Technology Strategies for Multi-Channel Integration

Technology Strategies forMulti-Channel Integration

April 2008

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Technology Strategies for Multi-Channel Integration

© 2008 Aberdeen Group. Telephone: 617 723 7890

Executive Summary Research Benchmark

Aberdeen’s Research Benchmarks provide an in-depth and comprehensive look into process, procedure, methodologies, and technologies with best practice identification and actionable recommendations

Recent Aberdeen research on retail cross-channel integration analyzed the process development and technology adoption levels of 220 companies. Firms were benchmarked by the manner in which they manage the integration of cross-channel and core retail strategies from buying and merchandising to operations and customer fulfillment.

Best-in-Class Performance Aberdeen used four key performance criteria to distinguish Best-in-Class companies.

¶ Year-over-year comparable channel sales performance improvement of 12.8%

¶ Average improvement in cross-channel gross margin contribution by 25% compared to last year

¶ Average improvement in customer conversion rate by 22%

¶ Gross Margin Return on Inventory Investment (GMROII) performance 2.85

Competitive Maturity Assessment "We have stores and a web channel. We are looking to integrate our channels from a promotions, inventory, and fulfillment standpoint. The consumer should have the option to use our stores and direct to consumer offerings in an integrated manner. At this stage, we are trying to improve our web store in terms of order management, cross-promotions, and real-time inventory access."

~ Benjamin Zaimes, Manager-Finance, Lindt & Srungli (North

America)

Survey results show that the firms enjoying Best-in-Class performance shared several common characteristics:

¶ Fifty-nine percent (59%) of Best-in-Class retailers consider increase in cross-channel shopping as the top pressure driving new multi-channel initiatives

¶ Forty-six percent (46%) of Best-in-Class retailers execute synchronized, cross-channel operations by moving to next generation order management and fulfillment system improvements

Required Actions In addition to the specific recommendations in Chapter Three of this report, to achieve Best-in-Class performance, companies must:

¶ Develop a single process to uniformly update product and pricing information across channels

¶ Create an integrated view of inventory and customer fulfillment

¶ Improve multi-channel performance management

¶ Execute coordinated promotions across all channels of operations

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© 2008 Aberdeen Group. Telephone: 617 723 7890 www.aberdeen.com Fax: 617 723 7897

Table of Contents Executive Summary....................................................................................................... 2

Best-in-Class Performance..................................................................................... 2Competitive Maturity Assessment....................................................................... 2Required Actions...................................................................................................... 2

Chapter One: Benchmarking the Best-in-Class ..................................................... 4Business Context ..................................................................................................... 4The Maturity Class Framework............................................................................ 5The Best-in-Class PACE Model ............................................................................ 6Focus on an Integrated Multi-Channel Strategy................................................ 7Challenges and Strategic Roadmap ...................................................................... 8

Chapter Two: Benchmarking Requirements for Success ..................................10Competitive Assessment......................................................................................11Capabilities and Enablers ......................................................................................12

Chapter Three: Required Actions .........................................................................18Laggard Steps to Success......................................................................................18Industry Average Steps to Success ....................................................................18Best-in-Class Steps to Success ............................................................................19

Appendix A: Research Methodology.....................................................................21Appendix B: Related Aberdeen Research............................................................23Featured Underwriters ..............................................................................................24

FiguresFigure 1: Retailers Struggling with Cross-Channel Integration .......................... 4Figure 2: Best-in-Class Focus on Cross-Channel Shopping ................................ 5Figure 3: Integrated Brand Identity Emerges as a Core Strategy....................... 7Figure 4: Innovation Integrated Cross-Channel Inventory and Fulfillment ...13Figure 5: Cross-Channel Incentives Promote Cross-Channel Wins ..............14Figure 6: Best-in-Class Multi-Channel Knowledge Culture...............................15Figure 7: Primary Cross-Channel Technology Priorities ...................................16Figure 8: Secondary Cross-Channel Technology Priorities ..............................17

TablesTable 1: Top Performers Earn Best-in-Class Status.............................................. 6Table 2: The Best-in-Class PACE Framework ....................................................... 6Table 3: Cross-Channel Integration Challenges and Strategic Roadmap......... 8Table 4: The Competitive Framework...................................................................11Table 5: The PACE Framework Key ......................................................................22Table 6: The Competitive Framework Key ..........................................................22Table 7: The Relationship Between PACE and the Competitive Framework.........................................................................................................................................22



Chapter One: Benchmarking the Best-in-Class

Business Context Fast Facts

Õ Seventy percent (70%) of retailers lack multi-channel integration from a system and process standpoint

Õ Fifty-nine percent (59%) of Best-in-Class retailers consider the increase in cross-channel shopping as the top pressure driving new multi-channel initiatives

In January 2007, Aberdeen published the 21st Century Retailer benchmark report that detailed the three pillars of multi-channel retailing (data, inventory, and the customer). The focus of this report is on analyzing how process development and technology enablers can help companies manage their cross-channel integration with their core retail strategies from buying and merchandising to operations and customer fulfillment. This report details how innovators are gaining an edge over their peers through multi-channel technology initiatives by moving towards multi-channel system and process integration.

