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Using Location Intelligence to Make Smarter Channel Investment Decisions

by Hal Hopson | June 11, 2014 | No Comments

Location Intelligence Channel InvestmentBusiness planners often confuse the terms omni-channel and multi-channel, but the two terms have very different meanings. Both refer to companies enabling consumers to buy and to receive services through different channels. However, multi-channel implies that the channels are managed somewhat independently – often differing in functionality and in business objectives. In a multi-channel organization, channels are run as separate business units. As a result, multi-channel strategies tend to run into challenges with intra-company channel conflict. This is usually brought about by different channels attempting to claim some or all of the credit for the value of customer relationships based on observed channel usage. True omni-channel strategies promise a seamless customer experience across channels with each channel focused on enhancing the overall customer experience.

In both omni-channel and multi-channel approaches, there is a need to quantify the returns on potential channel investments. The ability to accurately quantify the extent to which a channel investment changed consumer behaviors and resulted in additional value to the firm is critical to making smarter channel investment decisions. Get it wrong, and the firm risks over-investing in less impactful channels and risks under-investing in those channels that create real value. Knowing which channel investments to make can be a source of sustainable competitive advantage.

Unfortunately, many companies rely too much on counts of sales and service transactions to determine and allocate revenue credit used in measuring channel profitability. For example, a bank might assign all of the credit of a sale to the channel in which the account was opened even if the customer’s purchase decision was equally influenced by a web advertisement, advice from the call center, and the relationship with their local banker. Or perhaps, the relationship value is allocated on a monthly basis to the channels where transactions were done – maybe 80% to the ATM and 20% to the branch one month, and 40% to the ATM and 60% to the branch the following month. These simplistic approaches have obvious shortcomings and they encourage undesirable, multi-channel thinking.

Location intelligence – the identification of patterns seen by looking at geographic relationships – offers a powerful way to better understand the value that different channels create. As an example, we’ve worked with a large national retailer to determine the impact of physical store locations on remote channel sales. We were able to show that the presence of a physical store in a market significantly impacted the retailer’s online sales in that market – even to customers that never visited the store. Further, the presence of a second store created additional lift in online sales – albeit a smaller lift than was generated from the first location. This trend continued up to the addition of around 6 locations.

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This type of impact cannot be measured from traditional methods that rely on which channels were used by the customer. Yet, understanding this effect might be critical in making the business case work for the construction or maintenance of a physical store unit. Location Intelligence provides a way to measure these types of cross-channel synergies and ultimately to make smarter channel investment decisions.

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