The Role of Multi-Channel Retailing within the Service Industry - Banking Financial Services Industry - Essay Example

?The role of multi-channel retailing within the service industry: Banking Financial Services Industry Introduction: There has been a significant transformation in the retailing industry, over the years, ever since the advent of Information Techonology. The omnipresent accessibility of network connnectivity has led to the development of a whole new segment / breed of consumers who now demand provision of information and services, at a better, convenient and faster rate than ever before. The consumers now demand facilities which offer them the convenience of browisng through the company’s website to access pre-purchase information as well as the flexibility and the convenience of choosing their preferred channels of distribution. This has led to the use of multiple channels by retailers, which can be used interchangeably, with a view to offer ease of access and better shopping experience to the consumers, translating into improved customer service (Berman & Evans, 1998). Furthermore, it has also been observed that, firms which offer interchangeable service channels are deemed to be ‘extremely appealing’ by the customers (Bendoly et al. 2005, Pp. 314). There is a substantial rise in the use of telephones and internet which are increasingly being integrated into the multi-channel service systems, and are substituted by the traditional means of communication such as face-to-face channel. Multi-channel retailing affords the customers to use additional service channels which entails a wider range of service outlets; increased convenience of shopping; time savings as well as reliability (Coughlan et al. 2001). Multi channel retailing offers several benefits to the firms in the form of service innovation; cost reduction; increased automation; customization of services; greater flexibility etc., among others (Bitner et al.2000). Maximising customer satisfaction is the key objective of multi channel retailing (Moriarty & Moran, 1990; Coelho & Easingwood, 2003) which is accomplished through an integration of various channel formats (Montoya-Weiss, Voss, & Grewal, 2003). Of all the channels of distribution, internet is ranked highly by both the sellers as well as the customers, as an appropriate and effective tool for enhancing the shopping experience of the customers. According to claims made, in recent research reports, there are various evidences which point to the fact that consumers with access to multiple retail channels, spend comparitively more than those with access to single channel of distribution. Furthermore, multiple channel retailers are known to have a wide base of loyal customers and repeat shoppers, as compared to those who offer a single channel of distribution (Berman, 2007). Such major shift in consumer preferences have acted as a major trigger for the retailers, compelling them to review their channel integration strategies, and take active steps in transforming the way they approach and target their customer segments. Multi channel retailiers today, clearly have an edge over their single channel counterparts, both - in terms of competitive standing in the industry as well as higher customer satisfaction. Definition of Multichannel Retailing According to Levy & Weitz (2009) Multi channel retailing refers to an integrated set of activities which involves sale of products or services to the customers, via more than one channel of distribution. Berman and Evans (1998) classify retailing in accordance with store based and non-store based. Multi-channel retailing thus, refers to the integration of store based retailing with the non-store based channel. Multi-channel retailing in the Banking sector There has been a significant increase in the revenue growth in retail banks across the globe. This is because, of a tremendous shift in the number of channels used to reach their customers, leading to an enhanced customer experience; better market segmentation; ability to deliver an effective product mix; and a remarkable improvement in the service operations. The key channels of distribution used in the Banking sector include: the physical location i.e. the branch; Direct Channels – such as telephones and internet; as well as other alternative channels such as the ATMs, and emails. Multi-channel banking offers efficient services in the form of online accessibility - such as 24x7 call centers; mobile banking; net banking etc., thus allowing its customers to select their choice of channel according to their convenience and ease of use such as from home or work or while travelling, any time of the day and experience a satisfactory completion of their transactions. Banks with such multi channel capabilities, have the ability to satisfy their customers' requirements and hence gain immense customer base in the process, and ultimately garner huge profits (Levy & Weitz, 2009). Figure 1: Multi-channel service delivery system in Retail Banking Theoretical Framework: Various theories can be used to describe and understand the implication of multi-channel retailing in the banking sector. The same have been described in the table below: Table 1: Theories relevant for understanding multi-channel behaviour Source: Kundisch, Veit, Weitzel., (2009) Technology Acceptance Model: This model developed by Davis et al (1989) is similar to the Theory