ABSTRACT

This chapter begins with the introduction of omni-channel operations, which capitalize on the synergy of multiples channels to move merchandise or service from manufacturers to end users for consumption and to transmit information among them. The chapter then discusses the competitive advantages brought by omni-channel operations.

Next the chapter discusses the different perspectives from which the COVID-19 pandemic affects omni-channel operations. Regulatory restrictions such as lockdowns severely interfere with the normal operations of offline channels, but stimulate the development of online channels. On the other hand, COVID-19 also disturbs consumers’ existing shopping patterns, making them adapt to a changing shopping environment.

Finally, the chapter lists the opportunities that accompany the COVID-19 challenge for omni-channel operations. Businesses can fine-tune their omni-channel infrastructure and operations to cater to new consumer cohorts and to implement market segmentation.

 Keywords: Omni-Channel Operations, COVID-19, Multi-Channel Synergy

1. Introduction to Omni-channel Operations

What is omni-channel? The word omni comes from the Latin “omnis”, which means every. Hence, omni-channel operations refer to an integrated operation of distribution, promotion and communication utilizing every possible means by businesses.  Omni-channel operations help businesses provide better service and mechanising offerings (Verhoef, Kannan, & Inman, 2015).

For example, when customers eat at McDonald’s, they don’t need to line up at the counter; they can choose their own meals on the touch-screen self-service ordering machine. Or they can scan the QR code on the table, order and pay online through McDonald’s app. A waiter will deliver the food to the table. In certain countries, McDonald’s also offers in-store pickup or home delivery services through its app (Figure 1). Data obtained via omni-channel operations such as self-service ordering and mobile ordering help the company continue to improve its operations.

Figure 1. Smartphone App of MacDonald’s China Offers in-store Pickup and Home Delivery Services

From customers’ perspective, omni-channel operators provide with a seamless shopping experience with different touch points such as brick-and-mortar stores, websites, mobile apps and telephones. Customers can place orders, carry out transactions, receive deliveries, and report problems using whichever channel that is convenient for them. In a word, customers can use different channels for different steps of a shopping task to maximize their shopping experience and satisfaction.

For example, when some customers dislikes touring around those big box stores of Wal-Mart, they can purchase merchandise online through Wal-Mart’s app, and pick up the order in store. Wal-Mart can use geo-fencing technology, which links to customers’ loyalty accounts and mobile devices, to alert the retailer when a customer arrives at its parking lot for pickup, facilitating a fast delivery. For those who prefer to shop in those big box stores, they do not need to queue for checkout under omni-channel operations. In some Walmart stores in China, customers just need to use the “Scan Shopping Code” function built in Wal-Mart’s app to scan the barcode of the merchandise to complete the checkout by themselves right by the shelf.

To sum up, omni-channel operations push past the operational tactics of multichannel into a business model that weaves those channels together and shares data between them, enabling customers to conduct business with companies however they want, whenever they want (Payne, Peltier, & Barger, 2017).

1.1 Channels for Merchandise and Information

Many businesses involve in a task of moving merchandise or service from manufacturers to end users such as individuals or families for consumption. Hence, they act as a medium to match the supply and the demand of a wide range of products. In marketing, the personnel together with the physical and virtual facilities that help the transfer the ownership of merchandise is called distribution channels (Kotler & Keller, 2014) (think about warehouses, trucks, and in-store shelfs, and sale associates; they are all part of a distribution channel).

Channels do more than the transfer of merchandise. They also transfer information (Cui et al., 2020). Think about the flyers, in-store signages, and TV ads: they all carry important promotional information to aid consumers to make better shopping decisions. On the other hand, the transaction records collected by businesses also carry important information such as consumers’ likes or dislikes, their response to price reduction or ad repetition, and seasonal fluctuations of demands. Those types of information help manufacturers develop better products, optimize price points, and schedule appropriate production plans. In a word, channels also facilitate the exchange of information between customers and businesses. An illustration of omni-channel operations via multiple channels is provided in Figure 2.

