MULTICHANNEL RETAILING: A CASE STUDY OF EARLY EXPERIENCES

RUBY ROY DHOLAKIA, MIAO ZHAO, AND NIKHILESH DHOLAKIA

RUBY ROY DHOLAKIA is a

Professor of Marketing and Electronic Commerce and Director, Research Institute for Telecommunications and Information Marketing, University of Rhode Island, Kingston, RI; e-mail: ruby@uri.edu

s retailers offer multiple channels in response to competitive pressures, switching costs incurred by both retailers and consumers will shape the evolution of retailing channels. In this paper we examine propositions regarding channel loyalty, channel switching, order size, and merchandise returns based on purchase data from a specific catalog retailer that has expanded its channels to include Internet shopping. The data for this retailer shows that all four groups of customersthose who entered the database as catalog buyers, as store buyers, as Internet buyers, and as non-buyersused multiple channels. Switching solely to this established catalog retailers new Internet channel appears to be more difficult for consumers than relying on two or more channels. The use of multiple channels is greatest among those who entered as Internet customers, reflecting their lower risk-aversion and lower learning costs. Since the database contained only transactional information, we can make limited inferences about customers underlying characteristics and motivations that influence their purchase behaviors. We draw casespecific inferences and eschew generalization. Other retailers experiences will be affected by their own past strategies and costs and not just by the general characteristics of the channels.

MIAO ZHAO is an Assistant

Professor of Marketing, Roger Williams University, Bristol, RI; e-mail: mzhao@rwu.edu

NIKHILESH DHOLAKIA is a
Professor of Marketing, Electronic Commerce and Information Systems, University of Rhode Island, Kingston, RI; e-mail: nik@uri.edu

The authors are very grateful to the catalog retailer, who wishes to remain anonymous, for the use of its data and for access to its managers. We are also very grateful for the financial assistance provided by the Research

2005 Wiley Periodicals, Inc. and Direct Marketing Educational Foundation, Inc. JOURNAL OF INTERACTIVE MARKETING VOLUME 19 / NUMBER 2 / SPRING 2005 Published online in Wiley InterScience (www.interscience.wiley.com). DOI: 10.1002/dir.20035

Institute for Telecommunications and Information Marketing (RITIM) at the College of Business Administration, The University of Rhode Island.

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INTRODUCTION
Innovative nonstore formats increasingly compete with brick-and-mortar retailing (Alba et al., 1997; Jarvenpaa & Todd, 1997; May & Greyser, 1989). The momentum towards multichannel retailing increased as the Internet has further reduced barriers to entry in retailing. While most pure-play Internet retailers, including Amazon.com, have yet to meet the conventional profit expectations of the retail world, intense multichannel competition has destroyed the complacency of brick-and-mortar retailers and Web-based retailers. Conventional brick-and-mortar retailers, such as Barnes & Noble and Wal-Mart, and catalog and TV retailers, such as L.L. Bean and HSN, have had to respond to the opportunities and threats Internet retailing poses. Conversely, Internet retailers must consider the advantages of catalog and physical stores as ways of increasing their market appeal (Business: The Real Internet Revolution, 1999). Multichannel retailing is being touted as the effective competitive response strategy for several reasons: Multichannel retailers stand to capture the most value from the Internet because of the advantages of having an existing brand, marketing leverage, merchandising skills, multiple points of customer contact and distribution expertise (Storch as quoted in Hutchison, 2001, p. 6). Similar sentiments are expressed at JCPenney.com, a Web site established by J.C. Penney to capitalize on the tremendous amount of trust associated with it from being around in the marketplace (Landau, 2001, p. 12). Trends in consumer behavior suggest that crossshoppers (shoppers who use multiple channels of a particular retailer, such as Sears) make up a significant segment of the total customer base and spend more than single-channel buyers (Case Study: Sears Canada, 2002; Pastore, 2001a). Internet retailers can adjust prices and other variables more rapidly in response to changes in supply and demand, increasing their market efficiency (Bailey, 1998; Brynjolfsson & Smith, 2000). Established retailers can use this flexibility of the Internet to enhance their agility and nimbleness. Multichannel retailing fosters long-term loyalty by providing customers with shopping options for their convenience, and ultimately leads to longterm business success.

