The multichannel revolution: how retailers are leveraging service-oriented architecture (SOA) to transform their businesses.

A new breed of e-commerce platform has emerged with service-oriented architecture (SOA). SOA not only provides a robust foundation for the Web channel, but can facilitate cross-channel customer interactions and bring the power of the Web to other sales channels. Multichannel integration has become the new retail imperative. Retailers can no longer make technology investments solely focused on improving business in a single channel. To stay competitive, retailers must now invest in creating synergy across all channels. What most retailers are missing is technology that can orchestrate the participation of disparate systems in these multichannel business processes. SOA is the next generation of e-commerce.

Today retailers are challenged to become more customer-centric while continuing to manage increasing labor and value-chain costs. Legacy information infrastructure does not have the ability to provide the information retailers need to respond to these challenges. To address these issues, businesses must begin to manage information as a strategic asset, freeing it from its repository, process and application silos and actively delivering it in-line and in-context across the extended enterprise. This is the essence of an SOA.

With online sales continuing to grow at double-digit rates, and with the Internet influencing at least 20 percent of sales in other channels ("The State of Retailing Online," Shop.Org and Forrester Research, May 2005), companies big and small now recognize e-commerce as a strategic priority. Savvy retailers realize that e-commerce is more than an online shopping cart; it's an integral part of their overall business strategy. It's no longer just about doing new business in a single channel; it's about doing business better--in all channels. Unfortunately, many retailers are left with aging e-commerce technologies they put in place during the dot.com boom, preventing them from realizing the far-reaching potential of e-commerce. Applications aimed at operating a single, isolated channel are preventing retailers from addressing the significant challenges and opportunities that doing business in multiple channels present. Some of the trends motivating retailers to revamp their e-commerce strategies and technologies include:

E-commerce is mainstream. Adoption of broadband connectivity by consumers has made the Web a pervasive influence in most people's lives. The majority of U.S. households now shop online. About 75 percent of the 175 million U.S. Internet users are online shoppers, and 61 percent have actually purchased online ("Online Consumer Selling: A Multi-Channel Perspective," eMarketer, February 2005). But despite the popularity of online shopping, Web sales still account for only about 7.7 percent of total retail sales. So why is the online channel so important? Because of the significant and growing influence it is having on sales in other channels. One study found that for every dollar spent with a retailer online, consumers were influenced to spend an additional six dollars with that same retailer offline. In fact, retailers report that one in five offline sales are influenced by the Web ("The State of Retailing Online," Shop.Org and Forrester Research, May 2005). Retailers whose bricks and clicks are not completely integrated will struggle to gain their share of this offline revenue.

Consumers are king. Consumers have grown accustomed to the always-on nature of the Web and have already experienced what technology-savvy retailers can do for them. They now demand to do business on their terms--whenever, wherever and however they want. Their loyalty is hard won and harder kept. It is no longer sufficient to offer them an online catalog for placing orders; retailers must now provide a convenient, enjoyable and informative experience at every touch point. As more consumers gain experience online, they are demanding that their in-store experience give them the same benefits they enjoy on the Web--more information, more fulfillment options and more control, which are the kind of opportunities that kiosks, self-checkout and connected sales associates can provide. In addition, whether customers are shopping online, from a catalog via phone, or in a store, they expect consistent, first-rate customer service before, during and after the sale. If any of these areas fall short (for example, a call center rep does not recognize a Web customer), the retailer risks losing both the sale and the customer to a competitor.

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The single channel retailer is no more. Today, only about 13 percent of retailers operate in only one channel--for good reason. A Forrester study found that 65 percent of shoppers researched online before making an offline purchase ("Getting Multichannel Retailing Right," Forrester, December 2004). Another study by the Usability Sciences Corporation puts that number at 86 percent. Cross-channel shoppers (customers who use more than one channel such as store, Web and catalog) have been found to be the most valuable customers. They are younger, wealthier, extremely qualified buyers who enter stores informed and ready to purchase. Once there, they spend an average of $154 on additional items ("The US Consumer 2004: Multichannel And In-Store Technology," Forrester, September 20, 2004). Outdoor equipment seller REI found that people who buy from two channels, such as in-store and online, outspend single channel shoppers by 114 percent, and three-channel shoppers outspend these single-channel consumers by 167 percent. Additionally, an alarming 50 percent of cross-channel customers switch brands when they cross channels--for example, researching from one retailer online and buying from another in-store ("Multichannel Retailing Best Practices," Forrester, September 15, 2004). Channel silos lead to fragmented customer data and experiences that increase the likelihood this cross-channel defection will take place.

How Are Retailers Investing To Meet Multichannel Demands And Opportunities?

Multichannel retailers are exploring best practices in the following areas:

Putting consumers in the driver's seat. Best practice retailers let customers shop when, where and how they want. Shoppers can place an order online, change the order through a call center agent and check the status of the order during a visit to the retail store. Customers can pick up online orders at the retail store, where they may purchase additional items. Customers can return products to the retail store, even if they ordered the products online or through the call center. Best practice multichannel retailers use centralized product information management technology to ensure consistent brand, product, price and promotional information across channels.

Building on the strengths of each channel. Best practice retailers take advantage of what each channel does best to improve results in the others. For example, retailers are equipping their store personnel with Web-enabled devices to better serve in-store shoppers. Many retailers provide guided selling tools or even live assistance to consumers on their Web sites. Others provide Web-based interfaces for their call center representatives. Additionally, to take advantage of the insights into customer behavior the Internet can provide, retailers are using Web analytics to tune marketing and merchandizing activity across all channels.

Keeping their best customers--and winning more of their business. Best practice retailers focus on engaging and staying engaged with the biggest spenders: multichannel shoppers. Companies are finding innovative ways to improve the customer experience and to motivate shoppers to visit other channels after a transaction is complete as a way of capturing additional sales from these shoppers. These retailers offer cross-channel loyalty programs that allow shoppers to earn points in one channel and redeem them in the others. Personalized offers and Web pages, e-mail campaigns, cross-channel coupons and promotions can keep dialog flowing with valuable customers. All of this requires a unified view of customer data as well as a way to sustain a consistent, ongoing dialog with the customer across channels.

Streamlining operations. Best practice retailers are breaking down the walls that exist between channels, integrating processes and systems to achieve a seamless cross-channel customer experience and reduce operational costs. They are establishing a single view of the customer regardless of the channels they use. They are also establishing a single, synchronized view of product information across POS, Web, kiosk, catalog, etc. These retailers seamlessly integrate cross-channel order management and fulfillment processes, and they enable inventory for any channel to be viewed from any other touch point in near real time.

To implement these best practices and begin reaping the significant rewards of true multichannel retailing, companies must make wise technology investments. Many retailers are finding themselves hampered by fragmented customer data, inflexible IT systems and applications that are operating in isolation. But ripping out and replacing the entire infrastructure to create an integrated multichannel environment is just not feasible. Retailers need to leverage the store and back-end infrastructure they have in place, enhancing it with Web-enabled technologies and defining multichannel business processes that map out key integration points.

A next-generation e-commerce platform with an SOA can help synchronize the processes and data that are required to support seamless, cross-channel operations. The right e-commerce platform can help transform a business with multiple channels into a truly integrated, multichannel business. Next-generation e-commerce is not just about a better Web site, it's about better retail.

Sandy Carter is VP WebSphere Marketing, Strategy and Channels at IBM (www.ibm.com).

By Sandy Carter

IBM