Tapping into profit with multichannel shoppers

Venkatesh Shankar, Professor of Marketing, Brandon C. Coleman, Jr. ’78 Chair in Marketing

In September 2006, the Center for Retailing Studies conducted a survey of its members to determine hot button research issues facing retailers today. Four topics emerged as the key issues that kept executives awake at night: attracting and retaining talent, positioning and branding, customer experience management, and multichannel marketing. Of these issues, multichannel marketing is a topic that has been rapidly growing in managerial significance in recent years.

“Multichannel” shoppers are those customers who buy goods or services at the store or professional’s office and online, rather than just focusing on one avenue or channel for their purchases.

Over the past few years, I have done research—primarily in conjunction with marketing PhD student Tarun Kushwaha, on multichannel marketing—addressing the following important questions. What are the drivers (demographics, shopper traits, and product categories) of multichannel shopping behavior? What are the outcomes (such as recency, frequency and monetary value of purchases)? How should firms allocate marketing resources to customer-channel segments? What are the effects of marketing efforts in one channel on purchases or sales in another channel?

To answer these questions, we conducted three studies. In Study 1, we analyzed large-scale consumer shopping transaction data over the online and offline channels of a million randomly chosen consumers across 750 retailers of 24 broad product categories over a four-year period. In Study 2, we examined marketing and transaction data of about 815,000 customers of an apparel manufacturer with store, catalog and Web channels over two years and developed a resource allocation model. In Study 3, we investigated monthly marketing and purchase data of auto and home insurance customers across different channels (exclusive agent, independent agent, call center and the Web) over a five-year period.

Our major findings are as follows. Customer demographics such as age, income and education and shopping traits (such as length of shopping experience and basket size) are key drivers of multichannel shopping. Multichannel shoppers are most likely to be 25 to 34 years old, highly educated, and affluent. They also have long shopping tenures and large basket sizes and are more valuable than are single channel shoppers.

An average multichannel shopper annually spends about $200 and $523 more than a corresponding offline and online shopper, respectively. The multichannel customer segment is most responsive to marketing mailers, but is more price-conscious.

Using our multichannel marketing resource allocation model, an apparel firm could improve its profitability by about 32 percent or $7 million. The effects of marketing efforts in one channel on purchases through another channel are asymmetric, offering potential for reallocation of marketing efforts across the channels. In the insurance market, the marketing efforts across the Web and the exclusive agent channels are complementary. Furthermore, the effect of call center efforts on price quotes obtained through the Web is greater than that on quotes gotten through the exclusive agents. And, the effect of exclusive agent efforts on quotes obtained through the Web is greater than that on quotes received through the call center.

The studies, models, and results are useful to retailers and marketers in many ways. First, retailers and marketers can use channel as a segmentation and targeting tool to identify the right customers. Second, using our analysis methods, they can match the right marketing instruments with the right channels. Third, our results also suggest that they could selectively pursue channel migration for appropriate customers to grow their businesses profitably.

Finally, they can use our marketing resource allocation model across customer-channel segments to improve overall profitability.

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