As Thomas (2001, p. 106) summarized succinctly, The customer is recognized and rewarded regardless of the shopping channel in which he or she chooses to engage. In this article we describe a catalog-intensive retailers move into multichannel retailing. First, we selectively review the literature on Internet shopping and discuss such factors as switching costs and risk aversion as they affect consumers adoption of multichannel shopping. Next, we describe our empirical case study: We examined customer behavior of a catalogintensive specialty retailer that added an Internet channel to broaden its array of retail channels. Finally, we discuss the implications of our findings and future directions for research.

CONCEPTUAL BACKGROUND
As the Internet enters the mix of available retail channels, a number of factors affect consumers choice of channels. Among these are perceived utility (Lee & Tan, 2003), channel-switching costs (Klemperer, 1987, 1995), risk aversion (Forsythe & Shi, 2003, Lee & Tan, 2003), technology anxiety or aversion (Meuter, Ostrom, Bitner, & Roundtree, 2003), and the opportunity for (or lack of) tactile-sensory inputs (Citrin, Stem, Spangenberg, & Clark, 2003). In this case study, based on analyzing the existing customer database of a multichannel retailer, we could not delve into most of the possible psychological and cultural motivations for channel choice or rejection. The data does, however, offer a rich view of channel switching or loyalty and of willingness to try multiple channels. We therefore focused on two psychoeconomic factors that affect customer channel-choice behaviors about which we could make inferences from the data: switching costs and risk aversion. We derived empirical propositions from these concepts.

Switching Costs
Retailers must make substantial efforts to implement multichannel strategies. Consumers expect their shopping experiences to be consistent across all channels, and delivering such consistency is not easy. To implement hassle-free multichannel retailing that includes returning online purchases to physical stores, participating in the same loyalty programs across all channels and ordering online for store pick-up and payment requires vision, organizational

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resources, and investment in appropriate technologies (The Standard, 2000). Such cross-channel integration is not easy to implement and requires time and organizational learning. Given the high cost of adding and integrating channels, retail managers are interested in assessing consumer responses to various channels. Klemperer (1987, 1995) used the concept of switching costs to examine market competitiveness. He focused on the consumers costs, including learning costs, transaction costs, and artificial or contractual costs. Bell, Ho, and Tang (1998), for instance, recognized because they accumulate store-specific knowledge, shoppers are willing to pay higher prices to shop in stores they know well. Store loyalty programs that encourage repeat visits become barriers to switching. Rhee and Bell (2002) found that, because of these switching costs, consumers lack mobility; almost three quarters of the supermarket customers are unlikely to change their main supermarket (p. 226). In the point-and-click e-shopping world, such switching costs are clearly much lower. Free from the constraints of time and place, Internet shoppers can navigate unrestricted across multiple retail sites with only a few clicks (Chiang, 2002). While switching costs inhibit switching between channels, not all consumers face identical costs. Rhee and Bell (2002, p. 233) found that consumers mobility decreased with average expenditure per trip and increased with the average shopping frequency. Similarly, early evidence suggests that catalog retailers have been able to integrate multiple channels more easily than other retailers (Mason, 2001, p. 18). Top catalog companies appear to be generating more online transactions per day than even the top online pure-play companies (Vargas, 2002).

merchandise and face-to-face interaction with store personnel (Citrin et al., 2003). By contrast, Internet shopping entails many types of perceived economic and social risks (Citrin et al., 2003, Forsythe & Shi, 2003). Furthermore, the socially visible nature of physical shopping implies that customers are likely to perceive brick-and-mortar stores as more fun, accentuated by hedonic dimensions of the retail environment that create retail interactive theaters (Mahler, 2000). Reinforcing the shopping fun are the high service levels available in some physical retail settings, and personal services could mitigate perceived risks (Citrin et al., 2003, Lee & Tan, 2003). Consumers looking for control and convenience, on the other hand, are likely to prefer catalogs and the Internet (Speigelman, 2000).