The State of Cross-channel Integration Aberdeen surveyed 220 retail enterprises between February and March 2008 to determine the current state of cross-channel technology and process integration. Our data indicates that only a third of cross-channel retailers (e.g., direct sales, stores and Internet, Internet and call center, or a combination of these) have attained some level of cross-channel integration across their inventory, order management, fulfillment, and customer processes such as consistent pricing, product information, promotions, and loyalty initiatives (Figure 1). All of these processes contribute to a new customer acquisition and customer retention in the web, catalog, and store channels.

Figure 1: Retailers Struggling with Cross-Channel Integration

74%

66%

69%

0% 25% 50% 75% 100%

Lack of integrated cross-channel productpromotions

Lack of integrated cross-channelfulfillment-order, warehouse, ship

Lack of integrated approach to cross-channel inventory management-planning,visibility and availability

Source: Aberdeen Group, April 2008

For instance, Aberdeen data shows that the core reasons for the lack of integration in large retail companies include channel conflicts due to lack of channel flexibility, legacy systems impeding multi-channel process integration, and lack of agile customer and process management tools for cross-channel productivity, communication, and resolution.




The Impact of Cross-Channel Growth There is a key divergence between what Best-in-Class retailers considered the business-critical pressure in relation to multi-channel retailing in 2007 and 2008 (Figure 2). In 2008, the top three pressures driving companies to focus on cross-channel initiatives are: increases in cross-channel shopping (59%), hyper-competitiveness (29%), and a focus on new markets (27%). In contrast, in 2007, 75% of Best-in-Class companies cited customer expectation of a seamless process as the top pressure.

It is likely that the pressure to respond to the growth in cross-channel sales has emerged as a top-of-mind factor for retailers in 2008 due to the gradual slackening of store channel sales over the last three to four quarters - whereas, web and catalog sales have increased. These events have led to a strategic transformation among Best-in-Class retailers: a renewed drive to improve and streamline cross-channel operations. For example, this year retailers are showing a keen interest in capitalizing on the burgeoning growth of web, delivery, and catalog, using aggressive cross-channel promotions to rekindle sales in the store channel.

Figure 2: Best-in-Class Focus on Cross-Channel Shopping

69%

31%38%

59%

29% 27%

0%

25%

50%

75%

100%

Increase in cross-channel shopping

Hypercompetitive multi-channel selling

environment

Establishing a focus onnew markets

2007 2008


The Maturity Class Framework Aberdeen used four key performance criteria to distinguish the Best-in-Class from Industry Average and Laggard organizations. Table 1 provides a framework with which companies can benchmark themselves and identify the category into which they fall.




Table 1: Top Performers Earn Best-in-Class Status

Definition of Maturity Class Mean Class Performance

Best-in-Class: Top 20% of

aggregate performance

scorers

Á Year-over-year comparable channel sales performance improvement of 12.8% Á Average improvement in cross-channel gross margin

contribution by 25% compared to last year Á Average improvement in customer conversion rate by 22%ÁGross Margin Return on Inventory Investment (GMROII)

performance: 2.85

Industry Average:

Middle 50% of aggregate

performance scorers

Á Year-over-year comparable channel sales performance improvement of 5% Á Average improvement in cross-channel gross margin

contribution by 11.4% compared to last year Á Average improvement in customer conversion rate by

7.9% ÁGross Margin Return on Inventory Investment (GMROII)

performance: 1.81

Laggard:Bottom 30% of

aggregate performance

scorers

Á Year-over-year comparable channel sales performance improvement of 1.7% Á Average improvement in cross-channel gross margin

contribution by 2.5 % compared to last year Á Average improvement in customer conversion rate

performance by 2% ÁGross Margin Return on Inventory Investment (GMROII)

performance: 0.2


The Best-in-Class PACE Model Table 2 shows a roadmap to the key Pressures, Actions, Capabilities, and Enablers (PACE) prioritized by Best-in-Class companies for multi-channel process and system integration. This will help identify the key capabilities and enablers that are being considered as part of their multi-channel initiatives.

Table 2: The Best-in-Class PACE Framework

Pressures Actions Capabilities EnablersÁ Increase in

cross-channel shopping

Á Create an integrated brand identity across all channels Á Allow customer to

purchase, take delivery, or return a product through the channel of their choice

Á Ability to ensure that product pricing is updated uniformly across channels Á Ability to execute

coordinated product promotions across all channels Á Common merchandise

hierarchy for all channels

ÁDistributed order management system Á Cross-channel inventory planning Á Fulfillment platform (order, WMS, TMS) Á Cross-channel merchandise management Á Real-time cross-channel analytics Á Integrated returns management Á Cross-channel payments application Á Cross-channel marketing relationship

management solution



Pressures Actions Capabilities EnablersÁ Integrated cross-channel

fulfillment Á Integrated cross-channel

inventory availability Á Tracking cross-channel

margin contribution

Á Integrated CRM solutions Á E-commerce platform Á Integrated call center for order processing


Focus on an Integrated Multi-Channel Strategy Irrespective of revenue size, Best-in-Class companies are focusing on creating a roadmap for multi-channel integration. More than half (53%) of the Best-in-Class are currently focused on developing an integrated brand identity among their customer base as a core strategy (Figure 3). These companies are 30% more likely than Laggard organizations to follow a strategy that is based on brand integration rather than a channel-specific focus. The channel-specific focus has so far dominated multi-channel selling. However, this strategy is being replaced by creating an overall focus on the brand.

