Steering Customers to the Right Channels

Migrating customers to a new channel can be a pain for them, the company, and its channel partners. But the rewards can make the effort worthwhile.

A single channel used to be all that companies needed to deliver products or services to their customers. But now companies, responding to customer demand for ever more channel choice, reach out through many routes. Multichannel customers spend 20 to 30 percent more money, on average, than single-channel ones do, and channels such as the Internet and overseas call centers promise big cost savings.

Yet multichannel marketing is harder than it might appear. Too often, companies multiply their channels only to face a host of unintended consequences that actually raise costs or cut revenues. In retail banking, for example, less expensive channels such as ATMs and the Internet have helped reduce average transaction costs over the past 15 years by nearly 15 percent. During the same period, however, transaction volumes more than doubled, since customers check their balances and make withdrawals more often than they did in the days when they had to wait in line at a branch. The result has been an increase in the overall cost of serving each customer. Similarly, serving customers over the Internet has saved airlines roughly $10 to $15 per booking. Nonetheless, Web-based channels facilitate the price transparency that, at some airlines, makes the average online fare an estimated $50 to $100 lower than that of a ticket purchased through other channels. Meanwhile, companies in some industries have seen their competitors mimic their expensive new channel approaches very quickly.

These are not isolated examples. As a result of proliferating channels, sales and marketing executives in a wide range of industries have lost control of their customers, with damaging financial consequences. The problems won’t be easy to solve. Companies can’t go “back to the future” by reducing the number of channels, because customers have grown accustomed to — and indeed are increasingly demanding — a broad range of options and might well defect if companies discontinued them. What’s more, common tools for improving the efficiency of channels, such as changing distributors, tweaking incentives, and upgrading the sales force, often fail to close the gaps between the desires of customers and the realities of channel economics. (For a broader summary of channel options, see John M. Abele, William K. Caesar, and Roland H. John, “Rechanneling Sales,” The McKinsey Quarterly, 2003 Number 3, pp. 64–75.)

To gain control of multichannel interactions, companies must begin to constrain the channels customers use by subtly guiding them through the sales and service process, from awareness of the product through purchase and postsales support. This “rerouting” allows companies to shape when and where they interact with the people who buy their products and services. By encouraging the use of different channels at distinct stages of the sales process, leading companies balance the preferences of their customers with the economics of their channels. The rewards can be substantial. They include reducing the cost to serve customers by as much as 10 to 15 percent, increasing revenue per customer (through higher retention rates or an enhanced mix of products and services) by as much as 15 to 20 percent, and gaining the chance to penetrate previously underserved segments. Moreover, carefully tailored “routes to market” can become powerful sources of sustainable differentiation because they are difficult to imitate and often become linked in the customer’s mind with actual product or service offerings.

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