Omni-channel Retail Strategies: An outlook to Portuguese business transformation

i Omni-Channel Retail Strategies: An outlook to Portuguese business transformation André Filipe Sousa Lima [email protected] Dissertation Proposal Master in Management Supervisor: Professor Teresa Fernandes Co-supervisor: Professor Luísa Pinto September 2015 i Biographic note André F. Lima graduated from a BSc in Economics from School of Economics and Management, University of Porto (FEP) in 2013 and is currently attending a Double Degree MSc in Management program from FEP and KEDGE Business School. During his academic studies, he had two international experiences. The first in Cracow, Poland during his bachelor in 2012 and the second in Marseille, France in 2014. These international experiences enforce the international profile that André is looking for. André works in the management consulting field in Portugal, having experienced advisory, audit and tax projects. He was also involved in a couple of non-profit organizations such as AIESEC in which he worked as an account manager and FEP Management Club, an organization recently created within FEP. ii Acknowledgments Once upon a time, there was a little boy who wanted to create an impact. The first years of his life were perhaps the most important and when he still didn’t know what to do, where to go and how to behave, their relatives were there and made him progress. While learning the cultural values, he defined his personality and who he would like to become. Today he is closing a remarkable cycle of his life and it is the moment to express his gratitude. For my family, friends, professors and strangers, I would like to thank you all. To my family for teaching me how to walk, speak and love. For supporting in what I consider an interesting academic career that was only possible because of you. To my friends for playing and being with me. For having coffee with me while discussing the marvellous jokes of the business, academic and fun world. To all my professors for guiding me through this endless journey called learning. I also would like to thank «the crazy ones, the misfits, the rebels, the troublemakers, the round pegs in the square holes... the ones who see things differently» 1 . Without you, I wouldn’t want to become a manager, the challenges and opportunities that you have always created, make me feel motivated and thrive my every day’s best. 1 Steve Jobs (1955-2011) iii Abstract: No one can neglect the transition stage from Multi to Omni-channel strategies. While multichannel focused on the combination of independent multi channels, Omni-Channel presents itself as the full integration of channels, able to deliver a seamless shopping experience to customers. Considering the business environment, it is possible to highlight Omni-Channel as a hot topic for further exploration. Reconfiguration of the physical store, ubiquitously, showrooming and a higher focus to convenience stores are critical aspects to consider when implementing and executing an Omni-channel strategy (BCG, 2012; Gallino & Moreno, 2014; McKinsey&Company, 2012). Literature on Omni-channel is still in its infancy and there is a need for more comprehensive research in this area. An outlook to Portuguese retailers’ channels transformation will not only contribute to the literature but it will contribute to retailers crafting strategies. The current dissertation aims to analyse the current state of channels’ strategies in Portugal based on retailers’ perspective. Several semi-structured interviews with retailers were conducted and data was analysed using NVivo QSR International. Results suggest that Portugal is technological ready for the Omni-channel promise. However, Portuguese lack of online players and risk taking culture are delaying its arrival. Nevertheless, retailers believe that in the long-term they will achieve economies of scale when using Omni.-channel strategies. Further practical and theoretical contributions of this study are also discussed. Key-words: Ecommerce, Omni-Channel, Multi-Channel, Retail JEL CODES: L14, L81, M10, M31, O31 iv Resumo A fase de transição das estratégias Multi para Omni-canal é inegável. Enquanto muitas estratégias Multi-canal focam a combinação de independentes múltiplos canais, o Omnicanal figura como a integração total dos canais, capaz de possibilitar uma experiência de compra única aos consumidores. Tendo em conta o ambiente de negócio, é possível destacar o Omni-canal como tópico da moda para investigação. Reconfiguração das lojas físicas, oportunidades tecnológicas, expansão da “internet das coisas”, showrooming e maior foco na conveniência são aspetos críticos a considerar quando se implementa e executa uma estratégia Omni-canal (BCG, 2012; Gallino & Moreno, 2014; McKinsey&Company, 2012). A literatura ainda está no seu início no que toca ao Omni-canal e existe uma necessidade de estudos mais detalhados quanto a esta temática. Propomos uma visão panorâmica da transformação das estratégias de canal em Portugal que não irá apenas contribuir para a literatura académica mas também irá adicionar algumas linhas orientadoras para os retalhistas considerarem aquando da refinação das suas estratégias. O objetivo desta dissertação é analisar o estado atual da combinação da oferta de retalho entre canais em Portugal tendo por base a perspetiva dos retalhistas. Para atingir esse objetivo e uma vez que não existe consenso literário quanto ao tópico, foram conduzidas entrevistas semiestruturadas com retalhistas. A opinião dos retalhistas foi analisada recorrendo ao software NVivo QSR International de modo a gerar conhecimento científico relativamente às estratégias Omni-canal. Os resultados sugerem que Portugal está preparado tecnologicamente para as estratégias Omni-canal. No entanto, o baixo nível de marcas presentes no online e a cultura de risco portuguesa estão a atrasar a sua chegada. Não obstante, os retalhistas acreditam que no longo prazo será possível atingir economias de escala com as estratégias Omni-canal. Palavras-chave: Comércio online, Omni-canal, Multi-canal, Retalho JEL CODES: L14, L81, M10, M31, O31 v Index of Figures and Tables Table 1 - NAICS – North American Industry Classification System – Major Retail Classifications (Chan, 2013) ................................................................................................... 3 Figure 1 - Price and service level by retail format (Rosseau, 2008) .................................... ...4 Table 2 - Predicted growth by retail category ......................................................................... 5 Table 3 - World Top Retailers 2015 ....................................................................................... 6 Table 4 - Multi-channel vs. Omni-channel Management (Verhoef et al., 2015) ................. 12 Table 5 - Synthesis of the most relevant definitions of the dissertation ............................... 14 Table 6 - Summary of similar studies that were analysed .................................................... 18 Figure 2 – Research route built according to steps performed ............................................. 19 Table 7 - Summary of methodological appraisals concerning Omni-Channel (source: authors’ compilation) .......................................................................................................................... 20 Table 8 - Interview guide ...................................................................................................... 22 Table 9 - Interviewees' detail summary (source: authors’ elaboration) ................................ 25 Table 10 – Results of the data analysis to Portuguese retail maturity .................................. 