Chapter 2: Expanding Multichannel Strategies


Chapter 2: Expanding Multichannel Strategies

“We need to drive the business to the organization regardless of the channel, and if you do this, it’s a win regardless of what channel the sale comes through. We need to let people know that driving business to the company is number one.”
—Vice President, Sales

Highlights

Channels are the means by which selling organizations reach their marketplace. They are used as a bridge between product and service offerings and segments of customers. Almost all of the organizations we spoke with utilized a multichannel strategy and were in the process of adding even more channels to their mix to present the customer with greater options, while in many cases reducing the cost of sale. It is a tricky equation with considerable investment required in creating the processes and infrastructure to support these channels from a personnel and technological perspective. If developed correctly from the start and managed properly on an ongoing basis, multichannel strategies can bring high returns to an organization. If not well designed and governed, adding channels can reduce sales, cannibalize revenue from other channels, and produce counterproductive conflicts among sales resources.

Momentum to Change

There are many drivers behind the need to create (or add to) a multichannel strategy. Some are internally focused, such as a need to reduce the cost of sale, while others are in response to external factors, such as a need to meet a customer expectation. The key to creating a structure that meets all of these needs is to first look at the overall sales strategy. A sales strategy will answer the following four questions:

  1. Who are we? An organization’s brand identity and value proposition will help determine how it wants to manage customer relationships.

  2. What do we sell? The product or service being sold will impact the appropriateness of channel (e.g., organizations with highly technical products will require live support through distributors or in-house sales representatives, whereas those who sell less complex product sets may benefit from self-service channels).

  3. Who do we sell to? Channels can be used to meet a variety of customer needs and provide mechanisms to efficiently serve customers of differing potential and preferences. Many will be targeted at specific customers and segments while others will favor a mass-market audience.

  4. How do we sell? The manner in which relationships with customers are created and managed will help determine what kinds of sales resources are required and how narrow or broad their account responsibilities.

When these four questions are answered and communicated across the sales organization, decisions on channels, as well as resource deployment, skill development, and many of the other strategies addressed in this book, can be made with greater confidence.



Developing a Channel Strategy

Historically, organizations approached channel additions as a way to conduct sales at lower costs. With the advent of e-commerce in particular, it became feasible that lower potential customers could be rendered more profitable by selling to them and serving them through lower cost channels. What happened, however, was that customers did not shift channel usage from a higher cost channel to a lower cost channel. Instead, they used all channels to meet a variety of needs. As a result, organizations were not always able to reduce infrastructure expense—they frequently had to increase it to provide seamless processes across multiple channels.

Take the banking industry, for example. When automated teller machines (ATMs) came to the forefront and Web banking became more commonplace, people were convinced it would mean the death of the bank branch. Instead, the branch has continued to be a core focus for bank customers—only now bank customers use the branch in addition to ATMs, in addition to call centers, in addition to Web banking, depending on their individual needs at the time. Today, customers expect that they will be able to initiate a loan application online and finish it in the branch. They expect that they can receive a bank balance from any channel and have it be calculated the same way. This is a tall order requiring significant investments in customer relationship management (CRM) software and systems integration. It is important to note that not only did channel usage expand rather than shift, bank branches did not die. In fact, banks are now reinvesting in their branches, increasing functionality and overhauling design to meet higher customer expectations for delivery.

The benefits of multichannel strategies have not always been lower cost of sales then, but more likely may reside in the increased revenues from building a better customer experience using the right mix of integrated channel options. Selecting this mix and building the infrastructure to support it can be challenging. Every channel has its own set of strengths and weaknesses, and every addition increases the complexity of an integrated back office. For example, while maintaining a direct sales force provides high personal touch with customers and prospects, it is, however, quite costly. On the other hand, while an Internet site with the ability to accept and process orders is significantly cheaper for an organization to support, it may inhibit the organization’s ability to establish personal rapport with its customers.

In our study, we concentrated on channels that were being managed by the sales organization. This is not intended to be a complete discussion of the universe of channel options available to organizations, but is instead a look at how some sales organizations are integrating key channels into a multichannel delivery strategy. Some of the channels discussed within this study include the following:

  • Field sales force. Face-to-face sales professionals who build and maintain customer relationships

  • Inside sales force. Telephone-based sales professionals who function similarly to face-to-face sales representatives but conduct business over the telephone instead of in person

  • Telemarketing groups. Outbound telesales professionals who may or may not be employees and are typically assigned to transactional sales or prospecting activities

  • Indirect sales force. Third parties, such as distributors, resellers, retailers, and agents, used to reach end customers and increase market coverage

  • E-commerce. System that allows customers to guide their own buying experience using the Web

  • Inbound call centers. Centers staffed by service representatives tasked to up-sell or cross-sell customers who call in with service requests

The Field Sales Force

A face-to-face sales force is often considered most appropriate for building deeper, more consultative relationships with customers—effectively acting as a consultant to buyers and functioning as a differentiator in the purchase decision. At the same time, a field sales force represents the highest cost of sale for an organization. Therefore, much work is done to ensure that it operates as efficiently and effectively as possible. (See Chapter 3 for more on how direct sales resources are deployed.)