of reasoned action and is used to estimate the future system usage. This model helps by offering general insight into the consumers' behaviour such as their opinions and attitudes regarding the system, and lays greater emphasis on two key determinants i.e. the perceived usefulness of the said system; and the perceived ease of use (Davis, 1989). The concept of perceived ease of use, refers to the individuals' perception regarding a given system and its ease of use i.e. if the system is perceived to be highly complex to operate, then the perceived benefit likely to be accrued from its implemenation may far be outweighed by the effort required to understand and operate it. Theory of reasoned action: This theory was developed by social psychologists who did not subscribe to the technology diffusion models but rather believed in the classification of technological characteristics with a view to assess its impact on human behaviour. This theory formulated by Fishbein & Ajzen (1975) entails the application of contemporary technology to explain behaviourial intention of the users. The theory posits that people are rational human beings and are more inclined towards using available information, to gauge the likely repercusions of their actions / decision making with regard to a given product / service (Azjen & Fishbein, 1980). Theory of planned behaviour: This theory is an extention of the Theory of Reasoned Action and attempts to assess the behaviour of individuals especially with regard to their actions on which they have no volitional control (Taylor & Todd, 1995). This theory is mainly useful in assessin the behaviour of individuals with regard to use of technology. According to this theory, the behaviour of individuals can be ascertained / explained on the basis of their intention to perform a given action / transaction. In the context of information systems, it refers to the willingness of individuals to use / access the 'system'. Based on their reaction towards the 'system' their attitudes are judged, i.e. favourable or unfavourable. The willingness of the individual to use a system, depends on two factors - their personal experience regarding the system such as ease of use, accessiblility etc and the subjective norm i.e. societal pressure to accept the new technology (Venkatesh & Brown, 2001). Diffusion of Innovation Theory: This theory developed by Rogers (1983) seeks to explain the process of diffusion which is marked by high uncertainty with regard to its acceptance by potential users, during its introductory stages. Although innovation is meant to offer ease of use and enhanced services to the end users, its acceptance is highly uncertain. This may be because of the existence of other better alternatives available in the market, or because of the complexity involved in using or implementing the system. Such unpredictability surrounding the acceptance of an innovation / innovative idea, needs to be countered with a way that helps the innovators gauge the behaviour or reaction of the potential adopters. This theory helps them in seeking valuable information from their target customers (Brancheau & Wetherbe, 1990). Marketing Channel Theories The marketing channel theories signify that the decision of organizations to integrate and assimilate technology such as internet, as an integral part of their retail channel is based on a defined set of strategies, the external environment, as well as a pre-defined and effective framework. According to Geyskens et al (2002) the assimilation of physical and virtual channels depend largely on various factors such as the key characteristics of the organization (i.e. their market penetration; customer base; size; profitability etc); the state of their external environment (i.e. whether the market is ready to accept new technology; the changing tastes and preferences of the customers; the state of technological development; the acceptance of innovative technological devices by the customers so far etc.,). Furthermore, it also includes the various strategies implemented by the organizations to introudce technological innovations in the market, as well as the type of service launched; effective integration of physical and virtual channels of distribution; infrastructural effectiveness; environmental hazards etc. among others (Steinfield et al., 2005). The effectiveness of technology and the integration of various channels of distribution only serve to enhance the multi-channel performance across service types. Customer satisfaction is ranked highly in the retail banking sector and transaction specific satisfaction, ranks at the top, with regard to retail banking (Shankar et al., 2003). Role of Retailers Multi channel retailing in the banking sector is growing rapidly, and simaltaneously with the growth in consumer demands and expecations. The role of retailers hence, has widened with the increasing customer expectations. The retailers are now expected to offer seamless transfer and an enriching shopping experience to the customers. They are required to exploit the opportunities afforded to them owing to technological innovation and use the same for building stronger customer base and better service delivery outlets, so as to cater to a wider customer segment (Berman, 2007). Retailers in the banking industry have now increasingly begun to realize and recognize the sigificance of multi-channel retailing, in