The advances in information technology, in particular, the Internet and mobile technology, have greatly facilitated the development of omni-channel operations. Since 2000, many companies in North America and Europe have set up their websites, and assimilate Internet into their omni-channel operations. For example, some websites, such as www.Nike.com and www.Adidas.com, owned and operated by Nike, Inc. and Adidas AG respectively, allow consumers to direct purchase from them in addition thousands of offline stores around the world. Consumers can also access to product information from those websites. Hence, websites serve as a channel both of distribution and information. In comparison, some manufacturers do not offer buy function on their websites. For example, Nestlé does not sell its products directly to customers from its website www.nestle.com; it uses retailers for merchandise distribution. However, customers can learn about Nestlé products from its website. Hence, the website serves only as an information channel.

Figure 2. An Illustration of Omi-Channel Operations

Since 2010, the fast growth of social media further aids the development of omni-channel operations (Hüseyinoğlu, Galipoğlu, & Kotzab, 2017). At the beginning, social media was used by omni-channel operators as an information channel. Businesses set up Facebook or twitter accounts to directly interact with customers. Recently, some social media companies offer shopping options to users. For example, a fashion store can set up purchase function on Instagram, a service called Instagram Shopping. Customers can directly purchase a product that is featured in the posts and stories on Instagram by influencers.

1.2.Benefits of Omni-Channel Operations

Omni-channel operations bring two major benefits to businesses (Verhoef et al., 2015). First, they offer greater synergy across different channels by engaging with consumers through any channel of their choice for information and distribution. A seamless shopping experience thus can be created. Moreover, customization based different channel combination can be offered to cater to consumers individuality with personalized on-site and online experiences.

For example, if a customer has already bought a living room set from an offline store of a furniture retailer, a dining room set can be recommended by sale associates on the spot. The customer’s email address can be acquired during checkout in the name of mailing electronic copy of invoice. Later personalized coupons (for that customer only) and promotional messages about TV sets, stereos, and TV channel subscriptions can be sent via this email address, inviting customers to browse the online website for more information. In this case, omni-channel operations create additional cross-selling opportunities through the multiple channel synergy.

Second, omni-channel operations facilitate better customer segmentation. Even for those customers buying the same product, they also demonstrate different characteristics.  Customers have different degrees of price sensitivity, and they prefer different shopping experience. Omni-channel operations allow businesses to cater to their ideal customers, and match them with the appropriate means of shopping according to their intent.

For example, many fashion retailers operate well-decorated flagship stores with excellent customer service. Those flagship stores are usually located in central business districts or “high fashion” streets of large cities, appealing to affluent customer bases. In the mean time, they also operate outlet stores located further-away in suburban regions with discount price and limited customer service, attracting price-sensitive customers who drive a long distance in order to get a bargain. Those companies also sell through their websites to cater to tech-savvy and time-sensitive customers who prefer to place orders online to save time. The businesses do not worry that outlet stores will cannibalize the sales of their flagship stores since they offer different merchandise assortments, and affluent customers are unlikely to drive long hours to get something cheaper but inferior.

In addition, omni-channel operations coordinate information transmission across channels to implement integrated marketing communications(Cui et al., 2020). A clear, consistent and convincing message thus can be sent to consumers. The synergy of multiple channels will empower omni-channel operators to create better marketing communication campaigns. For example, a retailer can offer customers mobile coupons to be used instantly on the spot by sending a short text message (Figure 3).

Figure 3. Calvin Klein Outlet Store Touting Mobile Coupons via Short Text Service

1.3.Showrooming and Webrooming

When a business adds Internet to its omni-channel operations as a complement channel for distribution, several interesting phenomena arise. One interesting phenomenon is “showrooming”. Namely, consumers utilize a business’ offline channel to gather information, evaluate a product or even test drive it, but eventually switch to the online channel for purchase (Flavián, Gurrea, & Orús, 2020).

For example, a customer who plans to shop for a large-screen 4K Ultra HD TV may go to a Best Buy store to carefully examine the choices there, checking picture quality and control interface. That customer may also chat with a in-store sales associate, asking all sorts of questions regarding the product until he or she makes up the mind. Later that same customer makes a purchase from a website at a lower price than listed in the Best Buy store.

In the above example, the ideal situation for Best Buy is that the website is also owned by Best Buy, i.e., Bestbuy.com. In this situation, when the business owns both online and offline channels, the offline channel—Best Buy store, serves merely as a “show room” for customers to gather and process information. In other words, Best Buy delegates its brick-and-mortar stores as an information channel whereas facilitates its website to become a distribution channel.

