A number of years ago I was in a kickoff meeting for a large project focusing on multichannel order management. The goal was to integrate data from different channels to arrive at a 360-degree picture of the firm's customers.
Participating in this confab was one of the smartest and most knowledgeable direct marketers I've ever met. He was the primary client contact and the person responsible for bringing the project to life.
We opened by discussing objectives. Our expert DMer said a key aim was to identify new ways to encourage single-channel customers to order from additional channels. He referenced an internal analysis showing that shoppers who order through multiple channels are far superior to those who use only one.
Most database marketers would agree with this objective and rationale. It's often been observed that single-channel customers order about twice as much as multichannel shoppers. And many agree that it pays to encourage those solo buyers to tap into additional channels.
Indeed, that goal is widely used as a justification for the effort and expense required to create a comprehensive view of a firm's customers. But while there are many cost-effective benefits to be gained from multichannel order management, is it really important to encourage shoppers to order from additional channels?
Yes, multichannel customers are superior to single-channel ones. But should we as database marketers care? Should we buy into the conventional wisdom that the intrinsic interest of the single-channel buyer will increase if they are coerced into purchasing from additional channels?
This thinking is flawed because multichannel customers are inherently different from their single-channel counterparts.
Their impressive performance is explained by these underlying differences, not by their poly-channel ordering. And it is naive to think that prodding shoppers to use additional channels will increase their interest in a company's products or services.
WHY ARE THEY DIFFERENT?
Multichannel customers, by definition, are multibuyers. In order to qualify as such, a customer has to have ordered at least twice.
As any DMer will tell you, multibuyers generally are much better customers than solo purchasers. They tend to be more loyal, with higher average order sizes, and — by extension — bigger long-term values.
Far fewer single-channel customers are multibuyers compared with their multichannel counterparts. Therefore, they won't match the subsequent overall purchase volumes of those who order from several channels. And sadly, there aren't any CRM strategies that can change this.
It's a fact that was lost on the senior executive mentioned at the beginning of this article. Sure, his analyst determined that multichannel customers were preferred. But some probing revealed that he hadn't looked at a control which compared the number of lifetime orders. Therefore the comparison was meaningless, and the conclusion about the superiority of multichannel customers was spurious.
Some database pundits theorize that multichannel buyers are more valuable because they're more affluent. Traditionally, those with Internet access have displayed fundamentally different demographics than the balance of the population, partly because of the cost involved in obtaining broadband access. These disparities in demographics are fading somewhat, but they remain significant.
The demographic differences between multichannel and single-channel customers are an inherent condition that can't be altered by even the most innovative CRM strategy. Therefore, focusing energy and expense on forcing single-channel customers to buy from additional channels will be a fruitless waste of energy and resources.
Consider the following examples that some pundits believe support the conventional wisdom:
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Members of Internet clubs generally purchase much more frequently than non-members. This is hardly undeniable evidence that an additional channel — the Web — has had a positive effect on loyalty. Instead, it's more likely to be a reflection of self-selection bias. Generally, club members are the ones most interested in the product or service in the first place.
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Customers who receive e-mails and catalogs tend to buy more than people in a control group that gets only catalogs. All this proves is that more promotional contacts yield more sales, something DMers have always known. The better question is whether incremental e-mails are more cost effective than other promotions at stimulating additional interest.
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The availability of one-click online ordering boosts retention and annual revenue. The only thing this proves is that the easier we make the ordering process across channels, the more revenue we generate. Again, DMers already know this. But it says nothing about whether encouraging customers to order from channels they might not have chosen on their own does anything to lift their overall incremental interest.
A CONTRARIAN PERSPECTIVE
The industry should stop obsessing about the number of channels customers order from. Instead, the focus should be on inducing repeat buying regardless of channel, while ensuring that all available options are well publicized and operating smoothly and efficiently.
We did an after-the-fact analysis for a client that operates in both direct and retail channels. The goal was to “tease out of the data” the effects of multichannel behavior above and beyond the standard multibuyer effect. Customers with two purchases during the previous 24 months were broken into two groups — those who'd bought direct both times vs. those with one direct and one retail transaction. Then the performance of both groups over the subsequent year was compared.
Although not a definitive forward-looking test, we found no compelling evidence of a multichannel edge. The two groups displayed different patterns of channel use over the next 12 months. The multichannel customers ordered a bit less through direct and a bit more through retail. However, aggregate performance across both channels was pretty much the same.
In short, it didn't appear that customers who chose to purchase from multiple channels were superior than those who decided to buy from a single channel. So why, by extension, should we assume that coercing the use of additional channels will result in better customers?
With this in mind, it didn't make sense to spend time and money attempting to convert single-channel customers to multichannel. Instead, the focus shifted to inducing repeat purchases regardless of channel.
Giving customers ample reason to order again, and making the ordering process as easy as possible, is essential in any buying situation. Multichannel customers definitely have an edge, but you ought to focus elsewhere on ways to grow your business.
JIM WHEATON (jim.wheaton@wheatongroup.com) is a principal at Wheaton Group, Chicago.