The other current top strategies of the Best-in-Class include allowing customers to purchase, take delivery, or return a product through a channel of their choice (44%) and improve operational excellence across all channels (37%). These strategies indicate that Best-in-Class rely on creating a unified experience of the brand, products or services for the customer. These companies are focusing on channel integration which is a vital part of customer satisfaction and revenue growth in the web, store, call center or catalog environment. Effective multi-channel retailing for the Best-in-Class depends on the integrated nature of planning and execution for the brand that consists of store, web, and catalog channel for ensuring a seamless pre- and post-sales experience.

Figure 3: Integrated Brand Identity Emerges as a Core Strategy

39%

26%

23%

46%

32%

35%

53%

44%

37%

0% 25% 50% 75% 100%

Create an integrated brand identityacross all channels

Allow customers to purchase,take delivery, or return a productthrough a channel of their choice

Improve operational excellenceacross all channels

Best-in-Class

Average

Laggard


"We are trying to create consistent messaging across all channels to respond to the changing multi-channel customer needs. We have to develop capabilities for delivering personalized customer experience which is consistent across all channels."

~ Jim Johnston, Manager-Store Operations, Lands’ End




Challenges and Strategic Roadmap With the increase in the pressure of cross-channel shopping and the need for integrated cross-channel strategy, the single biggest common challenge facing all retailers today is the need to re-configure the organizational, strategic, and tactical objectives around the integration of disconnected and de-centralized cross-channel operations. This lack of connectivity between channels has traditionally hampered integration within multi-channel operations from a data, inventory, and customer process standpoint. Table 3 shows the specific challenges that small, mid-size, and large retailers are facing today and the recommended strategy roadmap to address the issue of cross-channel integration.

Table 3: Cross-Channel Integration Challenges and Strategic Roadmap

RetailClassification

Cross-Channel Integration Challenges

Cross-Channel Strategy Roadmap

LargeRetailers

Á Channel conflicts-lack of channel flexibility Á Legacy systems impede

multi-channel process integration Á Lack of agile customer and

process management tools for productivity, communication, and resolution

ÁDevelop single view of demand for the brand. Predict, and deliver responsive cross-channel customer management Á Transition organizational

culture to be brand rather than channel-specific Á Enable real-time views of

cross-channel inventory and customer data for improved loyalty programs

Mid-size Retailers

Á Lack of Key Performance Indicators (KPIs) for performance management Á Inventory, order

management, and fulfillment systems are not integrated across all channels Á Low adoption of multi-

channel data management strategies for customer focus

ÁDevelop agile order to fulfillment capabilities in the warehouse, web, catalog and store locations Á Improve cross-selling and

personalized promotions ÁDeliver consistent

performance metrics across all channels for performance management



RetailClassification

Cross-Channel Integration Challenges

Cross-Channel Strategy Roadmap

Small Retailers

Á Inventory, order management, and fulfillment systems are not integrated across all channels Á Customer, inventory, and

product data is not integrated or shared across all channels Á Infrastructure and

budgetary constraints

ÁOperate with thin end-to-end multi-channel management capabilities Á Create a process for

performance and knowledge management for improved bottom line attainment Á Plan coordinated multi-

channel product promotions


Aberdeen Insights -The Building Blocks of an Integrated Multi-Channel Strategy

The Best-in-class retail strategy of integrated brand identity includes a series of inter-related components. These components include:

¶ A collaborative environment at the retail headquartersthat has an executive mandate for inter-channel process collaboration and cross-channel job roles that participate in quarterly and annual strategic and tactical planning for all channels.

¶ An integrated knowledge management culture at the retail headquarters through one user IT and process management organization that measures, reports, and monitors progress of all channel customer processes, order management systems, and fulfillment functions. Currently, 51% of Best-in-Class have one user IT organization that supports all channels, brand, and user organizations.

¶ Cross-channel process automation led by the headquarter-based IT team for synchronizing product information, pricing and customer information sharing between channels. For example, 41% of Best-in-Class retailers enter product, pricing, and customer information into a single channel system of record which is shared between catalog, web, and store teams. This unified information repository enables developing of consistent product messaging through web, catalog, call center and stores, coordinated cross-channel promotions, and cross-channel customer loyalty programs.

In the next chapter, we will see what the top performers are doing to achieve these gains.



Chapter Two: Benchmarking Requirements for Success

Designing the process and system strategy for multi-channel integration is an important decision for any retailer, right from when a customer places an order at a store, on a web site, or call center to the end-to-end order management process, customer delivery and fulfillment process. The business case for improving, or introducing, a unified cross-channel strategy involve factors such as customer value, business targets, investments to change or improve existing multi-channel technology, operating costs, and internal skill sets. Below is an example of a small retailer that made the decision to innovate and move towards an integrated multi-channel platform that supports their overall retail strategy.

