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May 17, 2004
Interview

Four Basic Tactics Behind Office Depot Online Success: $3.1 Billion Expected for 2004

SUMMARY: Unlike many traditional companies that chose to build online as a completely separate business, Office Depot chose the path of online/offline integration. Annual sales in the billions show the strategy worked.

In this rare behind-the-scenes interview, Office Depot's EVP Global E-Commerce Monica Luechtefeld describes the four tactics the company used to turn the idea of integration into reality. If you're struggling with online/offline politics or organizational issues in your company, definitely read on:
"We decided that we were not going to wait until the space matured or the dust settled. We decided we were going to be an early adopter, a thought leader, and a pioneer."

That's how Monica Luechtefeld, Office Depot's EVP Global E-Commerce, and her colleagues reacted back in the mid-90s, when they saw the potential benefits the Internet could bring Office Depot and its business customers.

The approach paid off; the company's global Web sales were $2.6 billion in 2003 and are likely to reach $3.1 billion in 2004. Here's what Luechtefeld told us about the strategies and organizational change required to get there...

#1. Get the psychology of integration right

Luechtefeld always saw the online component as an integral part of the wider business, and not as a separate entity competing for customers with the rest of the organization.

But how does a company internalize such a strategy? Luechtefeld says it's about approaching the development of ecommerce from the perspective of a customer.

She explains, "No matter what channel a customer shops, they think they're doing business with 'Office Depot'. The channel for them is the vehicle of access."

As such, it's "just" an additional choice in the palette of ways a customer chooses to engage the company. For example, "...a customer would think it was ridiculous that if they placed an order by phone and then went on the Internet to look at their purchase history, they wouldn't be able to see that order."

Luechtefeld summarizes, "We thought about it with our customer at the front of our mind. How could we make this a great tool for our customer? How would our customer use it? What were their expectations? These questions drove us to an integrated approach."

#2. Expand the meaning of integration

Luechtefeld suggests that success comes from pursuing ever greater levels of integration beyond the basics of, for example, cross-channel inventory and delivery integration. Two examples...

-- Example: Integrated marketing and customer communication

Luechtefeld notes that customers' expectations of their shopping experience with a multi-channel retailer have changed.

Today, their expectation is that contact points and communication channels are integrated, too. That's another reason for cross-channel integration of customer data - something Luechtefeld says many companies are still struggling to achieve.

Although Office Depot already works off an integrated database -- collecting data from retail, catalog and online sales -- the real challenge is to actually use that data constructively.

Luechtefeld adds, "That's the thing we're spending time on today. How do we take that data and turn it into knowledge that lets us communicate in a really valuable, rich way to our customers?"

-- Example: Using the Internet for organizational reform

For the last three years, Office Depot has pursued a strategy of "webifying the company." The aim is to take the experience gained with using the Internet as an ecommerce and marketing vehicle, and integrating it into internal processes to "take steps and labor out of the way we do things."

Luechtefeld cites successful applications in training and finance. "We have 32,000 employees that work in our stores and it's a challenge to make sure we stay in front of them with fresh training, particularly if you have to deliver it always in a physical way." The company now offers store employees over 150 online elearning courses.

With regard to finance, the company is "totally paperless" on the accounts payable side.

As well as ensuring the company has a real-time understanding of financial obligations, Luechtefeld notes that this really means "I never touch a piece of paper, and my employees who accept an invoice know if it's in my queue to sign, or whether it's been passed on to cut a check. In this way, they can give their vendor, who's calling, real-time status."

#3. Don't alienate real-world sales staff

When Office Depot first committed to an Internet strategy, there was inevitable skepticism from account management teams who perceived the medium as a risk and threat. Luechtefeld's team used various policies and strategies to ensure they won over the sales force...

-- Don't use the ecommerce channel as an excuse to cut sales staff

Luechtefeld explains, "The message was 'we need you to be in the field connecting with more customers'...we viewed this as taking away some routine tasks so they could do better and more creative tasks...we only used it as a tool to redeploy staff."

-- Provide training and resources

The company added an Internet module to the sales training curriculum. Sales staff, "had to be able to do presentations on the Internet and on our website. And they had to pass proficiency tests on it."

They also provided specialists who helped field sales staff by talking to interested customers about Internet strategies and IT integration issues, and who trained customers' employees to use the Internet as a tool to engage with Office Depot.

-- Position the Internet as a selling point to customers

By taking the cutting edge approach, Office Depot's Internet credibility actually helped sales. "In the early years we were a differentiator in the marketplace for them. So we won business for them."

-- Offer appropriate financial incentives

Internet sales placed by customers were still credited to the relevant account management team. Additionally, Luechtefeld tied a team's compensation bonus goals to growing the Internet business within their customer base. She notes, "If it's strategic, if it's important, then you should pay people."

And she says this issue is still a problem for many organizations today. Companies where the Internet channel is languishing at around 15% or 20% of their business are probably stuck because, "the account management team perceive it as one more thing they're supposed to do - they don't have their compensation in sync with the company strategy."

#4. Respect the multi-channel nature of shopping and communication

Even if account management teams are on board, what about the retail side - aren't they concerned that Internet sales keep away customers?

Luechtefeld says the wider picture is important. First, Internet sales are complementing retail sales as much as replacing them.
"Our experience is that when we add a channel to the relationship with our customer, our sales within that customer's account grow. We don't move a customer from one channel to another."

The fear of cannibalism comes from stereotypes of early Internet adopters - people who loved the Internet and the convenience of online shopping. "But," says Luechtefeld, "the Internet is mainstream today...today's Internet shopper is a multi-channel shopper."

Results show that, for example, "if we take a customer who's only bought through us with the catalog and they become an internet shopper, we grow our business 30%. When we add another channel, we grow our business again." Customers who shop through all three channels spend four to five times as much as single channel shoppers.

The challenge of course is to apply a holistic customer perspective and use that knowledge to best communicate with that customer using various marketing channels, thus driving increased total revenue across all sales channels.

Which for Luechtefeld means a twofold strategy.

First, use the integrated customer data you have, and "let our customers tell us how they'd like to be communicated with, and the frequency, and use the information about the customer to make our communication method even more relevant and more specific."
She cites an example - sending an email reminder and special offer on printer ink to a customer six weeks after they bought a new printer from the company.

Second, "...when you're doing your marketing and prospecting, it's using the synergy of a multi-channel approach where the same message is communicated across every one of the channels."

Office Depot customers are watching TV in the morning, listening to the car radio during their commute, using the Internet in the peak 11am to 3pm period, and then viewing a mix of Internet and TV at night.

So "...you really want to have an integrated strategy that allows you to be in front of customers 24/7. And it definitely needs to be a consistent message across broadcast, radio, Internet as well as direct mail."

Luechtefeld concludes, "Our strategy is to add the channel, celebrate the sale, and figure out...from this customer's point of view...their preferred channel and their primary method of communication with us. And then - how do we become top of mind when they drive by one of our stores or when they're in a catalog or online purchasing mode?"

Note: Office Depot is a member of Shop.org, a forum for retailing online executives to share information, lessons-learned, new perspectives, insights and intelligence. More info at http://www.shop.org
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