Mastercard Advisors

Defining the Value of Omnichannel Shopping

RR Omnichannel shoppingBefore investing in an omnichannel strategy, retailers need to understand the true value of this consumer shopping behavior and the opportunity it presents. A new MasterCard study suggests the right approach is to start with the customer. How does their omnichannel spending behavior differ from spending in a single channel?

Conventional wisdom suggests that retailers should invest in bolstering the omnichannel experience they offer consumers on the basis that more channels will result in increased sales. Makes sense, but merchants can either invest in an omnichannel strategy and technology because it seems like the right thing to do, or they can make informed decisions based on data that details the value to be gained from key customer segments. Imagine the following scenario: A working mother of two needs a simple dinner solution for the evening. She logs onto Pinterest for “quick kid-friendly dinner” and decides on the “Cowboy Casserole.” The list of ingredients she needs is automatically saved onto her mobile phone, and dropped into her local grocery store shopping app. She opens this app, and decides to pick up the order on her way home. She stops at the store, where her order is waiting in a cart. She notices a sale on blueberries and adds two pints to her cart. She picks up a single-serve sparkling water for her car ride home and a few magazines to wind down later. The kids love dinner and the mom has illustrated the type of behavior that merchants of all classes are moving to better serve. She is an omnichannel shopper. As such, she is highly sought after but not very well understood.

Flipping the Channel from Concept to Cash Flow

The word “omnichannel” has become as much a business goal as a buzzword in the shopper marketing and customer analytics world of 2015. In order to move from concept to profitable practice, retailers must define the value of omnichannel shopping to their enterprise as well as to customer spend. A successful omnichannel strategy does not mean simply extending a merchant’s presence from one channel to another. At its best, the omnichannel shopping experience should encourage incremental sales, enhance the customer experience and drive overall sales across online and offline stores. But first, it’s important to understand how consumer spending differs in a single channel compared to spending across multiple channels. Does the omnichannel experience actually produce more sales than a single channel? Yes, data suggests it does.

An analysis by MasterCard shows a definitive, data-driven point of view on how omnichannel spending does in fact drive overall higher spend at a merchant versus in-store or online alone. Using aggregated and anonymous MasterCard transaction data to understand spending across online and brick-and-mortar channels in US Grocery, Drug, Mass Merchandisers, Department Stores, and Specialty Retail stores, the analysis found annual spend was significantly higher in omnichannel across each of the verticals. The biggest gap, a 254% difference, was in Mass omnichannel vs. online-only spend. The largest absolute omnichannel spend was in the Grocery vertical.

One of the most important goals of the research was to identify possible tipping points of transactions that would define omnichannel shopping behavior. The MasterCard analysis found that as the number of transactions increased within a category,the annual spend per account also increased exponentially and retailers experienced a healthy and steady lift in spending. The annual increase in spend for accounts moving from four to five+ transactions was high, particularly in Grocery (+685%), Mass (332%), and Drug (301%) outlets.

The study also investigated behavior at the spending-per-transaction level. In most cases, this metric also increased. In some cases, such as in Mass, spend-per-transaction decreased by 23% when moving from four to five+ annual transactions. Despite that per-transaction decrease, the annual value of this segment remains high. There was a wide variance in spending by type of store; Grocery, Mass and Drug omnichannel, characterized by high transaction frequencies at relatively low price points (e.g., subscription or replenishment items). Department and Specialty omnichannel customers, on the other hand, do not vary their order size as much. All verticals showed different levels of omnichannel penetration.

The research also measured how omnichannel spending develops across different types of retailers. As a share of total spend, omnichannel shoppers comprise nearly one fifth of the Mass vertical and a full quarter of Department Store and Specialty Retail spending. For Grocery and Drug, it is still a very small portion of sales, and remains to be seen when and how quickly these verticals evolve.

Woman Reading Shopping List From Mobile Phone In SupermarketDetours on the Path to Purchase

Measuring omnichannel spending is simple compared to the science of encouraging it among customers. Retailers must contend with the reality of a customer’s path to purchase, which is no longer linear. It may include clicking on an email sent by a store she likes; using Instagram to crowd source opinions on which prom dress to buy, followed by a Google search for a promo code, and then completing her purchase on her smartphone or tablet long after sales associates have turned in for the night.

Somewhere in this path the customer may have browsed aisles at her local department store with her friends. She may have even seen a television or mobile ad that also influenced her retailer choice and ultimate purchase decision. The retailer is tasked with maximizing touch points at each of these stops along a windy shopping path. An understanding of what’s at stake may help clarify these investment decisions.

Department Store and Specialty Retail customers are already shopping across channels, creating a significant runway for further growth. The key to unlocking growth in these verticals is building loyalty across the omnichannel, and specifically creating more touch points with those who shop between two and four times per year. The five+ transaction spenders are where the revenue growth potential lies. This segment may be best reached at multiple points of the Windier Path to Purchase, with offers that encourage them to spend more and more often.

Most Mass spending in the omnichannel appears to be for large “stock-up” shopping missions. The segment that is spending in the Mass omnichannel multiple times per year appears to be making smaller purchases per shopping mission. The Mass vertical has opportunities to increase ease of shopping and improving the omnichannel experience. Mass can also deter multiple low-value shopping missions by increasing the free shipping threshold in the e-commerce channel. Another way to convert single channel Mass customers is to message them while they are in store, using their search and purchase history from visits to the site.

Grocery and Drug spending is not taking place across channels, but is staying close to the traditional brick-and-mortar format. Spending across channels has among the highest annual spend of any of the other verticals. Auto-replenishment and delivery of household staples, such as milk or bathroom tissue, may convert single channel shopping behavior and increase transactions and dependence on the retailer.

Strategic thinking says that maximizing the customer’s value is at the heart of an omnichannel investment. Data shows that the omnichannel shopping experience is best when it makes the customer’s life a little easier. At the end of the day, isn’t that what we are all looking for?

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