attracting and retaining their customers. It is quite apparent now, that merely offering good products and services can no longer, help in retaining the customers, are smaller and competitive new entrants from the non-financial sector are entering into the industry, and eating away the market share. Thus, the retailers now have to design transaction centers, which are faster, effective and succeed in attracting customers (Levy & Weitz, 2009). Current trends in multichannel retailing Technological innovation is perhaps the best possible way to enrich the present multi-channel retailing system used by banks. It is known to positively enhance organizational performance and ensure greater customer satisfaction (Goosen, de Coning & Smit, 2002). However, managing such multiple channels of distribution is a herculean task and poses a great challenge to the retail banks (Bruce, Bondy, Street & Wilson, 2009). The current trends in retail banking are primarily governed by the integration of physical and virtual channels. These include: Trend 1: Penetration and growth in the use of electronic transaction There has been a signficant rise in the use of electronic means of payment, over and above the traditional means such as the use of credit cards, cash, cheques etc. Now, customers are increasingly logging online, for payment of their bills, tracking their cheque status, accessing account information, etc. Furthermore, several banks are now including mobile payment as well, where the customers can access product information and successfully complete their monetary transactions through their mobiles. Trend 2: Increasing reliance on ATMs A tremendous shift in consumer preference has been observed over the past couple of years, whereby the use of ATMs as a convenient means of banking, has emerged as the top favorite among the customers. This is apparent from the rise in number of ATMs across cities. Furthermore, the ATMs are now being used for product promotion as well, over and above the customary cash machine. Banks today, are increasingly using ATMs for providing information about their new product launch, thus, making it easier for customers to access vital information and know about the products without even having to log in to the bank’s website. Trend 3: Customer centric banking Banking has become highly customer centric, as opposed to product centric. Retailers are hence trying to focus on ways and means of enriching the shopping experience of the customers, through use of innovative technologies. Banks must focus on strategies to revitalize their branch networks with a view to afford better service to their customers. Pros and Cons of using this approach Multi-channel banking has the capability to improve conversion rates. For instance, while using online systems, several times, during transation, the customers tend to give up mid-way, just because they find it difficult to navigate through the website, or the directions given on the website are far too complicated to follow. Multi-channel banking is designed for situations like these. There are alternative and well- established support systems such as live online chats, and customer service call centers, where a personal bank-by-phone executive helps and guides the customers in completing their desired transactions. Such alternative means / channels help in reducing the abandonment rates to a substantial extent and translate into sales on many occassions (Montoya-Weiss et al., 2003). Furthermore, the increased functionality of banking transactions due to multi-channel banking, helps in increasing the customer loyalty and reduce churn rates. Effective tools such as online bill payment systems; online money transfer; etc help in attracting and retaining customers and build a stronger brand image for the bank (Montoya-Weiss et al., 2003). Implications and Conclusion: Development and application of successful cross-channel capabilities helps in enhancing customer experience, which has long lasting implications for the retail banking sector. However, satisfying customer expectations entails deployment of state of the art technology, which helps in integrating physical i.e. store based and virtual i.e. non-store based channels, which in turn implies heavy IT investments. This leads to a momentary shift in focus of the bank’s strategies away from development of services towards investment in technologies for developing such services (Venkatesh & Brown, 2001). Shift in local branch towards online channels: There is a gradual shift in customer traffic away from the branch and towards the online channels. A multi-channel approach helps in diverting branch traffic which proves to be beneficial for both – the customers as well as the employees and saves time and effort. Call centers and online channels help in better customer management, since both these channels are centered on enriching the customers’ transaction experience. alternative and effective funding mechanisms to ascertain that the investments in multiple channels and products are profitable for both - the bank as well as the customers. Furthermore the banks must continually strive to upgrade all its channels from time to time, to keep pace with the technology and integrate the same within its multichannel strategy (Venkatesh & Brown, 2001). 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MIS Quarterly, March 2001, vol.25, no.1, 71-102. Read More