27 Table 11 – Results of the data analysis to the differences between leaders and followers .. 28 Table 12 – Results of the data analysis to the current threats to Omni-channel implementations .................................................................................................................... 29 Table 13 – Results of the data analysis to Omni-channel definition .................................... 29 Table 14 – Results of the data analysis to channel integration ............................................. 31 Table 15 – Results of the data analysis to Omni-channel customers .................................... 31 Table 16 – Results of the data analysis to most important trends regarding retail ............... 33 vi Table of Contents Biographic note ........................................................................................................................ i Acknowledgments ................................................................................................................. ii Abstract: ................................................................................................................................ iii Resumo .................................................................................................................................. iv Index of Figures and Tables .................................................................................................... v 1. Introduction ......................................................................................................................... 1 2. Literature Review ............................................................................................................... 3 2.1. An Overview of Retail ................................................................................................. 3 2.1.1 World Retailing ...................................................................................................... 5 2.1.2. Portuguese Retailing .............................................................................................. 8 2.2. From Single Channels to Omni-channel ...................................................................... 8 2.2.1. From single channels to Multi-channel era ........................................................... 9 2.2.2. The rise of Internet and Mobile channels .............................................................. 9 2.2.3. Introducing the Omni-channel ............................................................................. 11 2.3. Literature Regarding Omni-Channel Strategies ......................................................... 14 2.3.1. Customers Dynamics and their demand for Omni-Channel Strategies ............... 15 2.3.2. Introducing Omni-Channel as the new paradigm of retail businesses ................ 16 2.3.3. Retailers’ strategic dynamics to deliver a seamless shopping experience .......... 17 3. Empirical study ................................................................................................................. 19 3.1. Research topic ............................................................................................................ 19 3.2. Methodology .............................................................................................................. 20 3.2.1. Qualitative study .................................................................................................. 20 3.2.2. Research approach ............................................................................................... 21 vii 3.2.3. Operationalization of the qualitative methodology ............................................. 24 3.2.4. Data gathering ..................................................................................................... 25 3.3. Main Findings ............................................................................................................ 26 3.3.1. Portuguese retail context ..................................................................................... 26 3.3.2. Portuguese retail maturity .................................................................................... 27 3.3.3. Leaders and followers in the Portuguese market ................................................. 28 3.3.4. Portuguese channels’ strategies ........................................................................... 29 3.3.5. Portuguese Omni-channel customers .................................................................. 31 3.3.6. The future of Omni-channel strategies ................................................................ 33 3.4. Discussion .................................................................................................................. 34 4. Conclusions ....................................................................................................................... 37 4.1. General considerations ............................................................................................... 37 4.2 Project limitations and future research directions ....................................................... 38 5. References ......................................................................................................................... 40 Appendices ............................................................................................................................ 47 A.1. Results of the data analysis to the interviews ............................................................ 47 A.2. Contact method (translated into English) .................................................................. 52 1 1. Introduction The purpose of this dissertation is to investigate the current state of channels’ strategies in Portugal. Considering the three levels: customer, retail firm and contracts, retail firm level was defined as the scope of the current project, not only for personal interest on marketing strategy and structural organization, but also because of retailers’ constant transformation and adaptation. For the scope of the project, it was decided to investigate the specificities of the B2C markets which involve the direct sell to end-customers (Levy & Weitz, 1996). It is possible to identify three stages by which retail channels have evolved. Retail started with a single channel approach in the market encompassing one channel to serve their customers (Chan, 2013). The bricks-and-mortar (B&M) was perhaps the first commonly used channel to approach customers and despite its age, retailers’ current position still evidence their importance. Afterwards, there was a transformation to a multichannel approach in which there were more than one channel to attain customers. Consultants (Deloitte, 2011) mentioned that the future of multichannel retailing will provide even more fascinating research opportunities which is in line with Omni-channel growing importance. Harris (2012) believes that retail is moving towards Omni-channel which is presented as the next stage of evolution, from a single channel to a complete and holistic experience that merges various touch points. The defining characteristic of Omni-channel is the assumption that any given customer will evaluate the product-of-interest at several different points before making the final purchase (Dorman, 2013). Urbany, Dickson, and Sawyer (2000) have already pointed that retailers tend to overestimate the size of the customer segment that regularly switches stores for price specials which was validated by a higher predominance of customer purchases in one store as well as the underestimation of instore search and stockpiling by managers. White, Joseph-Mathews, and Voorhees (2013) and Alvesson (2003) refer that retail strategy is becoming more complex and in order to improve our understanding of the effects of emerging strategies, more comprehensive research designs that simultaneously investigate the effects of multiple strategies are required. Examples of non-answered questions within retail comprise 8 Portuguese two major players, Jerónimo Martins SGPS, SA and Sonae SGPS, SA figured in the 62th and 155th places in the top 250 ranking. 