Case Study — Small Retailer's Leap Towards Cross-Channel Integration

Fast Facts

Õ Best-in-Class retailers are twice as likely as Laggard retailers to innovate in enabling integrated inventory planning and cross-channel fulfillment

Õ Best-in-Class companies are 3.5-times more likely than Laggards and twice as likely as Industry Average retailers to establish a team that has targets and an incentive structure that promotes cross-channel selling success in web, call center, and store environments

Genius Jones is a retailer that sells children's products including apparel and furniture. This company operates two brick-and-mortar locations, a website, and a store-based call center for phone orders. Genius Jones launched its multi-channel operations in 2006, to cater to the cross-channel shopping affinity of their customers and develop a broader revenue stream.

Two years since, this company has found that integrated multi-channel retailing strategy has led to more results than they had initially envisioned. "We found that 90% of our store customers were researching products online on multiple websites. It made absolute business sense to start integrated multi-channel operations to address web-based needs of our customers," explains Daniel Kron, Owner and President, Genius Jones. This retailer evaluated several strategies to commence multi-channel operations before deciding to create a unified strategy for integrated customer service, order management, fulfillment, merchandising, and pricing for stores and the web channel.

In order to build a unified experience for their customers, this retailer adopted an on-demand multi-channel retail management platform to synchronize order fulfillment, inventory, vendor, and customer relationship management. Post-implementation, this retailer has seen a positive impact from the integrated multi-channel approach. For example, by integrating the multi-channel value chain areas, Genius Jones has been able to maintain a centralized inventory system and order management for all channels that have led to inventory optimization, reduction in on-hand inventory costs, on-time delivery, and improved visibility towards real-time inventory updates.

continued




Case Study — Small Retailer's Leap Towards Cross-Channel Integration

"We are able to operate lean as we buy minimum quantities of what’s absolutely necessary. We have eliminated over-stock situations, minimized associated warehousing and fulfillment costs, and lowered the burden of high interest rates due to excessive inventory," says Kron.

In order to manage the multi-channel process in a precise manner, this retailer has adopted web-based reporting tools including a set of Key Performance Indicators (KPIs), including gross sales per channel, number of transactions per channel, and average value of transaction. "The integrated approach to multi-channel retailing has enabled us to develop our sales channels and customer base more effectively," Kron said.

Competitive Assessment Aberdeen Group analyzed the aggregated metrics of surveyed companies to determine whether their performance ranked as Best-in-Class, Industry Average, or Laggard. In addition to having common performance levels, each class also shared characteristics in five key categories: (1) process (the approaches they take to execute their daily operations); (2) organization(corporate focus and collaboration among stakeholders); (3) knowledge management (contextualizing data and exposing it to key stakeholders); (4) technology (the selection of appropriate tools and effective deployment of those tools); and (5) performance management (the ability of the organization to measure their results to improve their business). These characteristics (identified in Table 4) serve as a guideline for best practices, and correlate directly with Best-in-Class performance across the key metrics.

Table 4: The Competitive Framework

Best-in-Class Average LaggardsIntegrated approach to cross-channel fulfillment (order, warehouse, ship)

46% 31% 26%

Integrated approach to cross-channel promotions

37% 21% 18%

Integrated inventory management (planning, visibility, and allocation) for all channels

Process

36% 29% 15%

Established cross-channel teams that have goals and incentives to ensure successful cross-channel execution Organization

42% 20% 12%



Best-in-Class Average LaggardsTracking cross-channel margin contribution

Knowledge44%

"Multi-channel integration is an evolving process for us. We have undertaken a major initiative to improve our cross-channel order management, unified view of inventory, and fulfillment systems for faster customer response times and easier user interface. Our call-center team is moving away from assumption-based approaches to rules-based mechanism that streamlines end-to-end order management for single view of customer order management, inventory, and fulfillment. Our senior management has given us free reign to complete this upgrade and continue improvements to further cross-channel inventory, fulfillment, and consistent pricing of product and promotions across all our channels (retail store, web, and catalog)."

~ Senior Manager, IS Support (Order, Delivery and Supply

Chain), Major Consumer Electronics Retailer

25% 20%

Applications or platforms that support multi-channel retailing currently in use:

Technology

Á 49% distributed order management Á 46% e-commerce

platform Á 45% integrated

call-center Á 43% cross-

channel inventory planning Á 38% integrated

multi-channel payments Á 27% real-time

cross-channel analytics Á 43% fulfillment

platform (order, WMS, TMS) Á 41% integrated

CRM solution








CRM solution








CRM solution

Multi-channel retail performance management parameters used

Performance 29% consistent cross-channel metrics

17% consistent cross-channel metrics

13% consistent cross-channel metrics


Capabilities and Enablers Based on the findings of the Competitive Framework and interviews with end users, Aberdeen’s analysis of the Best-in-Class reveals that such companies are either upgrading or evolving towards multi-channel system and process integration. For a portion of the Best-in-Class, depending on business pressures, IT resources, and skill sets, the mandate for such a transition is immediate. In the case of other Best-in-Class companies, the journey is more phased because the integration of processes, resources, and organization is more complicated due to conflicting operating cultures and organizational differences between channels. The following sections will describe how the innovators are outperforming the Industry Average and Laggards in developing their business process management methodology and technology use around unified cross-channel sales and operations.