Research Propositions About Behaviors in Multichannel Retailing

Based on what we know currently about the distinctive features of the Internet as a shopping channel, about switching costs, and about consumers perceived risks, we developed our research propositions about behaviors in multichannel retailing based on the following expectations: Greater substitution within nonstore retailing formats than between store and nonstore retailing Differences in the number of items purchased and in the dollar value of transactions across retailing format Differences in the number of items returned across retailing formats Channel Choice Behaviors. Because of customer inertia, prior familiarity, risk aversion, and established brand equity, we propose that P1: A retailers customers will concentrate their purchases in the retailers primary and established channel. According to DoubleClick (CyberAtlas, 2002), retail stores captured the majority of the multichannel shopper dollars (64%), followed by the Internet retailers (26%), with catalog retailers accounting for only 10%. Although consumers seem to favor brick-andmortar stores, the data reveals the primacy of the original channel. For traditional brick-and-mortar stores, such as Wal-Mart, adding Internet retailing is

Risk Characteristics of Various Channels

Retail structures influence the quality, price, and selection of products available to consumers (Miller, Reardon, & McCorkle, 1999). Several characteristics differentiate store retailing from nonstore retailing. From the consumers point of view, despite the disadvantages of a fixed location and limited shopping hours, store shopping allows customers close inspection of

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likely to generate more sales but not replace store sales. For catalog stores, Internet retailing is also likely to increase total sales but not replace catalog sales. The impact of additional channels, therefore, depends on the primary strength of the established retailer. When customers buy repeatedly from a multichannel retailer, they can choose to stay with the channel used for the original purchase or switch to a different channel. Because of switching costs, risk aversion, and learning, we expect repeat purchases within a specific channel to be higher than repeat purchases via a different channel, leading to our second proposition: P2: In repeat purchases, customers will exhibit channel loyalty. Thus a retailers customers are more likely to stay with their original channel choice than to switch to another channel offered by the same retailer. As retailers add new channels, their customers are more likely to include the additional channels in a supplementary fashion rather than to totally switch away from the original channel. This leads to our third proposition: P3: Customers of a multichannel retailer, that is expanding the channel choices it offers, are more likely to add supplementary channels to their purchasing patterns than to substitute a newly available channel for the original channel. If they switch channels, their customers are more likely to switch between similar channels (catalogs and the Internet, both of which entail remote transactions) than between dissimilar channels (stores and the Internet, for example). This leads to our fourth proposition: P4: In multichannel retail settings, customers are more likely to switch between similar channels than between dissimilar channels. Transaction Size. We know very little about the effect of multichannel retailing on the number of items ordered per transaction. We have, however, several reasons to expect differences in the number of items ordered per channel. The ease of clicking behaviors (lower transaction costs) should stimulate and

facilitate consumers searching for items on the Internet. We expect, therefore, they will order more items over the Internet than over other channels. While catalogs and stores also expose shoppers to multiple items, this exposure does not as easily lead them to increase their purchases for several reasons. They must lug their store purchases around and get them home. While for catalog purchases, they must fill out forms or call customer service to place their orders (higher transaction costs). Thus, our proposition regarding number of items ordered per visit is P5: In multichannel retail settings, customers are likely to buy more items per visit via the Internet than via other channels. Dollar Value of Order. Channel characteristics are also likely to influence the dollar value of transactions. The Internet is more transaction oriented than physical brick-and-mortar stores, which attract recreational shoppers. Further, customers face greater risks in purchasing big-ticket items in nonstore channels than at brick-and-mortar stores where they can physically inspect the items. Therefore shoppers are expected to spend more per order at physical stores than at any other channels. This leads to the sixth proposition: P6: In multichannel retail settings, customers are likely to spend more per visit to a physical store than in any other channel. Merchandise Returns. One of the challenges of retailing in general and of multichannel retailing in particular is that of merchandise returns. Distinct costs are associated with managing merchandise returns and they affect customers satisfaction and retailers bottom lines. While going to a store takes effort, customers can better assess products by directly examining them. They cannot do so with nonstore channels, such as catalog and Internet. Therefore, customers are likely to return fewer physical store purchases. Thus, we can expect percentage of returned items to be lowest for the store channel. On the other hand, the consumers willing to patronize the newer marketing outlets, such as the Internet, are more likely to be both risk-prone and better able to handle risks (Forsythe & Shi, 2003; Lee & Tan, 2003). Thus, merchandise returnsat least in comparison to the catalog channelmay be lower for Internet sales:

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P7: In multichannel retail settings, merchandise returns are likely to be lower for the physical store than for other channels. Furthermore, merchandise returns for the Internet channel are likely to be lower than for the catalog channel.

