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Aug 18, 2004
Interview

A Behind the Scenes Look at Lillian Vernon's Multichannel Challenges

SUMMARY: Talk about multichannel marketing -- Lillian Vernon's customers placed more than 3.8 million orders in fiscal 2004 via the company's six catalogs, 13 retail outlets, and a growing ecommerce site. We asked President Jonathan Shapiro to reveal the challenges of operating as a direct response retailer in so many mediums:
"All of our customers are going to be adopters, they're going to get there eventually. Not all of them will prefer to transact on the Web, but it will be there available to them as an option."

Such a view of Web adoption takes on additional weight when it comes from Lillian Vernon's Jonathan Shapiro, given the company's typical customer is..."not the demographic that you'd think of as super hi-tech; it's not the early adopters of the Internet."

This vision of a ubiquitous Web is one of the key factors behind Lillian Vernon's commitment to the online channel. But as this medium develops, how does the company intend to tackle the multi-channel challenge? Here's what Shapiro told us...

#1. Focus on the multichannel experience as an organic whole

Shapiro does not view retail, catalog and online as independent channels, but as elements of a total customer experience. Each expand and reinforce this experience and, crucially, addresses different customer needs; thus generating more sales.

For example, Shapiro describes catalogs as a selling opportunity, "You're really responding to the arrival of that catalog, the selling aspect of it. But, if I have that buying impulse and, the catalog is not available then I have to turn to some other channel."

But what about channel shift?

Shapiro notes that a significant proportion of online buyers at Lillian Vernon are new to file, and yes, there is channel shift. But that's a non-issue when you're not thinking in terms of independent organizational units.

Channel shift is part and parcel of an improved customer experience, since the more transactional options you give the customer, the more likely you are to meet their personal preferences (i.e. more overall sales).

Which is not to say it's all benefit.

Shapiro says a Web site is "less expensive and infinitely more scalable than a call center, but it does come at a price; upsell and cross-sell are not done as easily on the web."

A pre-requisite for this total customer experience approach is, however, cross-channel brand consistency.

Shapiro says the critical point is to take your customer and value proposition and, "build out a cohesive multi-channel strategy so that if you're in the store, if you're on the website, if you get the catalog, you know that it's Lillian Vernon, you know what that represents. And you can have your pick of where you would like to make the transaction."

Once you accept this multi-channel, total experience premise, you stop worrying about channel cannibalization and see customers as individuals with transactional preferences that change over time.

"They may be thrilled to get a book in the mail...retail is an experience that I know many customers really like...but they also like the web experience. My goal is to make all of those experiences pleasant so that when they have a buying impulse or a need they come to us to fulfill it."

#2. Understanding media/channel interactions

While the holistic approach works at a macro strategic level, there are, of course, differences in the value of each customer to the company, dependent on the media vehicle and transactional channel combination generating that customer's first purchase.

Shapiro says, "The really great multi-channel retailers are going to be able to understand the lifetime value of their customers based on these entry points."

This understanding then translates into unique communication and investment decisions for each cell of the media vehicle / transactional channel matrix.

Shapiro uses an example to explain, "We believe that someone whose first transaction with us is online in response to a catalog will have a better lifetime value than someone whose first response to us is over the phone with a catalog."

"So the choices we make about how much to invest in the customer who made the transaction online versus the customer who called us on the phone are different. And we can optimize our contact strategy based on our expected value for each of those two different cells."

The first problem with this approach is its complexity.

When your only media vehicle is the catalog, with orders by phone, life is simple. But, says Shapiro, "As soon as I layer on a couple more transactive channels and more media vehicles, I now have a much more complex problem."

The second problem is the issue of measurement...

"You can only tell how effective a media vehicle is if you can measure response across all channels. Similarly, you can only figure out how effective your channel is if you can measure what media vehicles are truly driving transactions to it."

Shapiro notes that many retailers are failing to make even obvious changes that make analysis easier, for example by not having a different 800 number on the website, so you can track people who visit the site, but order by phone.

"It's a no-brainer. If you don't have some means to track that activity, the only media credit the Web gets is for transactions that happen online and that's an incomplete view of the business."

The third problem is the question of attribution...

"If you send someone a catalog, and then you send them 3 emails, and then they hear a radio ad, which one drove the purchase? I argue it's always a combination of all of those media touchpoints. How do you then determine which of those is effective?"

Despite these problems, Shapiro says, "The folks who can do this kind of analysis...in a multi-channel environment are going to be the winners."

Which means bringing together the organization, infrastructure, tools and skills needed, "to really do the customer specific analysis that allows you to optimize transactive channels and media vehicles."

#3. Think dynamically

Shapiro stresses that, "You need to operate your business with the notion that you're one big testing engine."

He recommends taking best practice as a starting point, but then..."Figure out which customer segments are your most promising and which are less promising, figure out what your optimal contact strategy is, and recognize that all of these things are interdependent and will shift over time."

This means treating a website, for example, as an ongoing work.

Shapiro says, "It's not about redesigning the site and leaving it there for a year or two. It's about putting a stake in the ground and continuously improving the experience for the user by testing what works and what doesn't work optimally for them."

As with customer analytics, this testing philosophy demands the right organization, infrastructure and abilities, and Shapiro notes, "There are the pieces out there, but pulling it all together has not been done by most yet."

Has it been done by Lillian Vernon?

"We're figuring it all out. Collectively we have a very good vision for where we want to end up with our testing engine and our ability to analyze all this. We would not hold ourselves up today as the epitome of multi-channel retailing, but that's the goal for us."

Note: Lillian Vernon 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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