ProcessBest-in-Class retailers are twice as likely as Laggard retailers to enable integrated inventory planning, order visibility, and customer fulfillment (Figure 4) as a result of an intense focus on an integrated customer processes across channels. As the channel volumes and supply chain continue to expand, the integrated approach to inventory planning, visibility, and customer fulfillment enables sales representatives in the call centers, catalog, store, and web teams to view and manage orders across sales channels by following a business rules-based rather than assumption-based customer order management approach - a process rampant with the use of legacy, divisional ERP order and fulfillment processes.

Our results show that Best-in-Class companies need to continue making improvements towards a single view of inventory in their channels and multi-tier order fulfillment process that caters to the volume expansion of web, store, and catalog channels. These companies are also planning different instances where merchandising management systems are interfaced on various shared functionalities between channels to ensure that procurement and assortment planning strategies of merchandising managers and buyers are in sync with cross-channel inventory planning, visibility, and customer fulfillment.

Figure 4: Innovation Integrated Cross-Channel Inventory and Fulfillment

26%

15%

31%

29%

46%

36%

0% 25% 50% 75% 100%

Ability toexecute cross-

channelfulf illment

Integratedinventory

availability for allchannels

Best-in-Class

Average

Laggard

"We like the best-buy model of multi-channel integration. We are not looking to transform our entire organization towards multi-channel integration immediately. We want to take a series of steps and evolve towards integration of our brand (retail store, web, and catalog)."

~VP, Strategy, North America-based Specialty Retailer


Organization Best-in-Class companies are 3.5-times as likely as Laggards and twice as likely as Industry Average retailers to establish a team that has specific performance targets and incentive structure that promote cross-channel selling success in web, call center, and store environments (Figure 5). Retaining talent and improving cross-channel performance through




employee incentives are the two goals that define the development approach of multi-channel innovators.

These companies structure employee performance incentives in one channel to drive the sales of another by tracking average transaction value, number of transactions, cross-channel promotion success, and customer conversion rate. These metrics are critical for cross-channel sales, revenue, and customer satisfaction target attainment.

For example, innovators track the total number of web orders and average transaction value of these orders processed from the store. Annual targets are set for store teams to process a certain number of web orders per store (e.g. 1,000 orders annually) to receive a bonus. Web orders are placed from the store due to an out-of-stock situation or a wider selection of product or services available on the web. In the case of the Best-in-Class, the credit of web sales processed from the store is awarded to the store. Store managers and associates are required to offer every available purchasing option for a customer. This ensures that incentive-based cross-channel selling reduces the lost sales opportunity, improves the in-stock percentage, and customer satisfaction. This leads to increased revenues for the store and the brand as a whole.

Figure 5: Cross-Channel Incentives Promote Cross-Channel Wins

12%

20%

42%

0% 25% 50% 75% 100%

Establishedcross-channel

teams that havegoals and

incentives toensure

successfulcross-channel

execution Best-in-Class

Average

Laggard


Knowledge Management Our data shows that a single process for delivering the critical data into all channel systems of record is not being followed by 73% of all retailers surveyed. However, the Best-in-Class are ahead of all others in this direction. Forty-One percent (41%) of the Best-in-Class are following a process where product and customer information is entered into a single system of record and moved electronically into others. The multi-channel innovators are undertaking data integration projects coupled with business intelligence reporting tools such as dashboards that enable near real-time




monitoring of critical cross-channel performance measurements such as order exceptions, customer resolution, and revenue metrics such as sales to budget and cross-channel margin contribution.

Best-in-Class companies utilize data and analytics for business improvement. These companies are twice as likely as Laggards to measure and track customer and performance data that enables consistent customer fulfillment, unified order management, and manage targeted multi-channel selling targets (Figure 6). Yet, even innovators find that measuring and tracking data through a single process has to evolve further towards greater item-level focus. The Best-in-Class need to continue developing granular analytics around implicit and explicit cross-channel customer behavior which will further improve merchandise assortments, promotions, inventory, fulfillment, and order management.

Figure 6: Best-in-Class Multi-Channel Knowledge Culture

20%

17%

25%

26%

44%

37%

0% 25% 50% 75% 100%

Tracking cross-channel margin

contribution

Trackingcustomer orderexception and

resolutionmonitoring

Best-in-Class

Average

Laggard

"Our primary challenge is finding an e-commerce platform and supporting cross-channel applications to manage our product offers, inventory, and order management. I have yet to find one that can meet our complex needs."

~ Senior Executive, Small Consumer Electronics Retailer,

North America


TechnologyThe multi-channel technology landscape is fragmented. Traditionally, ERP and best-of-breed providers had not focused on providing end-to-end integrated multi-channel capabilities due to the separate channel organizations of retailers. However, in the last three years, select groups of best-of-breed, consulting services, and some major ERP providers have developed partner ecosystems to provide an integrated approach to cross-channel retailing geared towards the expanding influence of the web channel as well as the growth in the small and mid-size retail segments.