Despite its expense, however, the face-to-face sales force is in no danger of extinction. As one sales manager noted, “Faceto-face will always have more intimacy. Customers will always tend to cut it short when you are on the phone.” So, much like the bank branch, face-to-face selling is here to stay—a core delivery mechanism for many if not most sales organizations. However, to earn an appropriate return on the investment required, many organizations are narrowing the focus of the direct sales force (face-to-face sales resources in particular) to handling purchases of large customers and use other resources, such as inside salespeople, to address smaller customers, and even pre-and postpurchase activities for larger customers. For example, one organization noted, “We are going to improve efficiencies of inside sales to free up higher-end resources. By finding money in the inside sales model, we can invest more in large-account management. By offloading postsale activity and servicing to lower-cost resources, we can devote higher-cost resources to business acquisition.”

Another way by which sales organizations utilized face-to-face sales was through a proprietary retail chain. In some cases, a network of locally deployed branches was staffed with sales personnel to handle largely inbound sales traffic. This is used as a mass-market supplement to more targeted channels. Retail sales were not specifically addressed in our study. It is important to note, however, that a retail capability was often used in combination with a field sales force to reach additional market segments. For example, a field sales force was used to sell large quantities or highly customized services to business clients and the retail chain was used for selling small quantities of standardized product to consumers on a more transactional basis. Additionally, some organizations included the retail branch network as an integrated option for both business and consumer clients.

The Inside Sales Teams

In addition to face-to-face resources, most organizations include an inside sales force as part of their direct sales team. The organizations interviewed often described inside sales professionals as “face-to-face sales reps who do everything over the phone.” Inside sales professionals were usually aligned with lower potential customers and prospects more often than face-to-face resources were. They are, however, still capable of, and often charged with, forming long-term relationships with clients and handling multicall sales processes, when it’s appropriate.

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Integrating the Field Sales Force, Retail Branches, and E-commerce at Of fice Depot

Office Depot’s Business Services Group (BSG) is responsible for selling and servicing all business accounts across the United States. The BSG’s primary means of sale to the marketplace is a direct sales force. However, the company has been successful at leveraging all of its channels—retail stores and the Internet, for example—to the benefit of the BSG and its customers. While customers are typically acquired through a field or inside sales team, they can maintain their account and conduct ordering via the Web channel. Further, if a BSG warehouse is unable to meet a business customer’s needs, by using a specifically designed card the customer may visit any retail store to procure their needed item. In doing so, the customer is able to retain their BSG pricing structure and the BSG account manager will receive bonus credit for that in-store purchase. Likewise, if a retail store finds itself unable to meet a visiting business customer’s needs, the store will refer the customer to a BSG sales representative for follow-up. In this way, Office Depot customers are able to fully benefit from the variety of channel capabilities.

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Additionally, many organizations paired inside sales teams with face-to-face sales professionals either to work on different parts of a sales process (inside sales representative prospects and qualifies the account, the field representative makes acquisition sales call, and the inside representative manages the ongoing account maintenance) or to handle large accounts (field salesperson calls on headquarters, inside salesperson handles smaller business units). As one organization explained, “We are piloting a team-selling approach between field reps and telesales personnel. We are trying to define handoffs in both directions, see where the lines of demarcation should be, and find out how different kinds of customers want to be handled.”

As an inside sales force utilizes many of the same processes as their face-to-face colleagues, some organizations are using this resource as a training ground for field representatives.

Inside Sales versus Telemarketing

Although “inside sales” and “telemarketing” are terms frequently used interchangeably, they have become two very distinct job profiles in practice within the organizations in our study. Telemarketing resources were geared toward selling products and services on a highly transactional basis and typically had one-call sales cycles. Such resources also may be used for prospecting activities, generating and qualifying leads that are passed off to other channels. Telemarketing resources can be internal to the selling organization or can be contracted on an outsource basis.

