I recently ordered a Boston Acoustics subwoofer from an Amazon marketplace seller because it was significantly cheaper than buying directly from Amazon or from a local retailer. 15 days later, all I hear is a whistling sound from that piece of equipment. Now I am not a big audiophile but if all I hear is a whistling sound while watching a loud thriller movie, I can tell there is something wrong with the sub. I know – hindsight is 20-20 but I should have probably purchased that item from a local retailer so I could have at least returned that 40 pound brick without much hassle. I can’t even imagine packing such a heavy piece of equipment and shipping it back to a 3rd party marketplace seller.
Marketplace concept has been fairly common with online retailers such as Amazon.com and buy.com. However, it seems that multi-channel retailers are also joining the bandwagon. Sears and Walmart have both opened up their online platforms to allow third party sellers to list and sell their merchandise. This definitely opens up an alternative source of revenue for retailers and in these trying times, who doesn’t want to have additional revenue sources.
Actually, I am glad that multi channel retailers are opening up their “walled gardens” and thinking more and more from customer’s point of view. A marketplace concept helps fill the gaps in retailer’s product assortment so that the customers can find the products they are looking for. In addition, the retailer makes money from the marketplace sellers for every marketplace order that gets placed on their platform. This is a good first step. However, every time I hear that whistling sound from my sub, I get more and more convinced that the multi-channel retailers are leaving a significant opportunity on the table – an opportunity that can give them a sustainable advantage over pure-play online retailers.
If we take a step back and think about advantages that a multi-channel retailer can offer to their customers – we wouldn’t have to think hard before coming up with following:
- Ease of buying online, and picking up at a physical store (Easy Product Discovery & research online, Save shipping costs, Pick up the product same day from a local store)
- Ease of researching in a physical store and then later buying online. (Touch & Feel the product before buying, avoid a second trip to the store by buying online)
- Ease of returns (Peace of mind – I can return my online purchase to my local store anytime).
So why are the multi-channel retailers not offering the above benefits when it comes to marketplace purchases? For example, I would love to shop a marketplace item on Bestbuy.com if I had the option to return that item to the Bestbuy store which is 4 miles from my house. This would certainly give Bestbuy an edge over other online players who are selling the same marketplace item, probably at the same price but require the customers to ship the item back to the marketplace supplier (potentially at additional cost to customer). I am sure there are few logistics issues to be overcome in handling third party returns at a brick and mortar store. However in today’s day and age, these issues can easily be solved by technology and some innovation in distribution network. The bigger problem is that a lot of times, companies give up because they focus on traditional retailing constraints vs. focusing on what is right for their customer. Several online retailers are now picking up the cost of return shipping because they recognize that ease of return is a very important factor in customer’s mind when it comes to online shopping (Did I mention my Sub?).
Breaking the multi-channel boundaries
Now let’s take this one step further. In today’s connected world, what is stopping a retailer such as Sears, Walmart or Bestbuy in offering this “Return” service to their online competitors? In other words, accepting returns for merchandise purchased at other online retailers such as Amazon. Sounds a little odd because why would a retailer offer such a service to their competitors? Well, the concept is no different than marketplace. It follows the same logic – retailers are opening their online platform to marketplace sellers so that they can list the merchandise for a fee. In a free market economy, companies shouldn’t think about internalizing their assets – they should focus on how to maximize the rents by opening up what they do best to other companies who want to use such services. Retailers like Sears, Bestbuy and Walmart have thousands of stores across the country – why shouldn’t they monetize this asset by offering merchandise return services to online retailers? If the multi-channel retailers begin to offer the return service to their competitors for a fee – it would create a win win situation for everyone. Let’s illustrate this with an example –
Let’s say Bestbuy partners with Amazon and allows all merchandise that is purchased at Amazon.com to be returned at any Bestbuy store. Let’s leave the logistics/issues aside (we will get to them in a minute) and think from a customer’s point of view first. I hope we can all agree that this would offer a huge benefit to the customers because now they don’t have to worry about the hassle of returning the merchandise back to Amazon in case of any issues. They can just drive to the nearest Bestbuy store, present their return authorization from Amazon, return the merchandise and get immediate refund. Here is a tactical blueprint of how some of these logistical issues can be overcome–
- Customer decides to return an Amazon.com purchase to a Bestbuy store
- Customer logs on to Amazon, prints the return authorization.
- Amazon transfers the return authorization information along with the item details to Bestbuy Return Management systems.
- Customer takes the return authorization to a Bestbuy store.
- The store associate pulls the information from their POS system, inspects the merchandise and issues a Bestbuy Merchandise credit/ gift card to the customer.
- Bestbuy leverages the already existing distribution channel to return the consignment of returned merchandise back to the online retailer, or to a liquidator depending upon the arrangement.
Win for Multi-Channel Retailers
So how does Bestbuy benefit from all of this? A few subtle things happen in above example –
- Bestbuy issues a Bestbuy Merchandise Credit for the refund amount. This will ensure that the money will be spent at Bestbuy in future – easy way to “lock in” the future spend.
- Retailer spend a lot of marketing dollars in today’s environment to drive traffic to their stores. In this arrangement, Bestbuy will get unsolicited traffic to their store – with no marketing spend. More importantly, every customer in this category just returned an item, and has been issued a Bestbuy gift card – perhaps there is a high probability that they will shop at Bestbuy before they leave?
- Finally, Bestbuy could charge some sort of transaction fee to Amazon for providing this type of service. After all, Amazon’s operational costs associated with return shipping and handling merchandise returns would significantly drop because of this arrangement.
Win for Online Only Retailers
You are probably thinking why would an online retailer like Amazon want to do this? Especially when there is a potential of some leakage (customers returning an Amazon item might eventually shop at Bestbuy). Again, if we think from a customer’s perspective – the online retailers would now be able to offer thousands of return depots to their customers. This is a significant advantage compared to other online retailers who can’t offer in-store returns. As a customer, if everything else is equal, I would certainly want to shop at an online retailer which gives me much more flexibility and options in returning the merchandise. Ease of Returns has been identified as one of the key factors in online shopping based upon several research studies conducted for last several years. Therefore, the online retailer that offers this option would suddenly get access to a new demographic of customers who are currently not shopping with them due to concerns about hassles in product returns. At the end of the day, the online retailer’s objective should be to offer its customers an end to end experience that is built around what the customer expects, vs. an experience that is built around the internal constraints. Just because the online retailer doesn’t have any physical stores doesn’t mean that they can’t think and operate like a multi-channel retailer by partnering with others.
I realize I am potentially understating the complexity of the integration. However, in a Service oriented world, is there truly a big distinction between integrating systems within the enterprise vs. across the whole value chain? I really hope to see this concept in action sometime in near future – however in the meantime, I am not holding my breath and am off to a UPS store to figure out how to return this whistling device back to the cloud!