How to Grow in a Multichannel World

To help make sense of this changing landscape, Kellogg Insight interviewed Jim Lecinski, a clinical associate professor of marketing at the Kellogg School, and a former Google vice president of consumer solutions. He discusses the current state of e-commerce and how companies are thinking about reaching customers in a multi-channel world.

Because in e-comerce, nothing stays still for long. “Artificial Intelligence is playing an increasing role in consumers’ path to purchase decisions,” Lecinski says. “AI’s predictive and generative abilities are now capable of providing shoppers with a superior experience online.”

This interview has been edited for length and clarity.

Kellogg INSIGHT: I think many people assumed that the pandemic would lead to a permanent rise in e-commerce. Has this happened? How significant a role do you see e-commerce playing in the future?

Jim LECINSKI: Before the pandemic, e-commerce was steadily being adopted. During the pandemic it shot up, then fell, and now has resumed the pre-pandemic adoption rate. It’s never going to get to 100 percent. We need to think about it from the consumer perspective. Where they choose to shop—online or in person—depends on what they need to make their purchasing decision. And that varies from customer to customer. Some consumers want to test or touch a product—lay on a mattress, try on shoes, or check the ripeness of fruit. Other customers will never go to a retail store for anything. They’re happy to have a mattress or any other item show up in box. It depends.

INSIGHT: Can you talk about how companies like Amazon, SHEIN, or Temu are approaching e-commerce? What’s the value proposition for the brands that leverage these marketplaces?

LECINSKI: There are well over a hundred of these online marketplaces, like Amazon, Tmall in China, Lazada in southeast Asia, or Mercado Libre in Latin America. Some, like Amazon, offer products in many categories. Others are narrower—for instance only offering hotel rooms or handmade craft items. But what they all have in common is they bring together multiple buyers and sellers in one space, where a transaction can be completed. It’s estimated Amazon, eBay, and Walmart Marketplace combined receive more than three billion visitors each month in the U.S.

These marketplaces also provide a suite of services to brands including on-platform advertising and back-end fulfillment. For example, “Fulfillment by Amazon” can handle a brand’s pick, pack, ship, inventory management, and customer-service needs, including handling returns. Of course, these additional services come at a cost. Altogether, it’s not uncommon for online-marketplace fees to amount to nearly half of a brand’s total profit margin on each sale.

INSIGHT: In the last decade, we’ve seen the rise of direct-to-customer (DTC) brands competing alongside traditional brands that also sell online. Can you talk about the advantages and limitations of DTC strategies?

LECINSKI: DTC brands use what we call a uni-channel route to market—there’s only one way to purchase. Warby Parker started out this way. If you wanted to buy their glasses, you either went to their website or opened their app. This channel strategy serves certain buyers, but not all. Some customers want to get advice, expertise, and service when they try on a product. This is why, for example, Macy’s still staffs makeup counters. Other customers want an in-store option for immediacy. Even same day shipping or Instacart in three hours aren’t good enough. They want it now.

So the DTC route only appeals to a certain set of buyers and, by default, means those brands can only scale to a certain size. Even successful uni-channel DTC brands struggle to grow much beyond around $300 million. This is because they’ve soaked up all the buyers whose service demands are met through that uni-channel.

INSIGHT: Interesting. So if you’re a uni-channel DTC company looking to grow, what are your options?

LECINSKI: One option is you expand to multichannel, where you sell online and in stores, whether that’s your own stores or in places like Walmart or Macy’s. Warby Parker did this. It sells through more than 200 retail stores as well as online. It now has $600 million in sales—half of that is DTC, while half is brick-and-mortar. For any DTC brand, every expansion option into stores is margin-degrading. But they have no choice if they want to keep growing.

The other option is to go omni-channel, which ties everything together across channels for a seamless experience. But an omni-channel strategy is very difficult to execute and not many brands are doing it well.

INSIGHT: How so? Can you give us an example of a company that is finding success with an omni-channel strategy?

LECINSKI: H&R Block was originally a uni-channel brand. If you wanted your taxes done, you call on the phone, make an appointment, put your receipts in a shoebox, go to the branch, and the accountant takes your taxes and calls you when they’re done.

