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Marketing tool may be right mix for stores

Retailers say they are busy implementing software that will let them unite customer information from their stores and Web sites.

Picture this: You splurge on a purse at your local Neiman Marcus.

Later, while surfing at NeimanMarcus.com, you receive a promotional coupon good for 30 percent off matching shoes.

Too good to be true? Retailers say they are busy implementing software that will do exactly that within the next year.

They call it "multichannel Web marketing," and experts say it could revolutionize the way people shop--both online and in retail stores.

"This stuff is magic to retailers," said Gary Hennerberg, head of marketing consultancy The Hennerberg Group in Grapevine, Texas. "A couple of years from now, every brick-and-mortar with online operations is going to be doing this."

Behind the idea of multichannel Web marketing are software companies eager to unite retailers' legacy systems with their modern databases for online operations. IBM, one of the largest players in the e-commerce software field, unveiled MerchantReach on Aug. 1 for retailers that want to compile customer information from their stores and Web sites.

The problem that IBM and other software companies are attempting to solve began in the early days of e-commerce. Many retailers' first tentative online ventures consisted of order-processing systems that were either loosely connected or entirely separate from the mainframe or other big-system databases that housed the bulk of their customer information. In essence, many retailers maintained two database and order-entry systems: one for their traditional retail operations and another for their Web ventures. Linking the two systems has often been an afterthought.

The dual databases meant that, for instance, stores did not know that the Bill Smith buying cookware in the Austin, Texas, store was the same Bill Smith who purchased a gas grill from the online site last week. Opportunities for "up-selling" were lost, and customers could have been offended that they were not rewarded with better customer service after making big-ticket purchases.


Gartner analyst Claudio Marcus says successful merchants will use the marketing tool to build stronger relationships with customers.

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Many retailers still operate with separate systems, or are just beginning to link their disparate databases. Special software for linking new and old databases and for "scrubbing" data to ensure that records are valid has existed for years.

Database software market leader Oracle, as well as BEA Systems and Microsoft, offer various tools, as do smaller specialty software makers. But IBM is one of the first companies to tackle the problem with a mix of software and services.

Not warm and fuzzy
IBM executives say their software will help store clerks identify whether a customer has recently purchased items online, and it will help the retailer's online division figure out if a Web surfer has recently shopped in a store. That could help both the store clerk and the online sales agent sell accessories and other merchandise.

"The Internet right now isn't a warm and fuzzy medium; no one knows who you are when you're shopping online," said Sandy Carter, vice president of e-commerce for IBM. "But with MerchantReach, retailers will have a comprehensive customer database shared across all channels. They can say, 'We promise to treat you the same whether you're in the store or shopping online."

The stakes to become a multichannel Web marketer are high. Consumers who shop through more than one outlet--for example, at the department store and through a catalog--are vastly more loyal than people who purchase through a single channel. More important, multichannel shoppers are bigger spenders than single-channel shoppers.

Throwing the Web into the channel mix heightens the potential for revenue: Because people who shop online tend to be wealthier than their counterparts who do not, multichannel shoppers who shop at stores and online tend to vastly outspend their equivalents who just shop at stores.

According to a recent survey of J.C. Penney shoppers by IBM, the average transaction at a J.C. Penney department store is $122. The average J.C. Penney online purchase is about $500. And the average purchase by someone who shops through the Web site and at the store is about $1,000.

That amount could go up even more if J.C. Penney were to offer interesting crossover promotions and enable sales clerks to have real-time access to online purchase logs, experts say.

"Let's say I go into a store to buy speakers, and the sales guy whips out a PalmPilot and says, 'OK, sir, here are the speakers that will go best with the Sony stereo I see you just purchased,'" said Jim Sterne, president of Santa Barbara, Calif.-based Target Marketing. "The first time that happens, I am one happy camper."

Seattle-based outdoor gear retailer REI hopes to generate lots of happy campers with its multichannel Web software. Within the next year, REI will begin sending automatic e-mail promotions tied to in-store purchases. It also will tell online shoppers about related in-store events.

"Say you buy a bike in our store," said Joan Broughton, vice president of online and direct sales for REI. "It makes sense to send you an e-mail and say, 'Hey, we've got a clinic running next weekend we thought you might be interested in because you just bought a new mountain bike.' There's no way to do that right now."

Keeping store sales intact
Multichannel Web marketing could also allow brick-and-mortar retailers to boost online sales without cannibalizing sales at stores. Many traditional retailers were slow to embrace e-commerce in the 1990s, often for fear that online stores would steal sales from real stores, into which they had already sunk funds for real estate, staff and inventory.

Multichannel Web marketing also allows companies to exploit the most powerful aspects of physical stores and online stores. REI, for example, is eager to get online customers into its stores--playgrounds for outdoor enthusiasts, rock-climbing walls, customizable maps, used and returned goods, and other items not available online.

REI customers are unlikely to purchase big-ticket items such as tents or kayaks online; they want to touch and sit in the products first. But Broughton said they might be wooed to purchase related items online if they were to receive a promotional e-mail for discounts on outdoor cooking equipment or life jackets after they have purchased the big items in the store.

"We want to treat customers the same way across all channels," Broughton said.

Several retailers, notably Victoria's Secret and Patagonia, have already begun experimenting with multichannel software and promotions. Home-furnishing retailer Bombay Company found that customers who purchased both online and in stores spent 2.4 times as much as people who purchased through the Internet alone.

However, the biggest challenge for many retailers will be cost.

Customers of IBM's WebSphere Commerce Suite, which includes MerchantReach, typically pay $3 million to $5 million for the software and related services. MerchantReach includes more than 200 standard reports and analysis tools. It partners with Lotus to provide real-time chat between salespeople and customers and real-time inventory checking.

Microsoft has less-expensive products targeting smaller businesses. But retail experts say many mom-and-pop retailers are intimidated by the complicated software.

"A $3 million software package is a bit tough for mom and pop to reach into the piggybank and buy," Sterne said. "This isn't going to be the magic bullet for everyone."