Look Here Before You Leap: Multichannel Business Models

Only a few short years ago many direct marketers used recency, frequency, monetary and other models to decipher purchasing patterns and applied the findings across their entire database. But times have changed. Now there are more media options and the one-size-fits-most modeling method has become a multichannel challenge.

Along with these options, communication paths (the sequence of channel contacts that lead to a purchase), channel preferences, and drilling differently and frequently into the marketing database have become prominent factors for DMers seeking to get a handle on consumer behavior. The process begins with cross-channel data integration. After that it becomes critical to understand customers' channel preferences based on transaction data.

Kevin Hillstrom, database guru at consultancy MineThatData, identifies six distinct business models that DMers would do well to consider before jumping into the multichannel fray.

• Simple online presence

  Web-based businesses generate most of their sales from people who mail in their orders or call a sales rep in a contact center. Orders generally are stimulated by a print catalog which these folks receive in the mail. In this case the online channel is not a significant driver of sales — the customer doesn't use it. At least 80% of net sales happen via the mail or telephone. The average customer is at least 55 years old.

• Online order form

  Some businesses use cataloging as the primary marketing vehicle, but provide a robust online experience that allows customers to place orders on their Web sites. Such organizations struggle with the multichannel concept because much analytical work indicates that catalogs are responsible for the lion's share of online sales. Actually, such businesses aren't really multichannel; they're catalogers that take orders online. Still, it's not unusual for them to pull in half of all orders on the Internet.

• True catalog multichannel model

  Such operations typically make at least half of their annual net sales online. However, they tend to believe that the catalog is responsible for driving online sales. However, the online channel actually helped to develop a foothold. If catalogs weren't mailed to customers, online orders would come in anyway. These businesses have robust e-mail, paid and natural search, affiliate and Web marketing programs that bring about incremental sales.

• Retail business, catalog heritage

  Be it Coldwater Creek, Williams-Sonoma, Lands' End or Dell, firms like this practice true multichannel marketing, but with an unwavering eye toward return on investment. The catalog heritage drives measurement of advertising across channels.

• Online business, retail heritage

  Neiman Marcus, Saks or Macy's, for example. Online is strictly complementary to the store experience, as the brick-and-mortar presence is responsible for most sales and profits. The purpose of being multichannel is to do everything possible to please a store customer. This strategy leads to neglect of the direct channel. Traditional analytic types may not be pleased with the depth of insight required to run these firms because they're operated by brand instinct, not by analytical findings and ROI.

• Online only

  These businesses are fundamentally different than the others described here. They were born online and employ Web marketing strategies to draw customers in. Their marketing departments offer spectacular laboratories for learning what online marketing is all about. Footwear and clothing marketer Zappos is probably the best example of a firm in this category.

As you can see, segmentation combined with a plethora of media options has made it harder to choose a multichannel business model. At the same time, though, this situation can help DMers better understand the needs of their customers and prospects — and can lead to higher ROI. The key for marketers is to decide on the model that best fits them and their customers — and then work it for all it's worth.

GRANT A. JOHNSON (grant@johnsondirect.com) is CEO of Johnson Direct LLC, Brookfield, WI.