Companies increase profits with multichannel shoppers

September 25, 2015, Institute for Operations Research and the Management Sciences

Companies can increase profits by getting customers to buy through more than one channel, for example the bricks-and-mortar store and the Internet rather than the store alone. However, this strategy requires a well-honed marketing campaign that combines the right message and incentive, according to a new study being published in Marketing Science, a journal of the Institute for Operations Research and the Management Sciences (INFORMS).

Can Marketing Campaigns Induce Multichannel Buying and More Profitable Customers? A Field Experiment is by Elisa Montaguti and Sara Valentini, professors at the Department of Management of the University of Bologna (Italy), and Scott A. Neslin, professor at the Tuck School of Business, Dartmouth College.

While catalog companies used to sell only through catalogs and retailers only through bricks-and-mortar stores, technology has enabled companies to sell through multiple channels, such as stores, call-centers, and the Internet.

As a result, some of a company's customers take to multichannel shopping. They buy through the channel and at the time that's convenient for them.

This study finds multichannel customers are more profitable to companies than single channel customers.

This finding emerges from a with more than 30,000 customers of a major multichannel European book retailer. The authors randomly assigned the firm's customers to receive one of four or to serve on a . The authors observed customers purchasing behavior over one year.

The campaigns delivered one of two messages - one stated the benefits of shopping while the other stated the retailer's value proposition. Each message either included a financial incentive or did not, yielding four campaigns in all. When the multichannel message included a financial incentive, the customer received three coupons, one for each channel. When the value proposition message included a financial incentive, the customer received three coupons that had to be used on three separate purchase occasions. Coupons were valid for three months. Customers in the control group did not receive any marketing campaign.

One of the four campaigns proved effective at inducing customers to use more than just one channel. This was the campaign that combined the multichannel message with no financial incentive. It produced more multichannel customers and more profits than all the other campaigns and the control group. In fact this campaign generated a return on investment (ROI) of 93%, compared to negative ROIs for the other campaigns. The other three campaigns did not produce more multichannel customers and hence did not increase profits relative to the control group.

The authors surveyed the company's customers to find out why the multichannel message with no financial incentive proved profitable. They found this campaign communicated the benefits of multichannel shopping without appearing manipulative. That is, the campaign didn't try to persuade customers by providing coupons that could be used only if consumers conformed to various restrictions.

Indeed, an important lesson from this study is that financial incentives are not always required. In fact they can be counter-productive.

"The coupon incentives were quite reasonable from the company's perspective, but were restrictive and manipulative from the consumer's perspective," said Professor Montaguti. "So the prescription for companies is simple - make clear what you're encouraging the customer to do, but don't come across as manipulating them into doing it."

This counsel is relevant in today's shopping environment, where consumers are bombarded with emails telling them to do this and website recommendations telling them to do that.

"Consumers can feel like they're being manipulated," said Professor Montaguti. "In our case, multichannel shoppers are more profitable than they would be if they were single channel, but you can't force them into becoming multichannel. You have to convince them in a clear, straightforward manner."

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