In order to gain a better understanding of the multi-channel technology landscape, we categorized a primary and secondary set of applications and platforms that support multi-channel operations and channel integration. The primary set of enablers (Figure 7) are vital to set-up the core framework of cross-channel processes and functions, whereas, the secondary enablers (Figure 8) support or overlay applications that are used as replacements for legacy applications added on to the current architecture to improve an existing solution being used in one of the sales channels.




As illustrated in Figure 7, substantial adoption is expected in the next 12 months for cross-channel marketing relationship management (46%) and end-to-end customer fulfillment platform (28%). Our results also indicate that end-to-end on-demand multi-channel platform is also showing planned adoption amongst retailers within the next 12 months. This could be attributed to the changing economic landscape in the Americas and Europe.

Figure 7: Primary Cross-Channel Technology Priorities "Retailers that are setting-up multi-channel operations need a set of core and periphery multi-channel applications that synchronize and share resources between the channels to optimally utilize existing strengths, inventories, and overall reach. They require ample product definition functionalities, differential price books, catalog capabilities, web enabled systems, and customer modules."

~ Asia / Pacific-based Retail IT Consultant involved in new

deployment projects at Piramyd Retail, Trumart, Heritage

Retail, Hypercity (Shopper's Stop), and Argos

20%

14%

31%

37%

22%

41%

26%

21%

25%

20%

46%

20%

28%

25%

24%

21%

18%

30%

0% 10% 20% 30% 40% 50%

On-demand end-to-end multi-channel platform

Multi-channel retail paymentapplication

Multi-channel fulfillment platform(order, WMS, TMS systems)

Integrated call center

E-commerce platform

Cross-channel marketingmanagement platform

Currently exists Plan to enhance in 2008 Plan to use in future


From a marketing standpoint, retailers are keen to improve their agility and coordination of cross-channel promotions, loyalty, and field marketing programs that help expand product offerings and services. On the other hand, to achieve innovation in cross-channel customer fulfillment systems, retailers must overcome the problems of divisional ERP and legacy order management and fulfillment systems that fail to provide a single view of inventory and customer orders. As the network of suppliers and channel partners continues to expand for cross-channel retailers, it is imperative that companies re-align their applications and architecture towards multi-tier and multi-party fulfillment to improve order response time.

Figure 8 shows the secondary or overlay applications that support multi-channel retailing. Retailers are adopting and improving their legacy multi-channel systems through the secondary landscape of applications. Cross-channel content management, integrated inventory planning, and distributed order management all ensure consistent customer messaging across the multiple channels, synchronized inventory, and order responsiveness. On the other hand, real-time cross-channel analytics helps retailers understand the connectivity between customer behavior and cross-channel sales. Whereas, integrated CRM provides a unified customer view that enables cross-channel customer programs and direct to consumer marketing. Best-in-Class retailers are collaborating with solution providers to update web, catalog, and store channel systems by deploying new releases and




improvements to legacy order, fulfillment, inventory, and CRM applications. These companies are applying:

¶ Rules-based approaches for effective order and fulfillment process execution

¶ User-interface enhancement for easy and quick order processing

¶ Consolidated order management, and rapid execution messaging that enhances channel integration for end-to-end order to delivery

¶ Identifying advanced analytics using store, web, and catalog product, customer, and location data that can help classify selling trends across channels on a seasonal and non-seasonal basis so that teams have a unified selling plan for every category

Figure 8: Secondary Cross-Channel Technology Priorities

28%

17%

31%

29%

42%

36%

29%

26%

21%

25%

23%

19%

22%

25%

33%

0% 10% 20% 30% 40% 50%

Real-time cross-channel analytics

Integrated CRM application

Cross-channel inventory planning

Cross-channel contentmanagement system

Distributed order management

Currently Use Plan to enhance in 2008 Plan to use in future Source: Aberdeen Group, April 2008

Aberdeen Insights —Technology Decisions Based on The Multi-Channel Maturity Curve

The multi-channel solution landscape is complex and fragmented. However, both primary and secondary applications will co-exist. These applications are likely to grow in adoption, and move towards further consolidation to service retailer needs. The growth of adoption for each of the primary and secondary applications depends on the multi-channel evolution curve of the organization. For example, if a retailer is commencing multi-channel operations that involve a store, web, catalog, and a call-center, an end-to-end integrated multi-channel platform is an appropriate selection to start integrated sales and operations. This platform must consist of order management, payment, fulfillment, e-commerce platform, integrated call center, content management, analytics, and an integrated marketing relationship management suite. For a mature multi-channel retailer that has the goal to improve and evolve towards cross-channel integration and one brand, secondary applications and continuous improvements to the feature / functions of legacy applications enable cross-channel process integration.




