Right Channeling

Forcing customers to a company's preferred channel can be a dangerous game. Here's how to move customers to the "right" channel so both company and customer win.

Brian Carpizio is a card-carrying, guitar slinging Who fan. He has traveled across the country to see the band on its current tour. And he has shelled out more than a few thousand dollars to stand on the same stage as lead vocalist Roger Daltrey at a recent rock 'n roll fantasy camp. So when Carpizio then had the opportunity to part with a few thousand more for a new Pete Townshend model limited edition Gibson acoustic guitar, it was not a purchase he took lightly.

He started on the Musician's Friend Web site, owned by the 87-store musical equipment chain Guitar Center. The guitar was in stock, which is rare for limited editions. The Musician's Friend site linked to the Gibson guitar Web site, where there were so many views of the guitar that Carpizio said he never needed a catalog to make his decision. He also didn't need to see it in person, hold it, or play it. Despite the cost of the purchase and the lack of immediate gratification Carpizio bought his guitar hero's guitar online.

When asked if he thought Guitar Center and Musician's Friend should have tried to get him to come to a store or maybe get him on the phone with a live service rep, Carpizio says: "It's not about how I ended up with the guitar. It's about how I got there."

Carpizio's experience sums up the current state of multichannel retailing and the current thinking around a concept called right channeling. Right channeling is the discipline of influencing customers toward specific channels based on customer value, purchase preference, and profitability. It is leading many companies, especially retailers, to consider whether marketing, operations, and even media should be aimed more at pushing channels toward specific customers and customers toward specific channels.

There's a raft of evidence suggesting that customers can be influenced to interact and then buy through channels that they are best suited to and that the company prefers from a financial perspective. Several studies, for example, have shown that companies can be successful pushing customers online to research product purchases and then successfully push them back to a retail location to make the purchase. ComScore published a study in March 2006 showing that
25 percent of consumers surveyed about 2005 holiday shopping started their product purchase research online. But only 37 percent followed through online; 63 percent of them purchased the product offline. Even in the music and entertainment business, where online downloads are perceived as dominant, only 17 percent of all shoppers who started their purchase research online actually completed the purchase online.

Companies that move customers to the "right" channels judiciously accept the idea of giving customers what they want when they want it. But the key word is "judiciously." Right channeling is a sensitive process. Push an online customer like Carpizio into a store when he's ready to pull the trigger online and it could be a lost sale and relationship. Push an offline customer online and loyalty could be damaged in the process. But send a customer who usually buys musical equipment online an email pitching relevant offers and a new sale could result. Encourage that customer to come to the store at a later date for a guitar workshop and one "right" customer has been "right channeled" at the right time.

This sensitivity, when customer retention comes at such premium, has made right channeling a hotly debated issue. One side of the debate says right channeling done right benefits everyone involved; the other side warns of a loss of balance-companies pushing customers to channels that don't suit them-and the loss of sales and loyalty that can accompany it.

Loading the Dice

The concept of right channeling got its start through the thinking of Scott Neslin, a Dartmouth professor who has written extensively about how and why customers migrate across channels. His research has shown that, like customer loyalty, the reasons customers decide to purchase from different channels have both an emotional and logical basis. "The customer decides how much to purchase from the firm and what channel to use," he wrote in the paper Customer Channel Migration. "Both behaviors entail experience or learning effects whereby previous purchases and channel selections can affect subsequent behavior."

Neslin believes two forces are converging. The first is the right channeling tactics that companies use to drive some customers into stores with discounts and experiences or drive them online with loyalty programs and research tools. The second is the need for customers to be guided further after they've been "channeled." For example, a professional woman who frequently shops for clothes at a retailer should be assigned a personal shopper to guide her not only to the right channel (e.g. store or Web site), but also to the right area of the store or site.

"The real challenge ahead is to further customize the practice of right channeling," he says. "Companies know in advance what the customer has bought before, and now they need to understand that there's another level of handholding that can be achieved through technology, as well as an efficient call center."

The practice is more than upselling or cross-selling. Right channeling assumes that the customer will buy from your company and will increase loyalty if consistently presented with the right channel at the right time. The "stagnant" multichannel thinking, according to Neslin and others, stops at simply presenting channel options to customers. Right channeling is more aggressive. It takes channel behavior, not just purchase behavior, and guides customers to the most valuable channel for them.

From an operations standpoint the Avis/Budget car rental group provides a good example. It implemented a system in 2005 that combined the contact center with email solutions to keep a human voice in its reservation systems, but also to keep customers away from spending time at the less profitable airport counters. An Avis/Budget customer who calls to make a reservation automatically gets an email confirmation, an offer for enrollment in the company's newsletters, and coupons via email for additional business opportunities. So the business traveler gets special offers for weekend car rentals and vice versa. But the retail channel (airport counter) is taken out of the equation. More than 1.2 million customers have signed up for the email service since April 2005.

The right channeling approach can also be used on a B2B platform. As a company, John Deere touches very few end-user customers. Its agricultural and personal landscaping products are sold either through distributors or local dealers. One of its strongest relationship building strategies and retention tactics is through offering financial services to those end users. John Deere Credit gives the company a contractual relationship with its most valuable customers and allows for consistent, direct communication. Before 2000 the credit division relied on agricultural fairs, trade shows, and its dealer base for leads, says e-commerce manager Steve Brubaker. Email provided a new direct channel for credit applications and direct sales opportunities.