Although this can be an effective channel for handling very large volumes of transactional activity, its use for business-toconsumer (B2C) transactions in the United States is in flux because recent “Do Not Call” legislation curtails telemarketing use to contact only those consumers who have a current business relationship with a seller or those who have given express permission to be contacted. Thus, B2C telemarketing activity has moved, in the United States, from new customer acquisition to being a cross-sell, up-sell vehicle for existing customers.

Third Parties and Indirect Channels

Many organizations in our study are utilizing third parties to reach their customers. Such organizations can include distributors, outside sales agents, retailers, resellers, wholesalers, dealerships, and more. Third-party organizations are used in a variety of ways to extend the sales coverage of a selling organization, such as the following:

  • Distributors and resellers sell, and often repackage, products for specific customer segments, either as discrete offerings or bundled or integrated with other items. These are sometimes sold with the seller’s brand, sometimes with the distributor’s brand.

  • Outside sales agents are usually considered contracted sales resources who represent the selling organization (and in some cases other organizations) to customers located too remote for field coverage.

  • Retailers are often resellers of product to individual consumers and small businesses through retail outlets. Typically, in this case, the product is packaged and branded by the selling organization.

Regardless of the type of arrangement, each of these third parties is utilized to bridge the selling organization with end users. Use of these relationships varied by organization. In some cases, the organization was working to eliminate this function and bring more of the sales responsibility in-house. In other cases, the organization was focused on utilizing these relationships to an even greater extent to replace in-house selling resources. While such partnerships can be a tremendous asset toward cost-effectively gaining greater market coverage and presence, they also can reduce control over the brand experience and ultimately inhibit an organization’s goal for creating intimacy with its end users. This can be a challenge should channels be restructured and distributors dropped. In fact, a recent study (Abele, et al, 2003) indicated that “when a manufacturer drops a distributor . . . 20 to 50 percent of the volume the manufacturer used to enjoy in that territory stays with the distributor.”

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Par tnering with Distributors at Stora Enso

Stora Enso is an integrated paper, packaging, and forest products company producing publication and fine papers, packaging boards, and wood products. To reach its end customers, the company uses both a direct and an in direct channel to market.

The indirect channel is comprised of a select set of key merchants or paper distributors, who then sell to small and medium-sized organizations. Stora Enso’s strategy is to work with only a small group of carefully selected merchants who cannot only deliver their product but also “the right kind of experience” to end customers. Some of these are independent organizations. Some are actually owned by competitors. In all cases, Stora Enso views its relationships with these merchants as long-term partnerships. As such, the company is in constant contact with its merchants, providing training and sales support. At times, the end customers of this merchant network wish to deal with Stora Enso directly. Because this can cause channel conflict, Stora Enso has put a structure in place to manage these situations to help the end customer address their needs while at the same time preserving a good working relationship with the merchant. By strategically selecting, developing, and managing these indirect sales resources, Stora Enso is able to complement, rather than compete with, its direct sales force.

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Although a way to cost-effectively expand coverage, organizations should not underestimate the resources required to manage indirect sales resources. Once the decision is made to leverage these kinds of relationships, the selling organization will often need to support its partners with product knowledge training, marketing materials, industry information, and even sales or management skills training. Furthermore, these relationships frequently require a sales resource to manage them. For many organizations, this is a new role—requiring an individual who not only understands the sales function but who also has the business acumen (e.g., category management skills, marketing insight, and financial expertise) to assist the third party in running their business successfully.

Finally, it should be noted that the organizations studied were continually broadening the scope of the kinds of organizations that they were partnering with. In fact, several used competitors as distribution partners. Intier Automotive, for example, sells components to third parties who then integrate them into their solutions. Some of these third parties are actually direct competitors for other components of Intier Automotive’s business.

Technology-Enabled Self-Service

Another channel that has been growing in importance over time is Web-enabled self-service. This channel may work particularly well in situations where the product set is straightforward, and customers have experience with purchasing the product and prefer transactional relationships. Such customers do not always value the input of sales professionals and feel like they can manage all aspects of the buying decision on their own.

From a seller’s perspective, this channel can be useful as a means to profitably engage customers who may represent low potential, but it also can represent barriers to building deeper relationships with high-value customers. Therefore, to support their overall organizational goals, organizations we interviewed were migrating to structures where the self-service channel was an integrated part of a multichannel delivery strategy and not a separate business unit.

Organizations tended to use a Web-based channel for the acquisition of self-service customers as well as for account maintenance activity for customers acquired through other channels. For example, one organization uses a direct sales force to acquire new business; however, once committed, the organization trains and strongly encourages its new customers to use the Internet for ordering and account management functions. While operationally cost-effective to have its consumers self-manage their orders, invoices, and utilization reports, if the sales representative keeps too far a distance, this could be damaging to renewal efforts. Therefore, additional focus is placed on in-person, annual account reviews.