Chapter Three: Required Actions

Fast Facts

Õ Only 20% of Laggard retailers have developed integrated inventory planning, visibility and allocation across channels as well as synchronized cross-channel customer fulfillment

Õ Forty-six percent (46%) of Best-in-Class retailers execute synchronized cross-channel operations by moving to next generation order management and fulfillment system improvements

Whether a company is trying to move its performance from Laggard to Industry Average, or Industry Average to Best-in-Class, the following actions will help spur the necessary performance improvements:

Laggard Steps to Success ¶ Develop a single process to uniformly update product and

pricing information across channels. Currently, 15% of Laggard retailers have the capability to use a single process to uniformly update product and pricing information across web, catalog, and store channels. This is a fundamental step towards multi-channel integration. Regardless of whether a Laggard retailer has adopted an on-premise or an on-demand multi-channel platform, the lack of cohesive product and pricing information can lead to duplicated and outdated content on the web, store, or catalog channels. This would lead to confusion in the minds of customers regarding the brand, promotions, and overall offerings. This anomaly can also cause daily price overrides at the point-of-service which would ultimately hurt gross margin.

¶ Create an integrated view of inventory and customer fulfillment. Twenty percent (20%) of Laggard retailers have developed integrated inventory planning, visibility, and allocation across channels as well as synchronized cross-channel customer fulfillment. These companies must adopt centralized inventory management that can lead to optimized inventory levels. Sharing of inventory across all channels of operations also leads to higher sales and improved in-stock percentage across channels. These companies must also stress adopting business rules-based end-to-end order management systems that include robust warehouse and delivery processes. Real-time visibility of order flow through easily accessible dashboards, user-friendly interface, order consolidation, and execution messaging should be essential features of an end-to-end order management system.

Industry Average Steps to Success ¶ Develop a knowledge and performance management

culture that focuses on cross-channel analytics. Thirty-two percent (32%) of Industry Average retailers conduct a daily review of cross-channel sales versus forecast, order exceptions, and resolution monitoring. Worse still, a mere 25% of Industry Average retailers are tracking critical metrics such as cross-channel margin contribution. Industry Average companies must track metrics such as cross-channel sales, margin contribution, and customer conversion rates on a daily, if not on a near-real time basis. These




retailers must set goals against reported results for each channel in line with the overall retail strategy of top line and bottom line attainment. Basic store, catalog and web-based analytics are critical for Laggards if they are to improve in an extremely competitive retail environment.

¶ Execute coordinated promotions across all channels of operations. Only 31% of Industry Average retailers execute synchronized cross-channel promotions such as web and catalog coupons used in-store or store issued offers that are used online or over the phone for increasing top line growth. Better adoption of integrated campaign, marketing effectiveness and loyalty as well as offer management processes leads to higher traffic that can drive revenue and a lower missed sales opportunity percentage in every channel.

Best-in-Class Steps to Success ¶ Improve multi-channel performance management.

Currently, only 29% of Best-in-Class companies have established consistent metrics for monitoring cross-channel success. A higher number of Best-in-Class companies need to establish a multi-channel visibility culture through dashboards that can provide real-time or near-real time on-demand reports for store, web, catalog, and call center teams to manage associate and manager performance. Best-in-Class organizations can develop and manage performance metrics such as cross-channel sales attainment, cross-channel gross margin contribution, customer conversion rate, and GMROII.

¶ Continue enhancements to order management and fulfillment systems and processes. Forty-six percent (46%) of Best-in-Class retailers execute synchronized cross-channel operations by moving to next generation order management and fulfillment system improvements. The Best-in-Class are focused on unifying the order process, enabling multi-tier distribution channels, extending product offerings and services, and improving customer on-time delivery percentage. In an ever expanding supplier and partner network stemming from cross-channel growth, it is vital that Best-in-Class innovators constantly rethink and, if need be, redesign key applications to expand inventory visibility, order reporting, and order consolidation functions of the multi-tier, distributed order management system.



Aberdeen Insights —Can Companies Attain Best-in-Class Multi-Channel Integration?

The performance of multi-channel retailers hinges on several factors, but none as important as the process integration required between store, web, catalog, and the emerging mobile-commerce channel. Internal collaboration between channels and individual departments on fundamental cross-channel front-end and back-end processes such as customer service, inventory management, fulfillment, and marketing is imperative for creating a unified shopping experience for customers.

Our data shows that 70% of retailers are using disparate processes for customer service, order management, fulfillment, merchandising, and marketing across channels which have led to inconsistent delivery of customer value and shopping experience. These results are a clear sign that the retail approach towards the cross-channel customers and day-to-day operations is still channel-centric to a large extent and lacks the collaborative approach required for survival in a hyper competitive market conditions.

Through this report, Aberdeen data has revealed the Best-in-Class retail methodology of delivering a unified customer experience through channel process integration. Best-in-Class have developed a culture that aids the coordinated use of customer promotions and messaging between channels, order management, and the integration of inventory, merchandising, and fulfillment systems.

Industry Average and Laggard companies must not forget that effective multi-channel retailing depends on the integrated nature of planning and execution in the channels for ensuring a seamless pre and post-sales experience. As our results and case studies have shown, these retailers can evolve and follow the Best-in-Class integrated approach to cross-channel processes which lead to a unified brand experience for customers.




Appendix A:Research Methodology

Study Focus

Responding retail executives completed an online survey that included questions designed to determine the following:

Õ The degree to which multi-channel technology and processes are deployed in their retail operations and the change implications of the technology

Õ The structure and effectiveness of existing multi-channel implementations

Õ Current and planned use of multi-channel upgrades to aid synchronized operations

Õ The knowledge and performance management benefits, if any, that have been derived from multi-channel initiatives

The study aimed to identify emerging best practices for multi-channel integration and improvements in retail, and to provide a framework by which readers could assess their own management capabilities.