Later, it bought a software company and rebranded as H&R Block online, so they became multichannel. But problems arose when people doing their own taxes had questions. Customers would call the local H&R office, but the agent wouldn’t be able to help because its online system was entirely separate.

H&R Block has now stitched all those pieces together, using a persistent customer ID, making it an omni-channel strategy. It took them multiple years and an investment in technology to get to that point.

INSIGHT: Let’s talk about that technology investment. Why is it so difficult to pull off an omni-channel strategy?

LECINSKI: Well, to make this work, companies need a unified view of the customer no matter which channel they use. The problem is that customers enter their ecosystem in a lot of different ways. They might sign up for a newsletter, attend an event, fill out a warranty card. Companies need to know it’s you, however you enter.

So the technology needed to deliver this omni-channel experience is one that ingests all those past interactions, anonymous or not, and uses AI to make predictions about what a consumer may buy next.

The goal is a seamless experience for the user on the front end stitched together by the tech on the back end. It’s easier if you’re H&R Block, with your own stores and software. But what if you’re Nike, and you’re selling at Dick’s or Footlocker in addition to your own channels?

INSIGHT: Then, I can imagine it becomes a question of how to integrate various data sources.

LECINSKI: Correct. There are two ways. One is to have a formal data-sharing agreement between the companies in which they pass data back and forth. Or, I can have what’s called a “data clean room” into which each company shares anonymized customer lists, which are then merged. From there, Nike can ask Facebook, Google, or Instagram to make a model and show its Nike ads to people who look like these anonymized customers.

INSIGHT: I can imagine the changing data-collection landscape—including Google’s phasing out of third-party cookies over the course of 2024—will change how data is gathered and deployed for online marketing.

LECINSKI: Yes. Either marketers lose any ability to personalize and go back to broad reach, non-targeted, non-tailored strategies—which isn’t a good option because customers want brands to talk to them like they know them—or they use what we call “zero-party” or “first-party” data. Zero-party data is information customers volunteer, like when they are incentivized to tell a company their birthday with a 10 percent discount. First-party data is gained through business transactions, like when you check out online and enter your shipping address.

To make up for the loss of cookie targeting, companies can build ways to gather this data—by having people sign up for a loyalty program, for example. There’s a long list of ways that I could capture first party data; it’s a big push at the moment for marketers.

INSIGHT: Can you say more about this? What does gathering zero- and first-party data allow companies to do?

LECINSKI: If I have this data, I can use technology such as a customer data platform (or CDP) to deliver a personalized experience. A CDP ingests customer data from various sources, then creates a unified view of the customer. Then it uses artificial intelligence to predict the next-best experience for that customer—the product, offer, timing, and messaging that customer or group of customers receives is informed by this data. So customers get timely, relevant engagement with the brand. This should both improve a brand’s business results and improve customer satisfaction. An example of this approach is when you get a personalized message and offer from Starbucks in the app based on your past purchases.

INSIGHT: Are there particular industries where this is happening more quickly than others?

LECINSKI: It is not happening quickly in highly regulated industries like pharma, finance, or healthcare.

The industries that will move fast first are non-regulated and already have both a wealth of first-party data and a higher degree of buyer frequency. Certain types of retail are at the forefront of this because they have identifiable, often repeat buyers. For example, I may only buy one sweater from your brand every few years, but I shop at Jewel, Safeway, or Instacart every week, or go to Starbucks every day. It’s growing fast, especially if you have a technology like Instacart at the tip of the spear.

INSIGHT: That’s interesting because many of the companies you’ve mentioned are more traditional brick-and-mortar companies, rather than DTC companies.

LECINSKI: That’s right. Now the other thing this takes is some vision. It’s not just your situation, but do you have the leadership, the vision, and the will to move in that direction?

INSIGHT: So it’s a leadership question.

LECINSKI: One hundred percent. It always is. Often companies think of it as a technology problem. Well, technology might help you, but it’ll never fully solve it. It’s a people, leadership, and strategy question of where to play and how to win.