2.1.2. Portuguese Retailing Despite the lack of Portuguese retailing brands in the top 250 ranking, a considerable amount of international brands is operating in Portugal. For instance, Metro group (7th) which owns: Media Markt and Makro, the Auchan group (14th) which owns: Jumbo, Pão de Açúcar and Box; Inditext (44th) which owns Zara, Massimo Dutti, Pull and Bear and Springfield; El Corte Inglés (66th); DIA SA (72th) which owns Minipreço are some examples of retail groups that figure in the top 100 retailers (Deloitte, 2015). The Bank of Portugal GDP predicted a 1,5% growth for 2015 and 1,7% for 2016. Therefore, it is reasonable to foresee some growing opportunities in the retail segment. In 2014, about 5 million people visited and searched e-commerce websites which represents approximately 80% of Portuguese web users. The most popular B2C retail visited websites were Fnac, Ikea and La Redoute which clearly show the Omni-channel intentions of Portuguese retailing players (Marktest, 2014). Indeed, due to the rapid change of business, retailers are continuously trying new formats and offerings. For example, Continente is leveraging their online bet with user-friendly websites and a more efficient connection with B&M and Worten introduced the click and collect concept and ensured a 2-day home/store delivery. It is evident that Portuguese retailers are concerned about their inhabitants’ behaviours and they are officially trying to do something. In Europe, the adoption of information communications’ technology is relatively high, but compared with the US, Europe has had far smaller productivity gains from it, and it is falling behind (Reynolds & Sundström, 2014). How would the Portuguese retail situation be defined? Should retailers care? Are they answering well to customers? 2.2. From Single Channels to Omni-channel Neslin et al. (2006) define a channel as a customer contact point, or a medium through which the firm and the customer interact. When designing their channel strategy, retailers can choose from different retail formats to find the optimal mix for their organization. 9 The most popular channels are: 1 – B&M/ physical channel which enables instant gratification effect since the customer will get the products immediately (Agatz, Fleischmann, & Van Nunen, 2008) while the retailer has the possibility to provide a rich, multisensory brand experience (Rigby, 2011); 2 – online channel which allow 24/7 accessibility and wider product selection compared with the previous (Rigby, 2011); 3 – mobile channel which emerged from a need to provide further personalization and convenience to customers, Piotrowicz and Cuthbertson (2014) argue that smartphones have given the customers the ability to combine online and offline purchasing in a new way since there is immediate price comparison for customers; 4catalogue channel which is a more old fashion channel in which the customer can order items via telephone or regular mail (Staflund & Kersmark, 2015). For providing an understanding of how channels have evolved across the years, the channel evolution paradigm is described on the current chapter. 2.2.1. From single channels to Multi-channel era At its inception probably the most popular channel would be the B&M which is defined as a channel in which customer demand at retail store is met with on-hand inventory from the bottom echelon (Tetteh & Xu, 2014). It is evident that to live in a single channel era, one would need to go back for a considerable amount of years and most important, customers would have a lower bargaining power. Though, B&M sustained their main advantage, proximity to clients, today’s picture differs and customers are demanding the best of their retailers. In fact, that led retailers to transform their single channels’ strategies into multi-channels’ strategies. 2.2.2. The rise of Internet and Mobile channels In early 21st century, retailers began the discussion of Multi-channel retailing (Chan, 2013). Multichannel involves addressing customers throughout multiple channels, in which each channel has its specific purpose. According to Rangaswamy and Van Bruggen (2005), multi-channel strategy enables firms to build lasting customer relationships by simultaneously offering their customers and prospects information, products, services and support through two or more synchronized channels. Considering the particularities of multi-channels strategies, one would say that the combination of B&M and catalogue were perhaps the first evidence of multi-channels strategies. 10 Internet shopping appeared in mid-1990s and as Kucuk and Krishnamurthy (2007) noted, the digital revolution was to customers, what the industrial revolution was to manufacturers, with a very significant redistribution of power in favour of the customers. In fact, since its appearance, the internet benefits were obvious: global reach, ease of access, enhanced interactivity, flexibility and speed, ability to communicate large amounts of information, scale cost efficiency and ease of maintenance (Jones & Vijayasarathy, 1998; Varadarajan & Yadav, 2002). And with the internet, it is important to highlight two different multi-channel situations. The retailer who had a B&M and then decided to open a digital channel through the internet and the retailer who was a pure-player and decided to open a B&M. The first, need to consider the high amount of sunk costs that he now needs to support while the second will have more flexibility when redefining its strategy, something that matters for the current panorama of retail (Fernie, Doherty, & Ellis-Chadwick, 2010). Later, another breakthrough to retail context emerged with the appearance of the mobile channel. Mobile phones also appeared in mid-1990s, however, their exploitation regarding the excelproofing of channels’ strategy is still a rather recent topic in retail history. The mobile channel is one of the most relevant to analyse regarding channels’ strategies due to the fact that mobile devices are becoming ubiquitous (Lessin & Ante, 2013). Apple and Google app stores offer about 1.4 million apps combined. On average, customers spend about two hours a day on mobile apps, according to Gartner Inc. global app store revenue hit $25 million in 2013. Grant and O’Donohoe (2007) mention that the mobile phone is not only a personal device used to stay connected with friends and family, but an extension of personality and individuality. Due to the possibility of always connected platforms throughout the internet connection, retailers face a tremendous advantage that allow them to personalize offers according with a specific type of customer. Therefore, Persaud and Azhar (2012) argue that marketers must listen to their customers and develop appropriate strategies rather than simply adapting existing marketing strategies. Mobile marketing is defined by Shankar, Venkatesh, Hofacker, and Naik (2010) as “the two-way or multi-way communication and promotion of an offer between a firm and its customers using a mobile medium, device or technology. 