AN EMPIRICAL INVESTIGATION OF MULTICHANNEL RETAILING

To determine the pattern of customer behavior in a multichannel setting, we analyzed the purchase data from a well-established specialty brick-and-mortar and catalog retailerone of the largest of its kind in the United Statesthat was one of the first to add Internet retailing. We designed analysis of data to shed some light on customers use of multiple channels.

and recent customers (Table 1), customers who had made at least one purchase during the 24-month focus period we studied (August 26, 1999 to August 26, 2001), and also had made their original purchases after the firm introduced its Internet site (after October 1, 1996). This reduced the data size to about 530,000 customers (Table 1). Because of the idiosyncratic characteristics of the available database and our decision to use subsets of the vast database, we defined purchase behaviors to correspond to the data (Table 1). The database contained customers purchase histories including the channel used for purchases, items purchased and returned, order sizes in terms of both dollar value and number of items. The database contained very limited personal information, including only location (address), distance from the nearest store, and gender. We did not include these details in our analysis. The channel categorycatalog, store, Internet or multiple channelswas defined by the retailer and was the primary data we used to classify customers original (entry) purchases and repeat purchases. The primary question we addressed in our research was What is the customer response to the increase in shopping formats? Specifically, we were interested in the following: Does the channel the customers use for their original purchases influence repeat purchases? Is the number of items ordered related to the channel used for the purchase? Is the dollar value of an order related to the channel used for the purchase? Are merchandise returnsitems returned and dollar valuerelated to the channel used for the purchase?

Company Background
In 1996, this major catalog retailer, with early and continuing roots in brick-and-mortar retailing, introduced Internet shopping, expanding its channels from two to three. During the early months, it made few efforts to promote its new Internet shopping channel. While the Web site offered merchandise available from its catalog and store operations, the firm made no concerted effort to integrate the channels. Over time, it improved the Web site to provide its customers with faster and easier shopping experiences. To take advantage of the low cost and ease of changing menus on the Internet, the retailer updated its clearance merchandise much more frequently and comprehensively on the Internet than on the other channels. As of January 2002, customers could return merchandise only through the channel they used to make the purchase. By contrast, during the 2001 holiday season, 61% of multichannel retailers allowed their customers to return online orders to physical stores, and 17% allowed in-store pick-up of online orders (Pastore, 2001b). Although a chronological pioneer in launching a retail Web site, this retailer was lagging in integrating its multiple channels.

Operationalization of Variables
Since our case study was based on an existing database of a multichannel retailer, we are constrained in our use of the variables in the propositions by the availability and content of the fields in the database (Table 2). In testing our seven propositions, we created two or more subpropositions at the operational level of data analysis.

Data Source and Description

We analyzed customer purchase history. Customers entered the database as direct buyers or as nonbuyers (for example, gift recipients or as inquirers requesting catalogs). The database contained information on over 5 million customers. We focused on the active

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TABLE 1
RESEARCH TERM OR VARIABLE Original Purchase Most Recent Purchase Focus-Period Purchase

Operational Definitions of Key Variables

OPERATIONAL DEFINITION (BASED ON DATABASE CHARACTERISTICS) First purchase from this retailer, made after Oct. 1, 1996 Last purchase from this retailer Any purchase during the 24-month focus period (08-261999 to 08-26-2001) Customers who had At least two purchases on record Had made their original purchases after introduction of the Internet site (10-01-1996), Made at least one purchase during the 24-month focus period (08-26-1999 to 08-26-2001). Examples of excluded and included (Active and Recent) customers: ID C010093032 made his first as well as most recent purchase on 09-27-1999. Excludedonly one purchase on record. ID C002050704 made her original purchase on 10-23-1990. Excludedoriginal purchase prior to 10-01-1996. ID C009191425 made her original purchase on 05-03-1998; most recent purchase on 08-08-1999. Excludedno purchase during the past 24 months. ID C010157113 made his original purchase on 11-09-1999; most recent purchase on 12-14-2000. Five orders over this period. Includedmeets all conditions. EXAMPLES OR COMMENTS

