bought online (or vice versa), use loyalty cards, store cards and gift vouchers through all channels, get an update from the call centre pertaining to special orders and check and reserve store stock

Retailers should consider the following before going the multichannel way: Getting an expert to design their Web site for online shopping, adequate staffing to manage orders, re-engineering accounting practices, offering products at a competitive price, integrating loyalty and registry programmes in all channels, permit store inventory visibility on the Web for products with high purchase urgency or those that require live trial, feature Web inventory visibility in physical stores for product categories with broad inventory, centralise customer information, and include customers of traditional stores in online marketing efforts.

R. S. S. Nagaraju is a Retail & Consumer Goods Practice Consultant of Tata Consultancy Services. Shilpa Rao is a Retail and Consumer Goods Analyst at TCS.

References: www.mckinseyquarterly.com, www.multichannelretailing.com,www.forrester.com, www.shop.org,www.bcg.com,www.gartner.com,www.retailforward.com, http://retailindustry.about.com, www.reuw.washington.edu/JSCR/ 2005RFPs/S4_GajananSupplySide.pdf, Marketing Mastermind, "Multi channel Management", December 2005.