11 Cisco (2008) revealed that retailers differ in the use of mobile marketing practices. The study found that approximately 6% of retailers surveyed had web pages and a URL specifically designed for mobile use, approximately 42% of retailers offered their customers the ability to view product information on a mobile device through reformatted web pages or specific mobile pages; approximately 15% offered the ability to conduct transactions; approximately 10% used Short Messaging Services to provide information or to answer to customers’ questions; and roughly 17% provided the capability to connect to communities of interest. The opportunity for retailers is clear but the way retailers are adapting their strategies is different, therefore, marketers should carefully think of apps to enhance customers’ experience, interconnected platforms, involving product mock-ups, e-wallets, personalized discounts/ coupons. Furthermore, Shankar et al. (2010) mention that due to the time-sensitive and locationsensitive nature of the mobile medium and devices, mobile marketing has the potential to change the paradigm of retailing. Increasingly, customers choose the times and the channels through which they deal with firms for different aspects of their interactions (Rangaswamy & Van Bruggen, 2005). They use different channels at different/same stages of their decision and shopping cycles. 2.2.3. Introducing the Omni-channel To first look at Omni-channel strategies, the first issue to highlight is that the movement to Omnichannel retailing has heretofore not been conceptualized, despite its growing importance (Verhoef, Kannan, & Inman, 2015). Nevertheless, Rigby (2011) believes that it reflects the fact that retailers are able to interact with customers through countless channels – websites, physical stores, kiosks, direct mail and catalogues, social media, mobile devices, gaming consoles, televisions, networked appliances, home services and more. Simplifying, it proposes an integrated sales experience that combines the advantages of physical stores with the information-rich experience of online shopping. Moreover, the role of each channel ought to be re-imagined in order to maximize its current potential since the different channels become blurred as the natural borders between channels begin to disappear (Verhoef et al., 2015) Customers have now the opportunity to order from anywhere (call centre, website, B&M store, catalogues, mobile, social media) and fulfil from anywhere (ecommerce DC, outlet locations, B&M stores, Retail DC, Pop up stores, kiosk, others distribution channels). 12 One concept that came up with Omni-channel strategies is the clicks-and-mortar (Fernie et al., 2010) which tend to present the complementarity between online and offline channels, offering customers the possibility of first searching for information and buying the product online and then collecting it in the store or other agreed place. Another aspect that is often associated with the addition of the digital channel is the possible strategic and financial possible improvements associated with the digital channel introduction (Wolk & Skiera, 2009). Gartner predicts that 80% of Omni-channel implementations will fail because of siloed approaches and channel centric strategies that will turn customers off, with inevitable negative impact on loyalty and sales. According to Accenture (2013), these siloed appraisals will require a transformation of retailers’ channel operations, particularly in retail stores. Moreover, 31% of retail Leaders and 21% of retail Followers are developing Omni-Channel marketing plans, according to Aberdeen (2012). As a matter of fact, the improvement of both online and mobile channel has potentiated the internet of things. With it, three different types of interaction could be pointed: (1) providing a new way to do something people already do (e.g. new channel=new habit); (2) providing a more convenient or automatic way to do something people need to do but don’t necessarily want to do (e.g. substitute a channel); (3) providing the ability to do something customers couldn’t do before (e.g. try products online). This revolutionary process partially explains why retail is changing but it certainly brings new threats and opportunities for retailers. Due to matters of misperception and to highlight the main differences between multi-channel and Omni-channel strategies, table 4 differentiates both strategies according to: channel focus, channel scope, separation of channels, brand vs. channel customer relationship focus and channel management objectives. Table 4 - Multi-channel vs. Omni-channel Management (Verhoef et al., 2015) Multi-channel Management Omni-channel Management Channel focus Interactive channels only Interactive and masscommunication channels 13 Channel scope Retail channels: store, online, website, and direct marketing (catalogue) Retail channels: store, online, and direct marketing, mobile channels (i.e. smart phones, tablets, apps), social media Customer Touch points (incl. Mass communication channels: TV, Radio, Print, C2C, etc.) Separation of channels Separate channels with no overlap Integrated channels providing seamless retail experiences Brand vs. Channel customer relationship focus Customer - Retail channel focus Customer - Retail channel - Brand focus Channel Management Objectives Per channel Channel objectives (i.e. sales per channel; experience per channel) Cross-channel objectives (i.e. overall retail customer experience, total sales over channels) Considering the importance of this type of strategies for retailers, it is important to look at the numerical side of the question. IDC Retail Insights pointed that multi-channel shopper will spend, on average, 15% to 30% more than the single channel shopper while, and Omni-channel shoppers outspend multi-channel shoppers by over 20%. Though, most organizations are not in a good position to achieve Omni-channel customer management because they lack both technologies and required multi-disciplined approaches (Staflund & Kersmark, 2015). Customers tend not to offer second chances to retailers who fail to perform their channels’ strategies and concerning an even higher claim for better channels’ strategies, the urge to Omnichannel strategies is evident (Strang, 2013). Omni-channel is continuing with is growth and exploitation, social networking and increasing power of electronic intermediaries are issues that Fernie et al. (2010) point to be in discussion concerning channels’ strategies. However, to whom the power shift will turn, it is still undefined. 14 With Internet of Things, products and customers are connected 24/7. Therefore, customers expect 24/7 availability when their needs demand it (Rigby, 2011). Finally and to clarify Omni-channel initiatives (Staflund & Kersmark, 2015), it is relevant to discuss the areas related to Omni-channel spans over all different functions involved in the retailers business activities. For instance, shipping, services, logistics, sales, tools, promotional activities and performance measurements, etc. (Brynjolfsson, Hu, & Rahman, 2013; Gallino & Moreno, 2014). Examples of shipping services and logistics integrations are click-and-collect, in-store returns and in-store packaging of click-and-collect orders (Piotrowicz & Cuthbertson, 2014). Omni-channel sales tools include the use of technology such as tablets and in-store screens (Herhausen, Binder, Schoegel, & Herrmann, 2015). Omni-channel promotion is related to provision consistent information to facilitate and encourage combined channel use (Oh, Teo, & Sambamurthy, 2012). Finally, performance measurements related to Omni-channel initiatives involve finding ways to measure the results generated by this strategy (Cook, 2014). Table 5 summarizes the main concepts of Omni-channel strategies. Table 5 - Synthesis of the most relevant definitions of the dissertation Omni-Channel strategies Definition Authors Omni-Channel The defining