[Preview#11] Omni-channel complexity and costs in retail

Dear Retailers, beware, going omni-channel PROBABLY have positive impacts on sales and profit, but SURELY adds a lot of complexity and increases costs.

Let’s talk about complexity first, then we’ll get into the details of the cost business model.

Omni-channel complexity

Somebody said: “All sales channels are equal, but some sales channels are more equal than others”.

Seriously, are ALL your products going to be available through ALL your sales channel?

I don’t think so: in order for omni-channel to be sustainable, you absolutely need to prioritize – so the answer to my question is, not all products need to be sold on every channel, be selective and focus your resources on those touch-points that attract your most significant customers – in terms of purchases, value, etc.

In practice?

First segment your customers considering also – and especially – their omni-channel habits, then expand your channels to those essential for the acquisition, growth and retention of key consumer segments.

breaking news: it’s more easily said than done…!

Omni-channel complexity has to do also with the retailer’s organization: usually the offline and the online presence developed in independent channels, each having its own ways of working.

To effectively/efficiently manage (omni) channel integration, retailers need cross-functional teams; these teams improve integration and coordination of different but interdependent activities because their members (that belong to different channels and functional areas) span traditional organizational boundaries.

Omni-channel cost business model

Each additional channel surely brings additional work and, therefore, additional costs – think, for instance, of content creation and marketing, logistics, personnel training, ICT, etc.

So, what does the cost business model of omni-channel look like?

  • On one hand, your average physical store typically adopts a fixed-cost business model, where “fixed” means that there is no strong, direct relationship between costs and revenues; in other words, your brick and mortar store costs you X$ (for real-estate, logistics, personnel, etc.), and X doesn’t change significantly if you sell hundreds of items every day or if you sell ten times as much
  • On the other hand, your e-commerce is far less capital-intensive and basically employs – above certain volumes – a variable-cost business model: the more you sell (…accept orders, process them, pick-pack-&-ship…), the more it costs

When you go omni-channel, you sell the same stuff, but using a mix-and-match of radically different cost business models: fixed-cost AND variable-cost.

Is this a problem?

Basically it’s not, but it can become a big one if you don’t fully understand what cost-behavior is.

My final 2 cents: take your time to explore omni-channel and experiment relentlessly, investing wisely.

Andy Cavallini

 

 

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