Active and Recent Customers [About 530,000 Database Records]

Primary Channel Supplementary Channels Multichannel Customer

Catalog Internet, physical stores Customer Whose original purchase was from channel X Who within the 24-month focus period has purchases from channels X and non-X

Over 70% of purchases are from the catalog

ID C010157113 is not a multichannel customer; used only catalog. ID C010293713 originally purchased from catalog and, in the 24-month focus period, purchased from the catalog and the Internet. He is a multichannel customer.

Similar Channels Dissimilar Channels

Catalog and Internet: Similar remote and nonstore characteristics Catalog and Internet vs. physical stores

This retailers physical stores are upscale in atmospherics and have high service levels.

Findings
Primary Channel. Given this retailers primary background as a catalog marketer with an established history of acquiring and retaining customers via this channel, we expect that, even with its addition of multiple channels, its customers are more likely to stay with their original channels (P1). Customers not only used catalogs as the primary channel for their original purchases, they continued to use the catalog substantially for their more recent, focus-period purchases (Table 3).

The legacy of marketing investment and past customer experiences is also evident in the pattern of purchases by customers who entered the database originally as nonbuyers and went on to purchase from the retailer. For these original nonbuyers, catalogs remain the primary channel; almost 75% bought only from the catalog (Table 4). This is consistent with data from DoubleClick (Cyberatlas, 2002). Channel Loyalty. While marketer efforts and history create a disposition among customers to select a particular channel, customer characteristics also influence

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TABLE 2
PROPOSITIONS P1

Summary of Propositions

OPERATIONALIZATION (BASED ON DATABASE CHARACTERISTICS) Likelihood of original purchase from catalog catalog channels. Likelihood of focus-period purchase from catalog from non catalog channels. likelihood of focus-period purchase likelihood of likelihood of original purchase from non

Customers will concentrate their purchases in the retailers primary and established channel.

P2 P3

In repeat purchases, customers will exhibit channel loyalty. Customers of a multichannel (MC) retailer are more likely to add channels than to substitute a newly available channel for the original channel. In multichannel retail settings, customers are more likely to switch between similar than between dissimilar channels. In multichannel retail settings, customers are likely to buy more items per visit via the Internet than via other channels.

Likelihood of focus-period purchase given original purchase from catalog

focus-period purchase from noncatalog given original purchase from catalog. Likelihood of focus-period purchase using multiple channels given original purchase from catalog likelihood of focus-period purchase from Internet or store, given original purchase from catalog. Likelihood of focus-period purchase from Internet (catalog) given original purchase from catalog (Internet) likelihood of focus-period purchase from store given original purchase from catalog (Internet). Number of items in original purchase from Internet from catalog or store. number of items in original purchase number of items in

P4

P5

Similarly number of items in focus-period purchase from Internet original purchase from catalog or store. $ value of items in original purchase from store from catalog or Internet.

P6

In multichannel retail settings, customers are likely to spend more per visit in a physical store than in any other channel.

$ value of items in original purchase $ value of items in orig-

Similarly for $ value of items in focus-period purchase from store inal purchase from catalog or Internet.

P7

In multichannel retail settings, returns are likely to be lower for the physical store than for other channels. Also, merchandise returns for the Internet channel are likely to be lower than for the catalog channel

Percentage of items returned from original purchase from store percentage of items returned from original purchase from Internet percentage of items returned from original purchase from catalog. Similarly for percentage of items returned in focus-period purchases.