characteristic of Omni-channel is the assumption that any given customer will evaluate the product-of-interest at several different points before making their final purchase. (Dorman, 2013) The next stage of the evolution, from a single channel to a complete and holistic experience that merges these various touch points. (Harris, 2012) Online and offline channels differ in their ability to deliver information and product fulfillment, which are the two most critical channel functions. An Omni-channel retailer can therefore respond to and cater to consumer heterogeneity in preferences for both. (Gallino & Moreno, 2014) Multi-Channel Consumers are now using a variety of channels in their shopping experience, in order to research their purchases and choose them before committing to buying. (Kaye & Johnson, 2002) Refers to the integration of various channels in the consumer decision-making process. The term was coined in early 2000s to signify the integration of offline and online shopping channels. It has since evolved to encompass the proliferating number of channels and media used to formulate, evaluate and execute buying decisions. (Dholakia et al., 2010) Mobile Marketing The two-way or multi-way communication and promotion of an offer between a firm and its customers using a mobile medium, device or technology (Shankar et al., 2010) 2.3. Literature Regarding Omni-Channel Strategies Despite Omni-channel strategies are still in its early ages, the literature on Omni-channel strategies can be segmented into III streams. The (I) first stream focused on customer dynamics and their demand for Omni-Channel strategies. The (II) second stream is concerned to announce OmniChannel as the new paradigm of retail business perspective. The (III) third stream comprises strategic dynamics that retailers pursue in order to deliver a seamless shopping experience. 15 2.3.1. Customers Dynamics and their demand for Omni-Channel Strategies Customers now seek to access a flow of seamless shopping journeys which enables the customer to buy in different touch points connected in an ecosystem. Customers expect the same brand experience across all channels, including mobile. Furthermore, Berry et al. (2010) argue that due to the power shift from retailers to customers, retailers are persuaded to adopt demand-driven innovations based on customers’ needs which could be transformed in their desire to be served throughout multiple channels. Verhoef et al. (2009) were among the first to examine the creation of a customer experience from a holistic perspective in which they have presented a conceptual model to discuss the social environment, the service interface, the retail atmosphere, the assortment, the price and promotions as determinants of customer experience, including customer experience management strategies. Later, Dholakia et al. (2010) investigated the channels, marketers and customers dimensions and concluded that deciding which specific channels to use to reach their customers. Additionally, they also look at how to profitably coordinate their chosen channel assortment for formulated customer behaviour research reflecting the challenge of shifting customers to migrate from higher cost, lower valued channels to lower cost, higher valued ones and managing changing customer preferences across channels were key points in managing a multi-channel, multimedia retailing environment. Furthermore, they have also stated the way retailers address this trend is different, since some are seeking to manage the channel behaviour (e.g. Walmart, Best Buy), while others appear to adopt a more passive stance (e.g., Burberry, True Religion Jeans) which the authors mentioned to have some indexed risks. Pauwels, Leeflang, Teerling, and Huizingh (2011) found that online evaluations may drive overall retailer choice, despite the unique value proposition of each channel. Gonzalez, Huré, and PicotCoupey (2013) stated that there are evolutions in shopping behaviours, such as the increase or decrease of the frequency of visit to existing touch points, under the influence of mobile applications usages that correspond to the emergence of an Omni-channel experience. More recently, Piotrowicz and Cuthbertson (2014) mentioned that today’s customers are no longer satisfied by retailers who are operating isolated sales channels but rather expect a highly integrated shopping experience where they can combine the different channels according to their preferences. 16 2.3.2. Introducing Omni-Channel as the new paradigm of retail businesses Despite the early maturity stage of channels’ strategies within retail at the beginning of 20th century, Urbany et al. (2000) argued that reporting category or brand sales by customer patronage status (i.e. primary/ loyal customer vs. multi-store shopper) would provide significant insight on retail. This sort of argument, led to further explorations within retail literature, including challenges and opportunities and more detailed studies regarding the topic. Berry et al. (2010), Neslin et al. (2006) Urbany et al. (2000), Zhang et al. (2010), discussed some of the challenges and opportunities that retailers face when facing the transition towards OmniOrganizational structure. Employees’ training overbuilt retail space, data integration, evaluation and performance metrics, coordinating channel strategies are presented as challenges, while crosschannel customer communication and promotions, channel purposes and interactions crosschannel price comparisons, digitization are presented as opportunities. Ailawadi and Keller (2004) and Kwon and Lennon (2009) found that valuable brand associations attributed to one channel and positive associations formed by the knowledge of one channel are likely to transfer to other channels by way of a halo effect. Harris (2012) presents Omni-Channel as the final step of the evolution, from a single channel to a complete and holistic experience that merges these various touch points reflecting other authors’ perception and information. Dorman (2013), Gallino and Moreno (2014) state that the defining characteristic of Omni-channel is the assumption that any given customer will evaluate the product-of-interest at several different points before making their final purchase (assessed the effects of implementing a BOPS “Buy-online, pick-up-in-store” project in the USA while analysing cross-selling and channel-shift effects reached the conclusions that the implementation allowed to lower online sales, higher store sales and higher store traffic. Emrich, Paul, and Rudolph (2015) examined the relative effect of overlapping assortments across a retailer’s online and offline channels. After considering no integration of channels, full integration and asymmetrical integration, they found that full integration dominates no integration, but full integration is not always superior to asymmetrical integration. These findings show that an Omni-channel retailer does not necessarily have to operate all channels and more importantly the optimal retail mix across channels vary from retail to retailer. However, as availability is core 17 to Omni-channel retailing it is important for the retailer to be present in the channel that its customers would like to use (Staflund & Kersmark, 2015). 