Between February and March 2008, Aberdeen examined the use, the experiences, and the intentions of more than 220 enterprises using multi-channel solutions in a diverse set of retail enterprises.

Aberdeen supplemented this online survey effort with interviews with select survey respondents, gathering additional information on multi-channel technology and integration strategies, experiences, and results.

Responding enterprises included the following:

¶ Job title / function: The research sample included respondents with the following job titles: information technology (20%); business process management (8%); sales and marketing (48%); store operations manager (7%); finance (5%); customer service and others (12%).

¶ Industry: The research sample included respondents exclusively from retail industries. Consumer electronics (10%); specialty (33%); general merchandise and apparel (16%); supermarket and grocery (11%); department, convenience, petro and drug stores (8%); furniture and hardware (3%); fast food and hospitality (2%); wholesale (6%); and others (11%).

¶ Geography: The majority of respondents (70%) were from Americas. Remaining respondents were from the Asia-Pacific region (15%) and EMEA (15%).

¶ Company size: Twenty-five percent (25%) of respondents were from large enterprises (annual revenues above US $1 billion); 32% were from midsize enterprises (annual revenues between $50 million and $1 billion); and 43% of respondents were from small businesses (annual revenues of $50 million or less).

¶ Headcount: Thirty-nine percent (39%) of respondents were from small enterprises (headcount between 1 and 99 employees); 25% were from midsize enterprises (headcount between 100 and 999 employees); and 36% of respondents were from large businesses (headcount greater than 1,000 employees).

Solution providers recognized as sponsors were solicited after the fact and had no substantive influence on the direction of this report. Their sponsorship has made it possible for Aberdeen Group to make these findings available to readers at no charge.




Table 5: The PACE Framework Key

Overview Aberdeen applies a methodology to benchmark research that evaluates the business pressures, actions, capabilities, and enablers (PACE) that indicate corporate behavior in specific business processes. These terms are defined as follows: Pressures — external forces that impact an organization’s market position, competitiveness, or business operations (e.g., economic, political and regulatory, technology, changing customer preferences, competitive) Actions — the strategic approaches that an organization takes in response to industry pressures (e.g., align the corporate business model to leverage industry opportunities, such as product / service strategy, target markets, financial strategy, go-to-market, and sales strategy) Capabilities — the business process competencies required to execute corporate strategy (e.g., skilled people, brand, market positioning, viable products / services, ecosystem partners, financing) Enablers — the key functionality of technology solutions required to support the organization’s enabling business practices (e.g., development platform, applications, network connectivity, user interface, training and support, partner interfaces, data cleansing, and management)


Table 6: The Competitive Framework Key

Overview

The Aberdeen Competitive Framework defines enterprises as falling into one of the following three levels of practices and performance: Best-in-Class (20%) — Practices that are the best currently being employed and are significantly superior to the Industry Average, and result in the top industry performance. Industry Average (50%) — Practices that represent the average or norm, and result in average industry performance. Laggards (30%) — Practices that are significantly behind the average of the industry, and result in below average performance.

In the following categories: Process — What is the scope of process standardization? What is the efficiency and effectiveness of this process? Organization — How is your company currently organized to manage and optimize this particular process? Knowledge — What visibility do you have into key data and intelligence required to manage this process? Technology — What level of automation have you used to support this process? How is this automation integrated and aligned? Performance — What do you measure? How frequently? What’s your actual performance?


Table 7: The Relationship Between PACE and the Competitive Framework

PACE and the Competitive Framework – How They Interact Aberdeen research indicates that companies that identify the most influential pressures and take the most transformational and effective actions are most likely to achieve superior performance. The level of competitive performance that a company achieves is strongly determined by the PACE choices that they make and how well they execute those decisions.





Appendix B:Related Aberdeen Research

Related Aberdeen research that forms a companion or reference to this report include:

¶ Customer Service and Store Performance Management; September 2005

¶ The New Retail Differentiator; April 2006

¶ The Case for the “Smart Phone” on the Retail Floor; August 2006

¶ The 21st Century Retailer; January 2007

¶ Retail Contactless Payment Systems; January 2007

¶ The Changing Dynamics of Retail Promotions; February 2007

¶ The Roadmap to Successful Contactless Payment implementation;November 2007

¶ Customer-centric Point-of-Service; February 2008

Information on these and any other Aberdeen publications can be found at www.Aberdeen.com.

Author: Sahir Anand, Senior Analyst, Retail, [email protected]

Since 1988, Aberdeen's research has been helping corporations worldwide become Best-in-Class. Having benchmarked the performance of more than 644,000 companies, Aberdeen is uniquely positioned to provide organizations with the facts that matter — the facts that enable companies to get ahead and drive results. That's why our research is relied on by more than 2.2 million readers in over 40 countries, 90% of the Fortune 1,000, and 93% of the Technology 500.

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Technology Strategies for Multi-Channel Integration

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