TABLE 3

Channel Share in Original and FocusPeriod Purchases

CHANNEL USED Catalog Only Internet Only Store Only Multiple Channels

ORIGINAL PURCHASE 76.23% 6.46% 17.31% NA

PURCHASES DURING 24MONTH FOCUS PERIOD 68.80% 5.62% 13.29% 12.29%

CHANGES 7.43% 0.84% 4.02% NA

their channel choices. Once a customer selects a specific channel (the original channel of entry into the database), he or she is likely to use the same channel for repeat purchases (P2). Channel loyalty rules: Switching behaviors represent minor fractions of transactions (Table 4). Specifically, we find 87.1% of catalog buyers, 50.4% of Internet buyers, and 80.2% of store buyers used the same channel for their repeat purchases as their original channel of entry. This echoes Rhee and Bells (2002) findings of limited interstore mobility. Multichannel Use. While loyalty rules, we cannot conclude that customers do not experiment in multichannel environments. Multiple channels obviously offer customers added convenience; multichannel use is much more likely than outright channel switching

Note. This data reflects customers who had: (a) at least two purchases on record, (b) had made their original purchase after introduction of the Internet site (10-01-1996), and (c) made at least one purchase during the 24-month focus period (08-26-1999 to 08-26-2001).

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TABLE 4

Loyalty Within Channels and Switching Between Channels

Customers Channel of Entry Into Database Channel Used in 24Month Focus Period Catalog Buyers (Original purchase from) Internet Store Nonbuyers (e.g., inquiries) Total

Catalog Only Customer % of Entry

75.2%

87.1%

4.0%

5.8%

363,046 (68.8%)

Internet-Only Customer % of Entry

2.9%

5.5%

50.4%

0.9%

29,654 (5.6%)

Store Only Customer % of Entry

1.1%

0.1%

80.2%

4.9%

70,118 (13.3%)

Multichannel Customer % of Entry

z
8.8% 45.5% 13.1% 14.4%

64,862 (12.3%)
527,680 (100%)

Total

342,108 (64.8%)

29,016 (5.5%)

77,680 (14.7%)

78,876 (14.9%)

Note.
% Channel-loyal customers % Channel-switching customers % Multichannel customers

(P3) (Table 4). For instance, 8.8% of catalog buyers used multiple channels in their focus-period purchases while only 4.0% who completely switched to a different channel (2.9% to Internet plus 1.1% to store). We observed a similar pattern among retail store buyers: 13.1% became multi-channel users. Even among nonbuyers, 14.4% of those who did purchase used multiple channels. Consistent with the view that Internet buyers are risk takers (Forsythe & Shi, 2003), they are

most likely to use multiple channels. Of the Internet buyers, 45.5% became multichannel users compared to 4.1% who switched to catalog or to stores. Channel-Switching Behaviors. Consumers are influenced in their choice of channels by channel similarities and differences. We expect channel switching to be greater between similar channels than between dissimilar channels (P4). Of catalog buyers, 2.9% switched

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to Internet (a similar channel) while 1.1% who switched to stores (a dissimilar channel). Similarly, 4.0% of Internet buyers switched to catalogs and only 0.1% switched to stores. Of store buyers, 5.8% switched to catalogs while only 0.9% switched to the Internet, indicating that the two well-established channels of this retailer are more similar, than either is to the recently added Internet channel. Statistical contrasts of probabilities support Propositions 1 through 4 regarding purchase concentration within the primary channel, loyalty to the channel used for the original purchase, supplementing rather than supplanting channels, and switching between similar channels (Table 5). Order Size and Order Value. We tested our expectations about the size and value of a customers

order, expected to be influenced by channel characteristics via a one-way analysis of variance with the original purchase channel and focus-period purchase channel as independent variables. The results indicate that the overall relationship for number of items ordered is statistically significant for the original purchase channel (F(2,9341) 3.9, p .02) as well as the focus-period purchase channel (F(3,10770) 4.54, p .00). While the number of items ordered does not vary a great deal across channels, a contrast of mean scores indicates that it is significantly different for the retail store-only (1.53) and the Internet-only (1.58) channel comparison for the original purchases, as proposed, but not for the Internet-onlycatalog only comparison. For focus-period purchases, however, the difference is significant for the Internet only (1.59) catalog only (1.52) channel comparison but not for the Internet onlystore only channel comparison.