2.3.3. Retailers’ strategic dynamics to deliver a seamless shopping experience Rosenblum and Kilcourse (2013) argued that blending gradually the digital and physical selling would lead to one compelling seamless customer experience remains the manufacturer/ retailer biggest challenge. This challenge could be solved by retailers operating Omni-channel strategies (Tetteh & Xu, 2014). Punj (2012) proposed a conceptual model through the triangulation of multiple data sources that allowed to conclude that electronic devices allow users to take better decisions and to identify information-processing strategies. Wollenburg, Hübner, and Kuhn (2014) presented a non-specific conceptual framework for order fulfilment and delivery in online grocery retailing which has been tested by the largest European online grocery and has proven to facilitate the process. In addition, they have also addressed some aspects of the recommended Omni-channel landscape in grocery which should include channel interaction, channel integration layers, enterprise business service layer and common business applications as enablers of the whole process. Regarding the strategic dynamics of Omni-channel, an analysis of the newest organizational propositions that retailers are offering was made. One interesting approach is the inventory showrooming which are mentioned and analysed by Gallino and Moreno (2014) considering the case of WarbyParker.com, a leading US fashion eyewear brand in which customers use the offline store to see the product, showrooms, and make the purchase online through the company website. Another approach to physical stores is the boutique, in which the retailer understood that it was a major touch point with the customer and tried to create the seamless experience to get customers to the stores. Apple, Adidas and other top brands have already followed this trend. At the same time, Amazon's announcement of its first brick and mortar store opening on Manhattan's 34th Street 2 highlights the current Omni-channel importance. Therefore, the trend is evident, internet retailers are getting physical while physical retailers are getting online throughout a combination of channels to deliver a value added offering. Table 6 summarizes the main studies previously indicated throughout the literature review regarding Omni-channel. 2 (http://www.theverge.com/2014/10/9/6953083/amazon-is-about-to-open-its-first-ever-physical-store-in-new-yorkancity accessed October 13, 2014) 24 Herhausen et al. (2015) Lin (2012) - Loyalty your customers? Stock efficiency? IV. Omni-channel development - Future Expectations EY (2015), PwC (2015), KPMG (2013), , BCG (2012), McKinsey&Company (2012), Deloitte (2011) 1. How do you imagine your channels’ strategy in 5 years? Why? 2. Which are the trends that would have greater impact in your business? Why? 3. Which is your perception regarding the maturity level of Omni-channel strategies in Portugal against leaders? Which are the explaining factors that sustain those differences? 3.2.3. Operationalization of the qualitative methodology With the B2C as the scope of the current project, it is relevant to highlight the criteria to select the interviewees and how the appraisal has started. Since our study depended on interviewees’ availability, special attention to their lack of time was aimed while providing any initial e-mail, telephone call with quality assured. For initiating the contact, Rowley (2012) detailed guidelines were followed:  Authors’ description and clarification of the reason for having established contact.  Brief explanation of the research and topics that would be covered in the interview.  Clarification of the amount of time that the interview will take.  Ask for permission to record the interview, while assuring confidentiality.  Provide personal contacts and ask about their availability to schedule interview. 25 For gathering the interviewees, the process focused mostly on 1st and 2nd degree contacts. Furthermore, direct e-mail contact to industry experts, marketing managers and professors to collect either interviewees or references to interviewees were also relevant actions in this process. Given the diverse geographic location of the interviewees, some interviews were conducted in person and others were conducted through Skype with video enabled. All 12 interviews were conducted by the first author between January 2015 and July 2015. On average, interviews lasted 50 minutes, and the minimum length was 40 minutes. All interviews were audio-recorded, transcribed and sent to the interviewees for allowing them to confirm, add or remove any information according to their preference. Table 8 summarize interviewees’ characteristics that were relevant to our analysis. Table 9 - Interviewees' detail summary (source: authors’ elaboration) Date Retail Segment Job position Age group Retailer 1 26/1/2015 Apparel Ecommerce Manager [40 - 55] Retailer 2 27/3/2015 Grocery Ecommerce Manager [25 - 39] Retailer 3 13/5/2015 Grocery Marketing Intelligence Manager [25 - 39] Retailer 4 14/5/2015 Apparel Distribution and Product Manager [25 - 39] Retailer 5 28/4/2015 Grocery Distribution and Product Manager [40 - 55] Retailer 6 4/5/2015 Books & Media Marketing Director [40 - 55] Retailer 7 11/5/2015 Grocery Marketing Intelligence Manager [40 - 55] Retailer 8 20/5/2015 Apparel CEO [40 - 55] Retailer 9 21/5/2015 Apparel Ecommerce Manager [25 - 39] Retailer 10 3/6/2015 Apparel Marketing Director [40 - 55] Retailer 11 9/6/2015 Books & Media Ecommerce Manager [25 - 39] Retailer 12 6/7/2015 Apparel Ecommerce Manager [25 - 39] 3.2.4. Data gathering The twelve interviews were integrally transcribed and transcripts were imported to QSR NVivo 10. Afterwards, data was subject to a categorical and thematic analysis (Bardin, 1977) for allowing an understanding of the unstructured data, following a three-step process. 26 Firstly, and to ensure a reliable analysis, an initial hierarchical list of nodes were created as guided by the literature and interview questions, following the guidelines of the interviews, presented in table 8. Secondly, emerging themes were coded into other nodes and sub-nodes, which were added and refined through iterative reading. Finally, the last step involved data examination and interpretation, resulting in final re-coding and minor refinements. In this stage, the conclusions were arranged by topics and we have allocated them into a sound structure to answer the research question. 3.3. Main Findings The current state of channels’ strategies ought to be characterized into two main topics. The first topic includes research findings on the Portuguese retail context that differentiate Portugal from other markets which influence the second topic, the Portuguese channels’ strategies, expressed by retailers’ opinion on Omni-channel or Multi-channel solutions. In this section, a structured way of providing scientific knowledge on the Portuguese channels’ strategies is provided. It encompasses an analysis of retailers’ opinion while presenting summary tables with results of the data analysis and/ or illustrative quotes. 3.3.1. Portuguese retail context Portuguese geographic characteristics are likely to influence how retailers operate and the expectations of surroundings customers. Retailers described Portugal as: « […] a small and coastal country […] » (Retailer 3) « Considerable disparity of population density across regions» (Retailer 2) Customers understand the territorial differences of Portugal and their expectations in terms of service delivery tend to be adjusted to one’s reality. For instance, a certain customer who lives on the coast will have higher provision expectation than someone who lives in the interior or Portuguese islands. Not only do customers understand this sort of differences, but also retailers expect this understanding when serving Portuguese customers. Legal issues also play an important role and for instance, there are: « […] broader buying periods with dilated schedules» (Retailer 5). 