The explosion of multi-channel distribution has made the world of marketing considerably more complicated. Once, it was simply a question of getting the right product on the shelf at the right time, opening a branch on the high street or sending out a direct mailshot. But with the advent of Internet commerce, call centres, mobile phones, SMS messaging and interactive television, marketers have to decide which product they want to aim at which consumers, and through which channel.
The burgeoning new channels have dramatically increased the workload for companies, which not only have to learn to use each channel, but must also build an overarching strategy to decide what priority to give each channel. Recruiting customers to each of the different channels can be costly, and there has to be monitoring and testing to ensure that repeat purchases are made and to build customer loyalty.
This is all good news for direct marketing agencies: multiple channels not only give them more ways of tracking and obtaining data about customers, but also more skills to sell to brand owners. But in reality, the brand owners need to be at least as familiar with the pitfalls of multi-channel marketing as do the agencies.
The post of “channel manager” is being created by an increasing number of companies, and some are going the whole way and putting a director in charge. Argos, for example, has appointed Paula Vennells, one of its most senior marketers, to the post of channel development director. It may be an experimental role in many cases, but its very existence is proof that brands are aware that they need expertise to control the wild and many-headed beast of multiple channels.
According to John Owrid of Ogilvy, this is the issue which is “keeping marketers awake at night” this year. And well it might – Owrid says there are up to 5,000 possible combinations of channels that marketers can use to sell goods, and he accepts that this can increase costs in the short term. The question is whether it will add costs without necessarily offering an increase in sales or an ability to exact a premium price. Tesco, after all, only charges a fiver for Internet delivery.
Giving customers the choice they demand (whether banking in their pyjamas, ordering books online or buying a holiday over interactive TV) can be expensive, and it threatens to devastate the business models of brands. The prospect of fragmented sales across a plethora of channels, many of which are a long way from being profitable, is not a happy one for brand owners.
Still, agencies argue that the whole point of multi-channel retailing is that it should deliver cost reductions in the future.
Owrid claims OgilvyOne has worked out that clients that seriously pursue a strategy of getting the most out of different channels “could achieve a seven to ten per cent increase in efficiency”. Apart from allowing companies to increase their sales, he says, it leads them to look at their business in different ways.
Companies are looking for ways to cut costs through using different channels, as banks and insurers did so effectively in the early Nineties with the advent of direct telephone operations. But multi-channel marketing and distribution is in its infancy. The banks and insurance companies covered the costs of setting up call centres by cutting back their branch networks. It is unclear where cost savings will come from for multi-channel operators.
Abbey National has appointed top marketer Ambrose McGinn to handle retail e-commerce. He says: “Our model is straightforward – if customers migrate onto e-commerce channels, there are cost savings. If people have an electronic relationship with a company, they are more easily cross-sold to – customers who are online will typically use twice as many of a company’s products as customers who are not. There are lower costs, higher revenues and broader relationships, and the customers are less likely to go away.”
McGinn says that Abbey has yet to turn a profit from its multi-channel operations, but this is not surprising given that they were launched less than a year ago. He expects to move into profit in these areas within a couple of years.
Andrew Johnson, chief executive of customer relations services company Dataforce Group, says: “The Internet has not yet given the cost savings people expected, its take-off has not happened.
“It is a question of how you use the different relationships you have. Car retailers are finding that websites are a great place to browse, so they are spending a great deal on them. If you walk into a dealership and test drive a car, the problem for the manufacturer is that it can’t track you as a customer through this channel. One thing car manufacturers need is to pool the different data.”
There are undoubtedly significant gains to be made from adopting a multi-channel strategy, namely the capture of information about customers and their purchasing behaviour. It also permits brands to build closer relationships with consumers, and to re-evaluate the way they interact with their customers. But some worry that agencies are all too willing to talk up different sales methods, but they don’t always fully grasp the dramatic effects that they may have on the companies’ business.
Paul Seligman, managing director of promotions agency 141, says: “A lot of hollow nonsense is talked about multi-channel distribution and, yes, obviously the number of channels of distribution is growing rapidly, but most are still in their infancy. Agencies are paying lip-service and thinking it is enough to be conversant with what’s going on; it’s not – they should be at the forefront of change. But you can’t forget that traditional media and traditional distribution still account for over 90 per cent of goods distributed and advertised. Young marketers often want to over-commit budgets to new media; wiser heads will recommend balance. In an unproven world let’s not be too generous with clients’ money. The moral is: test before making a heavy financial commitment; the rigour of good old-fashioned direct marketing.”
Jeremy Taylor, chief executive of promotions agency Mbo, says the important issue is not so much telling customers how to interact with a company but rather to be able to offer them a choice of ways to communicate with a company or brand.
“Essentially, it’s about having the skills to mix new media with traditional media skills and channels,” he says.
He believes the proliferation of channels means that a further stage of research is needed in any campaign planning. Brands need to ask what customers want to hear, and through which channels, and then to tailor the messages accordingly.
“Looking at a multi-channel response process adds more stages to a campaign. You need to get a better understanding of the customer. For response-based marketing, this means that the marketing campaign will be more expensive,” he says.
But he says agencies need to communicate this fact to clients without it appearing to be merely an add-on. “Companies need to understand new media, and how it fits in the marketing process, as well as how customers are likely to want to communicate. It is no longer a matter of offering a marketing solution based on what an agency is comfortable with. Agencies need to recognise this and to be able to offer this to their clients.”
Brands and agencies will have to become more aware of how customers use the data which is fed into different channels. Someone seeking a mortgage, for example, may find the cheapest prices and best specifications by looking on the Internet. They may then use a call centre to flesh out that information. And finally, they may walk into a high street branch to complete the purchase. This multiplicity of methods to carry out the different stages of making a purchase means brand owners will have to obtain even greater information about the behaviour of their customers.
Direct marketers who believe that the world of marketing is moving firmly in their direction may have a point. The growth in channels means clients must invest even more in non-advertising-led marketing, and the agencies believe they are well placed to take advantage of this.
Covering all bases
However, there is nothing like an above-the-line ad campaign for leading people to the different channels, so brands will find their budgets stretched to the maximum.
Big agency networks are adding more specialist areas to their menus, whether interactive television or mobile commerce. But the danger with the latest technology is that nobody knows how it is all going to pan out. A marketer may plan a strategy through a number of channels only to find that one of them loses popularity or is overtaken by another medium 18 months later.
Multi-channel marketing is adding new layers of complexity to the marketing business. The old adage that “it is not rocket science” may soon have to be reviewed. Choosing which of the 5,000 combinations of channels is best for a brand to pursue may be as complicated as landing a man on the moon.