Another challenge presented by adding electronic channels into a multichannel structure was a lack of technical integration. As the 1990s progressed, many industries found that an e-commerce presence was a competitive must have. At the same time, they knew that it was a new business model that required a new infrastructure and new technologies (and sometimes a new mind-set). Therefore, to reduce time-to-market, e-commerce channels were often built as silos and were not integrated well with other channels to market. As a result, many organizations still struggle to support transactions across multiple channels (e.g., start a mortgage application online and finish it in the branch) or build a complete view of a customer across the various channels. In fact, a recent study (Compton, 2004) showed that less than 60 percent of financial institutions surveyed were able to communicate a complete view of the customer across the organization. From a customer perspective, this could mean that when you call a banking call center, you may not be able to get access to your mortgage account without being forwarded to another operator. It may also mean that when you get your checking balance from an ATM receipt, it may be different than if you had gotten it from a branch teller.

Many of the organizations we spoke to were in the process of improving their e-commerce capabilities. New directions include functionality to support customers using a blended approach, meaning that customers are not completely self-service but instead can choose to use the Internet for only some aspects of their relationship (what TD Waterhouse calls “clicks and bricks”). In this case, better coordination and integration among channels is needed. Other improvements involve better utilizing the unique strengths of an electronic medium. Just moving a transaction from one channel to another will result in less effective interactions. For example, let’s say customers currently use face-to-face sales resources to experience product demos. You could move that very same transaction to the Web by recording a video of a salesperson giving a demonstration. This, however, may be a very flat interaction and leverages none of the qualities that make electronic interaction unique. Instead, you could design a virtual demo whereby customers could guide themselves through simulations to configure and experience custom solutions. In similar fashion, many organizations are looking to provide this kind of sophisticated capability via their online channels.

Leveraging Nonsales Resources

Many organizations utilize nonsales resources to bolster sales activity. As many organizations in our study echoed, “Everyone is in sales; not just salespeople.” These can include implementation staff or servicing professionals—anyone who has contact with the customer. As a major focus of many organizations is to deepen relationships with current customers, inbound call centers can be a valuable selling resource. Such centers are staffed with customer service agents and are increasingly asked to cross-sell customers who are calling in for service transactions. This can be an effective strategy, though it also presents its own set of challenges in implementation. The biggest issue is that the service personnel often are not comfortable with the idea of selling and can be very resistant to it. Additionally, compensation and performance evaluation can be barriers. Many times customer service agents are evaluated by their ability to resolve customer issues quickly. So it can be confusing as a service representative to be instructed to try to get a customer off the phone as quickly as possible and at the same time cross-sell them. This confusion can be very damaging.

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One Strategy, Multiple Channels at Mar riott International

Marriott’s philosophy is to sell to people as they want to buy. As such, customers have a variety of choices, including a direct sales force (locally and internationally deployed), regional reservation centers, electronic reservation systems, a proprietary Web site, and other electronic marketplaces, through which they can do business. The company’s goal is to “win in every channel” in which they participate. Therefore, the focus is to dominate the market in each channel, switching customers from competitors, rather than trying to shift customers from one Marriott channel to another. Toward that end, Marriott has adopted a pricing strategy such that pricing is consistent regardless of the channel. Under this model, customers are able to more conveniently utilize the channel of their preference instead of chasing deals across channels.

As a result, Marriott does not drive traffic to its Web site using special discounts for online bookings. Instead, Marriott focuses its electronic channel strategy on careful management of its listing in reservation systems and electronic marketplaces, as well as through constant upgrades and detailed monitoring of the use of the Marriott.com Web site to better serve customers who prefer those channels. This has been a beneficial strategy and the Marriott.com Web business continues to grow (with a record year in 2003).

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Research into the effectiveness of service-to-sales activity at call centers (Aksin, 1999) has found that without proper implementation, refocusing customer service resources on sales efforts can decrease service levels. Therefore, to reap the benefits without suffering lower service quality, particular attention should be paid to commitment building, training, system functionality, and process design. Marriott International, for example, helps their reservations personnel understand that their focus is solely on maximizing the value of every call. Therefore, they do not focus on agent talk time but instead emphasize getting the value out of each customer interaction. The result: They have successfully created a highly leveraged, world-class call center network that boasts “a Triple Crown of lowest cost, highest conversion, and highest contribution to filling hotels.”