In 2001 the company used direct mail to offer incentives to customers who provided their email addresses. Those incentives were rich. For the agricultural group, as an example, a major account could lease a tractor for a year in return for an email relationship. Brubaker said this "right channeling" effort helped John Deere communicate more directly and efficiently with customers. Customers, in turn, had more information to manage their accounts.

"From the very beginning we saw that this would be more efficient than direct mail, but we still needed these communications and this channel shift to be something that built trust," Brubaker says. "We didn't want to force people to use email and online communications. We wanted to show them that they could readily access information that helped them get the best deal for their dollar."

From a standing start in 2001 John Deere has "right channeled" 45 percent of its customers online. That number grows by the month as the company generates new business leads and feeds them back to its dealer base. Brubaker says online customers are more loyal, have higher total spend than offline customers, and communicate more with the company. In 2005 customers who had online accounts spent 30 percent more than those who didn't.

Customers, Not Pawns

Success stories aside, some experts suggest an "anti-channeling" approach. The Who fan at the beginning of the story, Brian Carpizio, is among those who believe right channeling is the right debate. He's just not convinced it's the right approach. His opinion is formed through his experience as the CEO of software vendor Junction Solutions. He believes that his experience with the Gibson guitar shows that customers will buy from a channel based not on what a company wants them to do, but based on what they want at that moment. Predicting channel behavior or trying to influence that behavior can interrupt the journey of a potentially loyal customer. According to this side of the right channeling debate, being open to all channels, and making them all receptive, is the best strategy for customer loyalty and increasing customer value. Carpizio believes the "open channeling" approach of Musician's Friend made him a loyal and valuable customer.

Loyalty Lab marketing vice president Michael Greenberg is another open-channel advocate. "If you asked me two years ago if we should push customers to specific channels I would have answered with a definitive yes," he says. "But I see some emergent behavior in the online world that shows me that customers are much more mercenary than they used to be. They won't go to the channels you want them to go to, and they seem to switch loyalty much more than they used to. I think companies should refocus on customer retention, whatever that takes. To say we can have relationships that are so strong we can influence channel behavior is tough right now."

Several research studies lend credence to Greenberg's statement. The first shows that the loose loyalty he describes is particularly prevalent online. It comes from research company Grizzard Performance Group. Taking the measure of 13,000-plus holiday shoppers, it found that 64 percent of all online shoppers would consider a different brand or retailer if offered a lower price. That doesn't speak much for loyalty or for the success of strategies that move customers online. Another recent study, by ForeSee Results, showed that online shoppers were most influenced by free shipping, not more sophisticated experiences or loyalty programs, when they rated satisfaction and intent to recommend to a friend.

"Every customer has a right channel depending on what will influence the transaction at any given time," says ForeSee CEO Larry Freed. "So it's hard to predict or influence that channel preference. One day it might be money, one day it might be time, one day it might be immediate gratification or just the experience of going shopping. As a result of that, retailers need to be ready for any customer at any channel at any time. The control is with the customer. Every channel needs to hit a home run every time."

Freed points to other research from the 2006 holiday season that showed that brick-and-mortar retailers achieved huge gains, especially when compared to established e-commerce players. Among the brick-and-mortar giants that outstripped e-commerce pure plays were WalMart, J.C. Penney, Victoria's Secret, and Best Buy. Seven of the top 10 e-commerce revenue producers for the 2006 holiday season were online-offline-catalog business models, and none of them, according to Freed, aimed at that distinction. Freed says this is evidence that those retailers did not push customers online or offline; they were simply ready, willing, and able to be "open" channels rather than "right" channels.

The Winning Strategy

Fickle customers. Growing channel opportunities. How does a company approach right channeling? Finding the middle ground seems to be a smart approach. To ignore right channeling is to ignore the opportunity that customer data and fact-based marketing provides. Customers usually show some behavior that illustrates commitment to a company's products, as well as to its channels. While no company should unduly push customers online, offline, or to a contact center, it should understand what those customers use different channels for. When that understanding is reached, right channeling can be an executable and profitable strategy. Only when John Deere created more value for customers did it right channel them online. Only when Avis could coordinate the contact center and email did it right channel customers away from the airport counter.
"There are emotional and rational bonds to consider," says Michael Lowenstein, loyalty expert and vice president of Harris Interactive. "Customers will advocate [for] or sabotage your brand based on their commitment to it. Right channeling makes companies look beyond the commoditization factors and look toward the quality, trust, and commitment that come with unique positioning. If you can provide an experience that a customer will commit to, the top end of your customers will be loyal to it."

One of the secrets to right channeling may lie in media and marketing. Virgin Megastores shocked the music industry in January when it announced that sales at its 20 stores were up
12 percent-while its competition was down
5 percent and digital downloads were the rage. Although it has an e-commerce operation, Virgin made a concerted effort to push its retail channel for Christmas with aggressive advertising, in-store appearances by well-known musicians, and catalogs. Virgin expanded its advertising buys by dedicating 30 percent of the company's annual budget to holiday advertising, which was an increase from previous years. For the first time Virgin Megastores used circulars in commuter and tourist print publications, and focused on spreading the word to consumers via national cable TV advertisements about the brand's range of lifestyle products.

"If we can't influence customers, that's a sad state of affairs," says OgilvyAction CEO Rick Roth. "I think we can, and if you don't try to do it you're dead wrong. I'm not saying we can push customers around strictly by having great TV ads, but we do need to push people toward moments of truth. It's critical to influence how people behave and then you need to prove that you influenced them when you're done."

Done "right," right channeling can be that measurable push.