27 While in Portugal it is common to have stores open on Sundays which allowed retailers to a diversified use of formats in distinct schedules, while other countries tend to close stores on Sundays. The previous has a direct impact on retailers’ expectations while influencing the Portuguese customers buying habits. This aspect could be somehow related with the fewer propensities to online consumption by the Portuguese which leads to keeping B&M open for longer hours. Retailers also noted that: « […] crisis led to a distinct appraisal with the customer […] » (Retailer 8) For instance, the price factor increased its overall importance, especially in durable goods such as tablets and computers. 3.3.2. Portuguese retail maturity Portuguese specificities influenced the degree to which channels’ strategies recently evolved. When comparing the Portuguese maturity with retail leading countries, Portugal is less mature, especially if the online channel is taken into account. Table 10 summarizes the data analysis performed on retailers’ interviewees regarding Portuguese maturity. Table 10 – Results of the data analysis to Portuguese retail maturity Dimension/ category/ subcategory Sources References PORTUGUESE RETAIL MATURITY LEVEL 7 31 Over 5 years late to retail leading countries 5 8 Portugal is technologically ready to OC growth 2 2 Portuguese customers are less informed 1 2 Slower growth rate 5 19 Economic crisis 1 1 Few players in the online channel 3 9 Portuguese risk taking culture 3 4 Retail structures 1 1 Technological barriers 3 3 Results suggest that the gap to leading countries has risen from the lack of players operating in the online channel, compiling it as the most often mentioned node. 28 «Portugal has few players in the online channel and that is the biggest gap. (…) We buy a lot of tourism through the online channel because there are Booking.com, TripAdvisor, etc. There are international organizations that enable the market and that is fundamental» (Retailer 8) The misperception of online channel metrics and the low digitalization level of Portuguese small and medium enterprises (SME) which is somewhat related with the previous, highlight the importance of further investment in the online channel. «The entrance of pure players in the market, shrinking price and margin which will lead to a drop in the profitability of the sector» (Retailer 6) Other important aspects that suggest a slower growth rate of Portugal are the risk taking culture of the Portuguese and the technological barriers that are faced in the market, for instance with the payment methods and which is related with less informed customers. 3.3.3. Leaders and followers in the Portuguese market The perception of leader and follower behaviours often changes with the culture. In that sense and as part of the Portuguese retail context, table 11 summarizes the main differences of a leader and a follower in terms of channels’ strategies. Table 11 – Results of the data analysis to the differences between leaders and followers Dimension/ category/ subcategory Sources References LEADER Vs. FOLLOWER 12 38 Brand scale and notoriety 2 2 Define concepts and trends 7 11 Experience across channels 5 8 Internal adaptation 2 10 Online development 1 3 Provision timing 4 4 When looking in detail to the channels’ strategies, all interviewees made references to the differences between a leader and a follower. In particular, brand notoriety and innovation associated with the right channel strategy potentiality (experience across channels, internal adaptation, online capacity and provision timing) are suggested to distinct a leader from a follower. 29 «Leaders are those that are not just able to identify its own place in the industry but more importantly have the capacity to sustain that relevance […] » (Retailer 9) Leaders are also those that consider current threats when designing their strategy. In that sense, table 12 summarizes research findings on the current threats of the Portuguese market. Table 12 – Results of the data analysis to the current threats to Omni-channel implementations Dimension/ category/ subcategory Sources References CURRENT THREATS 11 60 Degree of readiness to new channels 10 32 Lack of integration between channels 7 14 Misperception of Omni-channel advantages and disadvantages 3 3 Pure players threatening existing players 5 11 Regarding the current threats to retail players, eleven out of the twelve interviewees produced sixty references. The node “degree of readiness to new channels” was the most frequently mentioned with thirty two references of ten sources. The lack of integration between channels and the fact that pure players are threatening existing players were other aspects that retailers mentioned. Those factors are relevant for both leaders and followers to analyse when defining their strategy. 3.3.4. Portuguese channels’ strategies Retailers were interviewed on the definition of an Omni-channel strategy. The results of the data analysis to this topic are summarized in table 13. Table 13 – Results of the data analysis to Omni-channel definition Dimension/ category/ subcategory Sources References OMNI-CHANNEL CHARACTERISTICS & GOALS 10 52 Coherent and complementary multiple channels 8 26 Drifts from online growth 1 1 Efficient supply chain and stock management 2 3 Multiple channels for delivering the product 5 9 Unique experience for customers 8 13 30 As presented in table 13, ten out of the twelve interviewees presented relevant points on this matter, generating a total of 52 references. The node “coherent and complementary multiple channels” is the most mentioned with 26 references of by 8 interviewees, with 26 references. Retailers pointed that they are still not performing true Omni-channel strategies and in some cases it is better to perform Multi or Cross-channel strategies. «At this moment we still are not in an Omni-channel status and maybe the status that better illustrate the Portuguese channels’ strategies is the cross-channel, in the sense that we are between the Multi-channel and Omni-channel and there are some synergies between our channels» (Retailer 11) «We talk about Omni-channel strategies but brands are not Omni-channel in their appraisal» (Retailer 10) Due to the entrance of pure players in the market, margins are shrinking and the need for retailers to address innovative solutions is higher. «The entrance of a pure player such as Amazon can promote some disruption in the market and that is, undoubtedly, a threat. In that sense, the Omni-channel strategy increasingly appears as a priority for us, because it enables differentiation» (Retailer 6) Portuguese interviewees also recognized the importance of coherence, complementarity, efficiency and experience. However, the fact that a considerable amount of retailers mentioned that Omni-channel is part of having multiple channels, including the online for delivering the product also indicates that Portuguese retailers understand that for reaching Omni-channel, first they should diversify formats and deliver products in all channels that matter for customers. «An Omni-channel strategy has everything oriented to the customer and to provide him/ her a unique experience» (Retailer 9) When the seamless experience is offered to customers, aspect that was pointed by 8 interviewees, retailers’ stock management and distribution chain tends to achieve further effectiveness «Omni-channel is related with distribution chain and stock management efficiency» (Retailer 9) Digging deeper on Omni-channel strategies, retailers’ opinion was investigated on their channel integration as presented in table 14. 