When Multichannel Marketing Doesn’t Work: A Better Strategy for Loyal Customers
December 13, 2020
Multichannel may be the holy grail of marketing, but it doesn’t work in every case or for every consumer. A new study finds that firms with multiple brands may yield a bigger payoff by following a single-channel marketing strategy, especially with the most loyal customers who shop the highest tier of product offerings. “In contrast to conventional wisdom and prior literature, we show that multichannel customers are not always more valuable,” wrote the authors of the MSI Working Paper titled “Should All Customers Be Multichannel? Investigating the Moderating Role of Brand and Loyalty Tier.”
The authors are Lara Lobschat, a marketing professor at Maastricht University; Katherine Lemon, a management professor at Boston College’s Carroll School of Management; Lisan Lesscher, a doctoral candidate at the University of Groningen; and Peter Verhoef, a marketing professor and dean at the University of Groningen, as well as an academic fellow at the Marketing Science Institute.
The researchers analyzed data from four main brands under International Hotel Group, a leading firm in the hospitality industry. Using a sample size of 150,025 customers with 1.1 million stays over a one-year period, they examined revenue, brand tier purchased, what sales channel was used, to what extent the customer was multichannel or single-sales channel, and the loyalty tier of the customer.
MSI spoke with Lobschat, Lesscher and Verhoef about their study and its implications for marketers. Their answers appear below:
MSI: What questions were you trying to answer with this research?
Peter Verhoef: A multichannel strategy has now almost become the norm. Prior research also shows benefits for firms to have multichannel customers, as they tend to spend more and are more profitable. However, is this true for all brands and customers? Having the opportunity to work with a large hotel chain, we could analyze if multichannel effects on customer revenues hold for the different brands in their portfolio as well as for their different loyalty segments.
MSI: What are the key findings in your study?
Lisan Lesscher: Overall, we find that multichannel customers tend to spend more than single-channel customers, in line with earlier academic findings. However, in contrast to conventional wisdom and prior literature, this is not always the case. The positive revenue effects of multichannel behavior are smaller for the lowest- and highest-level tier brands (e.g., mass-oriented brands and top-end brands) than for the brands targeted at the middle market. More importantly, we find that the positive multichannel effects are smaller for customers in higher loyalty-tiers. For the highest loyalty tier (i.e., very loyal customers), we even find that customers using a single sales channel generate more revenue compared to multichannel customers.
MSI: You say that the reasons why consumers spend more in a multichannel environment do not apply when it comes to highly loyal customers. Why not?
Lara Lobschat: Conventional wisdom proclaims that consumers’ multichannel usage can be viewed as an additional service that leads to an increase in customer satisfaction. Customer satisfaction, in turn, is expected to also increase customer profitability. But highly loyal customers already receive additional services and special treatment from the loyalty program, compared with low-loyalty customers. Thus, multichannel usage does not exhibit the same effect on customer satisfaction for this type of customer. On the other hand, consumers who reside in a loyalty program’s high tiers (e.g., platinum status) purchase more frequently and accumulate experience when using different sales channels. As a result, these customers learn about their most preferred channel and receive the most satisfaction when using this channel instead of other channels.
MSI: You contend that firms should not force all customers into becoming multichannel. Instead, they should take a more nuanced approach. What do you mean by that?
Lesscher: For firms to determine which multichannel strategy to apply, we suggest marketing managers create segment-specific approaches based on the brand type a customer has purchased and his/her loyalty status. Firms should be aware that the effects of consumers’ multichannel behavior differ between brands and customers. Overall, we find that multichannel customers generate more revenue compared to single channel customers. Hence, a multichannel strategy seems to be a good idea. However, if the customers become more loyal and purchase more frequently, they should be allowed to use a single channel (even if it is costly to the firm) and should not be incentivized to use multiple sales channels. The efforts to have customers become multichannel should focus on the lower-loyalty segments. For these customers, fostering multichannel behavior increases customer revenues significantly, as these customers will learn more about the brand and its convenience and become more satisfied. By applying this nuanced approach, the customers will be most valuable for the firm and both parties gain most.
MSI: How should marketers apply these findings as they develop their strategy?
Lobschat: Marketers should consider that inducing consumers to use different sales channels across multiple purchases does not always serve as the most revenue-driving approach. Especially in cases where there are budget restrictions, they should focus their multichannel efforts on brands targeted at the middle or high-end segment for which they can gain the most revenue growth. For relatively new customers, it is promising to encourage multichannel behavior, but highly loyal customers would rather be locked into one single channel that they feel comfortable with.
Given that marketers can execute a higher level of control over their firm-owned channels compared to partner-owned, marketers should strive to encourage these highly loyal consumers to continuously use their firm-owned website as the preferred channel because (1) it involves lower costs compared to more personnel-intensive, firm-owned channels like a reservation hotline and (2) promises relatively high revenue growth compared to other available channels.
MSI: What’s next for this line of research?
Verhoef: Multichannel is strongly moving to omnichannel, where customers use multiple channels and media for search and purchase. It would be very interesting to analyze how this omnichannel behavior throughout the customer journey — not only in the purchase phase — affects customer purchase behavior for different brands and customers. There is some evidence in my own co-authored paper, “Antecedents of Webrooming in Omnichannel Retailing,” that customers who engage in “web-rooming” (search online, buy offline) spend more. This is very interesting, as it suggests that firms should stimulate channel switching. However, much more research is required here.