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Blog 3: Retail Customer Order Management Blog Series: Part 3 – Merchandizing

In my previous blogs, I have provided an introduction to Retail Customer Order Management (RCOM) and the reasons why store organizations are increasingly looking at a retail order as a viable construct to manage new product categories and processes to ultimately enhance the store business model. I would now like to address the item or merchandizing aspects of enabling RCOM.

The retail and direct businesses are traditionally completely different organizations or divisions of the traditional retailer, thereby having separate master data management strategies. The merchandizing function has created different processes and systems and retains different sets of buyers across various channels. However to enable order taking at the store, it is necessary that the direct item catalog be available on the store systems. This information must be imported into retail systems such as POS. This creates several challenges for the retailer as discussed below.

Product Assortment
The retail and direct merchandizing divisions must first jointly determine the appropriate item assortment to be sold through the 'hybrid' channel. The challenge lies when both divisions either try to control this new lucrative channel or are unwilling to maintain the new addition to their product portfolio within the existing structure.

Another key challenge is the difference in product hierarchy between the various channels. If a coherent item data strategy does not exist for the retailer, the same item may be classified differently by each channel. In a retail organization the product hierarchy plays a very important role in merchandising thereby making these differences difficult to overcome.

Pricing and Promotions
Customers often experience different pricing and promotions between channels. For instance, they research a product online and decide to purchase it based on an online price or promotion. However, when they visit their nearest store they find the pricing is different or the promotion unavailable. This discrepancy exists because the two channels address different target audiences, have distinct competitors and thus adopt different marketing strategies. Further the pricing is determined by different merchandizing organizations.

In the world of cross-channel retailing discrepancies between online and store pricings/ promotions create consumer dissonance. When a customer visits a store to convert a buying decision made online these differences may cause him to discard the sale all together. Further, when customers purchase a product online and then attempt to change or return it at a store the store’s systems often are unable to trace the transaction. These customer issues are significant enough to result in class action suits.

Recommendations for Store Merchandising
The solutions to the above challenges lie in creating a comprehensive and common item master strategy. A single item or merchandising master

  • Prevents duplication of information across all systems and ensures consistency of data across the enterprise
  • Enables reduced item setup and maintenance costs
  • Ensures a standard product hierarchy. It has a predefined structure for capturing and storing channel independent information (70% of most item information) and supports standard product lifecycle management.
  • Channel-specific item attributes have their place in such a common master
  • Leads to consolidation of merchandizing operations allowing greater leverage with suppliers due to the larger volumes.

Once all item related data is uniformly stored on the common item master, it must now be made available to the store’s systems. Maintaining the information on the item master is difficult since most item masters cannot handle the transaction processing capabilities required of the individual applications. Further systems like POS and online dotcom or order processing engines have different ways of storing and using item data.

This challenge can be handled by creating a common item master feed that different downstream applications can subscribe to. Items to be sold across channels (store + online) can now be routed to the appropriate store systems (including the POS) by following the regular route for all other store specific items. The challenges of managing pricing and promotions across channels are more complex to solve due to the genuine business needs and benefits of keeping them different. The need to respond quickly to channel competitors is acutely felt in the domain of pricing and promotions. However managing price changes are tactical in nature and must be localized in order to prevent affecting margins at an organizational level. A common merchandizing or pricing system ensures consistency provided it remains flexible to handle various requirements of the store and online channels. Another best practice is to allow cross channel visibility to pricing and promotions such as the setup of common coupons and promotions that can be used across different channels.

We have thus established in this blog that in order to enable successful retail customer order management in store it is very important to have a common and coherent merchandizing strategy across the online and store channels.

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