TABLE 5
PROPOSITION P1 P2 P3

Findings Related to Loyalty and Switching Propositions

RESULTS Purchases from catalog exceeded purchases from noncatalog channels. Customers used same channel for repeat purchases. Customers added new (Internet) channel rather than replace existing (catalog or store) channels. Customers switched more between similar channels (e.g., catalog and Internet) than across dissimilar channels (e.g., store and Internet). Original purchase: Number of items from Internet exceeded number of items from store but not catalog. Focus-period purchase: Number of items from Internet exceeded number of items from catalog but not from store. Original purchase: Dollar value for store exceeded dollar value for Internet but not for catalog. Also, catalog exceeded Internet. Focus-period purchase: Dollar value for store did not exceed dollar value for catalog or Internet. Original purchase: Returns for store lower than for Internet or for catalog. Returns for Internet not lower than for catalog. Focus-period purchase: Returns for store lower than for Internet or for catalog. Returns for Internet lower than for catalog.

SUPPORT Proposition supported Proposition supported Proposition supported

Customers will concentrate their purchases in the primary and established channel of this retailer. In repeat purchases, customers will exhibit channel loyalty. Customers of a multichannel retailer are more likely to add channels than to substitute a newly available channel for the original. In multichannel retail settings, customers are more likely to switch between similar channels than between dissimilar channels. In multichannel retail settings, customers will buy more items per visit via the Internet than via other channels.

P4

Proposition supported

P5

Proposition partially supported

P6

In multichannel retail settings, customers will spend more dollars per visit in a physical store than in any other channel.

Proposition mostly not supported

P7

In multichannel retail settings, returns will be lower for the physical store than for other channels. Also, merchandise returns for the Internet channel will be lower than for the catalog channel.

Proposition mostly supported

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In addition to number of items, we also expected differences in the dollar values of average orders. While the order values are significantly different for the various original-purchase channels used (F(2,9794) 3.96, p .02), we did not find the order value to be highest for store only purchases ($154.6), as proposed, although it is significantly greater than the order value for the Internet only purchases ($148.1). Instead, we found that the average order size (in dollars) was highest for catalog-only purchases ($164.00) from the original period. We believe the strong and established reputation of this retailer as a catalog merchandiser is at play here. The dollar value of an average order is not significantly different for focus-period purchases (F 1). Merchandise Returns. Because customers ability to inspect goods varies across channels, we expected channel differences in merchandise returns (P7) and the data supports our proposition. For both the original-purchase channel (F(2,9794) 270.8, p .00) and the focus-period purchase channel (F(3,11242) 78.99, p .00), merchandise return (as a percentage of items ordered) was the lowest among customers who purchased in the store (.004). When we compared paired means, only one pair of means was not significantly different out of six pairs: In contrast to our proposition, Internet-only buyers for the original purchase channel had higher merchandise returns (.15) than catalog-only buyers (.13) even though both channels do not allow physical inspection of goods prior to purchase and are affected by similar shipping charges. The poor quality of on-screen photos of merchandise compared to the attractively printed catalogs could be a possible explanation.

atmospherics that distinguish electronic retailers (Alba et al., 1997; Hoffman & Novak, 1996; Menon & Kahn, 2002). Retail knowledge gained in one setting is difficult to transfer to another. As new retail channels evolve, the results of this study may be viewed as part of an ongoing process of probing and revising retailers and customers behaviors. We found that those who became customers through the Internet purchased less frequently (mean 3.4) than those who became customers through the catalog (mean 7.1) and through physical stores (mean 8.2, F(2,9794) 23.7, p .000), indicating that the Internet is still a nascent channel, with consumers still learning about it. Our analysis of customer-purchase data from this catalog-intensive retailer provides several insights into customers behavior during their early experiences with multichannel retailing. From our analyses and discussions with company managers, we found the following: 1. Despite the learning costs, expanding channel choice offers merchants several benefits. In their repeat purchases, customers incorporate multiple channels and the multichannel segment of users is substantial. Merchants do not lose their investments in older channels when they add new channels. Customers history and trust from past experiences continue to influence their choices. Internet customers are likely to incorporate multiple channels in their repeat purchases. Learning costs and risk aversion are likely to be lower among this group. 2. Customer characteristics play a strong role in their use of specific channels. While both the Internet and catalogs do not allow physical inspection of goods prior to purchase, we found that the percentage of items returned was higher for catalog-only buyers than for Internet-only buyers within the focus period. We assume that the Internet as the newest channel attracts innovative customers who are more risk-tolerant or more confident about their own ability to purchase products without prior inspection or both.