31 Table 14 – Results of the data analysis to channel integration Dimension/ category/ subcategory Sources References CHANNEL INTEGRATION 11 40 Change of information 9 11 Coherence of strategies across channels 8 16 Cross-channel potentiation 2 3 Data integration 4 9 The change of information was the most discussed topic. While some retailers argued that changes were normal, others were trying to keep their channels with the same offering and information. «The product and the price is the same online and offline» (Retailer 3) «There is a differentiation of range and price between the two channels» (Retailer 10) The coherence of strategies and the ability to integrate data are seen as a major source of retailers’ competitive advantage. It not only helps retailers to become more agile from inside but it also enables them to more sophisticated customer oriented offerings. «It is possible to understand profiles, which enlarge the leverage to operationalize another retail trend, which is the personalization logic» (Retailer 6) 3.3.5. Portuguese Omni-channel customers Omni-channel is part of a customer-centric appraisal to customers. In fact, customers are asking for integrated and technological service providing and their expectations are likely not to be met if retailers do not evolve their channel strategy. Customers’ loyalty is decreasing and this could be presented as an argument to increase customer-centric appraisals. Table 15 summarizes the degree to which customers are asking for Omni-channel solutions. Table 15 – Results of the data analysis to Omni-channel customers Dimension/ category/ subcategory Sources References OMNI-CHANNEL CUSTOMERS 12 56 Customer behaviours 11 32 Increasing complaints and requirements 2 2 Technology and Online 11 30 32 Customer expectations 9 24 Access online offering 4 6 Coherence between channels and according with events 4 7 Customers seek freedom and convenience 5 7 Personalization 4 4 All interviewees (12) have addressed relevant impressions on this view, producing a total of 56 references. In an attempt to adapt to the current state, retailers are looking forward to meeting customer expectations through investing in in-store experience, personalized promotions through location, data tracking solutions and cross-selling initiatives such as the wear it with. «There is also more segmentation message situations related with geolocation. You enter a certain geographic area and you get a message for having a certain profile, not receiving it if you did not match certain characteristics» (Retailer 10) «I can potentiate the wear it with. For instance, a customer bought a necklace. If I offer her a pair of earrings matching with the necklace, maybe I can potentiate cross-selling» (Retailer 9) Another important element of channels’ strategy is the brand. Indeed, brand is thought to provide further consistency and recognition to the whole strategy. «Brand is fundamental because it is what gives consistency to the strategy and it reflects the market positioning in the different formats» (Retailer 5) Nevertheless, findings suggest that brands need to prove their valences when entering in a new channel. «Amazon is a brand that was born online. In the physical world it has still to prove that the valences for what it is recognized are also present in the physical store» (Retailer 10) In terms of funds’ allocation and roadmap to an Omni-channel strategy, it is evident that there is not a magic recipe to successfully operate an Omni-channel strategy. Retailers should be conscious that the Omni-channel project is unique and resources should enable a holistic strategy. In addition, analytics should be well implemented and that will influence the success level. «It depends on the objectives that companies have» (Retailer 7) 33 Further attention should be driven into segments and types of customers that retailers are dealing with. Retail is evolving to specialization and niche concepts and sometimes it is crucial to have in mind that it might be better to concentrate in less but more profitable costumers who will increase their spending with the right appraisal. «We think that retail market has still niches, having room for innovation and add value. Perhaps it will emerge from new products and services» (Retailer 6) Findings suggest that retailers ought to consider the degree to which their channels and brand may become in conflict and the perceived impact on customers’ buying intention. In fact, they should manage their strategy labels to evade it. «If the first layer of the company’s strategy is brand, there will not be a conflict between brand and channels» (Retailer 6) Despite the fact that in Portugal there are still no Omni-channel strategies, it is relevant to start analysing the data and impacts of the current channel strategies living a transition period. «It should be possible to control the initiatives and an analytics layer should be associated and integrated» (Retailer 5) In that sense, channels could work as levers (loyalty, retention, engagement) to promote the whole channel strategy and increase customers’ loyalty. However, it should be seen as a long-term investment. «One client, multiple channels and we pull levers in each of the channels» (Retailer 2) «This is a long-term investment and therefore it needs to be well done and asks for practice» (Retailer 5) 3.3.6. 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FOLLOWER 12 38 Brand scale and notoriety 2 2 Define concepts and trends 7 11 Experience across channels 5 8 Internal adaptation 2 10 Online development 1 3 Provision timing 4 4 Dimension/ category/ subcategory Sources References PORTUGUESE RETAIL CURRENT STATE 11 67 Portuguese customers' behaviors 8 26 Less loyal 1 1 Less time to shop 2 2 More price oriented 6 7 Privacy concerns 1 2 Search of the niche or different 1 1 Shopping trends 4 8 Small shops consumption 2 4 Spanish trends 1 1 Portuguese economy 9 30 Drop in consumption 4 5 Economic recovery 2 2 Higher competition 6 11 48 Higher market concentration 1 1 Price Drop 3 6 Tax increases 1 1 Portuguese legal aspects 3 3 Online law policies 1 1 Retailers' selling hours are higher than in the EU 1 1 Tourist promotion 1 1 Small and coastal country 3 8 Dimension/ category/ subcategory Sources References OMNI-CHANNEL CHARACTERISTICS & GOALS 10 52 Coherent and complementary multiple channels 8 26 Drifts from online growth 1 1 Efficient supply chain and stock management 2 3 Multiple channels for delivering the product 5 9 Unique experience for customers 8 13 Dimension/ category/ subcategory Sources References OMNI-CHANNEL CUSTOMERS 12 56 Customer behaviors 11 32 Increasing complaints and requirements 2 2 Customers ask for immediate satisfaction 1 1 WOM influence on buying 1 1 Technology and Online 11 30 Costumers do not want QR codes 1 1 Digital growth 6 17 Increasing influence of social networks 3 3 Online buying habits 7 9 Customer expectations 9 24 Access online offering 4 6 Coherence between channels and according with events 4 7 Customers seek freedom and convenience 5 7 49 Personalization 4 4Dimension/ category/ subcategory Sources References INDIVIDUAL CHANNEL POTENTIATION 5 24 Offline 5 12 Personalized promotions 5 5 Potentiate in-store experience 3 7 Online 4 12 Data tracking to personalize service 3 6 Promote cross-channel and cross-selling initiatives 4 6 Dimension/ category/ subcategory Sources References CHOOSING PROCESS 4 5 Customer profile and type of product 2 3 Omni-channel promise fails with lack of coherence 2 2 Dimension/ category/ subcategory Sources References CHANNEL INTEGRATION 11 40 Change of information 9 11 Coherence of strategies across channels 8 16 Cross-channel potentiation 2 3 Data integration 4 9 Dimension/ category/ subcategory Sources References BRAND ROLE 9 26 Gives consistency 7 10 Nevertheless the brand needs to prove their valences 2 5 Strength and recognition 5 11 Dimension/ category/ subcategory Sources References BUDGET ALLOCATION 8 12