DISCUSSION AND MANAGERIAL INSIGHTS

Electronic retailing requires retail managers and employees to learn new behaviors. Traditional retailing, particularly brick-and-mortar retailing, exploits geographical and market characteristics. A single firms retail stores therefore differ in their products, prices, and information differences as well as being different from competing firms stores (Tang & Xing, 2001; Zettelmeyer, 2000). Atmospherics that distinguish physical stores or catalogs are not the same as

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3. Marketing efforts can be used to influence customer behavior in a multichannel setting. This retailer promotes its catalog channel more aggressively than its other two channels. This emphasis is reflected in their customers channel-switching behaviorsmore Internetonly customers switched to catalogs than to retail stores. Similarly, more store-only customers switched to catalogs than to the Internet. Finally, most nonbuyers (inquirers or gift recipients) used the catalog for their purchases. 4. Channel characteristics ultimately affect the relative values of different customer groups. Repeat purchase data indicates that although store-only buyers are a small segment for this retailer, merchandise returns are lowest among this group. The Internet is clearly cost effective. This retailer continues to update the clearance section of its Internet site more frequently than any other section. This probably contributes to the lower average order size (in dollars) and higher average order size (in number of items) for the Internetonly customers, further accentuating the channel characteristics.

mangers that the firm used the Internet site to clear inventory unsold from catalog and store operations. Because it was easy to change merchandise assortments and prices on the Internet (lower costs), the firm promoted the clearance section and it attracted heavy traffic. We were not able to analyze, however, whether the items ordered on the Internet site were actually clearance items. We analyzed real customer data to test some propositions regarding the influence of channel characteristics on purchase behaviors. The data covered a long period of time so that we could analyze repeat purchases. The data, however, included only transactional information and few individual-buyer characteristics. In our analysis, therefore, we looked at the influence of prior behaviors (original channel) on subsequent behaviors (focusperiod channels). The data did not allow us to explore in depth the actual switching costs or to describe and explain the underlying risk-perception factors that led to channel choices.

CONCLUSIONS AND FUTURE DIRECTIONS

Our research provides a detailed look at customer purchases for a specific multichannel retailer. The data is specific to this retailer and therefore we cannot generalize our findings. The data does allow us to understand the interplay of channel and customer characteristics. We used these characteristics to predict certain kinds of purchase behaviorsorder size and merchandise returns, for exampleand we found substantial support for our propositions. Future research should continue to track changes in customer behavior in multichannel settings. As retailing continues to evolve, the components of switching costs incurred and the risks consumers perceive are likely to change. They will affect customers channel choices. As an example, Fredericks of Hollywood would like consumers to buy through the Internet rather than mail order, because this costs less to manage, in terms of labor and material costs, and profit margins could be even greater (Mahieu, 2002, p. 12). As the Internet and, in the near future, mobile communication media are added to the channel mix, the opportunities for strategic experimentation and for consumer studies will continue to grow.

Limitations
There are some inherent limitations in analyzing a database built for purposes other than buyer behavior research. In this case, we defined the multichannel customer as a customer who had used more than one channel to make purchases during the 24-month focus period. The emphasis was on purchases. The current design of the database does not allow us to track buyers who search for information on one channel, place an order on a second channel, pick it up at a third channel, and return the order via a different channel. This is not a strong limitation, however, since this retailer has not yet integrated the multiple channels. Other retailers with more strongly integrated channels may observe behavior patterns that our study could not capture. Some of our explanations for observed behaviors are grounded in surrounding qualitative knowledge rather than in the database analysis per se. For instance, we know from discussions with company

MULTICHANNEL RETAILING: A CASE STUDY

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