The reverse of showrooming—so-called “webrooming”, can also be true under certain circumstances (Flavián et al., 2020). Webrooming involves activities where customers research on products online before going into the physical store for purchase. When there are many choices available, consumers may feel the uncertainty of “fit”, if the consequence of unfit is high, e.g., high shipping and product return costs. In this case, some customers may prefer webrooming.

For example, if a customer plans to buy a large sofa coach for her newly renovated living room, and she is overwhelmed by the gigantic display room of a furniture store, she may visit the store’s website utilizing a more user-friendly interface where she can use the filter functions to narrow down the available choices. She then can further compare prices, study product specifications, and read product reviews. That customer may find it is easier to locate her favorite models with several mouse clicks or finger swipes. Later, with the short-listed models in mind, she goes to the offline store to conduct her final evaluation, and if everything moves smoothly, she makes the purchase there. Both showrooming and webrooming arise as a trend, which omni-channel operations can capitalize on. Different channels complement each other in facilitating the flows of information or merchandise.

2. Challenges to Omni-Channel Operations by COVID-19

Coronavirus disease 2019 (COVID-19), the disease caused by SARS-CoV-2 virus, is now plaguing the world. There were close to 44 million cases globally by 18^th October, 2020. In dealing with COVID-19, governments have had to adapt their economic and healthcare systems to balance econ-social life and pandemic prevention. Consequently, the normal operations of many businesses are disrupted to various degrees.

2.1.Challenges to Businesses

For businesses, the biggest challenge comes from government regulations imposed to contain the disease. As governments assign the priority to containing the disease, strict regulations regarding traffic and crowd are implemented. As a result, business operations are inevitably affected. Businesses who operate offline channels, including those who conduct omni-channel operations face big challenges.

Many European countries implemented regional lockdown in places with high infection rates. For example, Italian government declared Northern Italy as Red-Zone since March 5^th 2020. A lot of stores were forced to cease operations. In France, amid the national-wide lockdown due to the “second wave” announced on October 2020, only a handful of businesses were permitted to continue to operate; on that list were retailers for groceries, hygienic and cleaning products, and construction and hardware materials and tools. In Wuhan, China—the place where the first COVID-19 case was reported, a city-wide lockdown from January 22^nd to April 7^th 2020 virtually shut down all stores. In North America, on March 24^th 2020, Ontario government in Canada required all ‘non-essential’ or ‘at-risk’ workplaces be closed. A number of businesses, such as apparel stores, electronic stores, bookstores and sportswear stores were on this non-essential list, and stopped operations. Online retailers were not immune from the impact. For example, In March 2020, Amazon India temporarily stopped selling non-essential merchandise, and prioritized the sale and delivery of packaged foods, healthcare and personal safety products.

Figure 4. Shoppers Wait in Line to Enter IKEA Store Due To Maximum Shopper Restrictions

Businesses that were allowed to operate had to comply with many new regulations. For example, the was a physical distancing requirement that caps the number of maximum shoppers who can stay in a store. This restriction greatly reduced the store traffic and consequently, impact revenue detrimentally. Businesses also had to follow new procedures on environmental cleaning and disinfecting to minimize the risk of infection, which inevitably resulted in higher operations costs.

Figure 5. A Floor Sign for Social Distancing in Wal-Mart Store

In addition to regulatory challenges, businesses adopting omni-channel operations also face competition from pure online players. The biggest competitive advantage of omni-channel operators lies in the synergy of multiple channels. When government regulations largely cripple their offline channel operations, omni-channel operators are disadvantaged comparing to pure online retailers who understand online shoppers better. For example, Zappos, the leading online retailer for shoes in the United States, understands that the actual try-on of shoes matters to many shoppers. Consequently, without even being asked by shoppers, Zappos ships the same shoes of different sizes so shoppers can keep the pair that fits and return the rest for free via a pre-paid shipping label (Rosmarin, 2020). Clearly, an omni-channel operator of shoes that relies on its offline facility for shoppers’ try-on is unable to match up.

2.2.Challenges to Shoppers

Shoppers in general have inertia in their shopping behaviors. For first-time purchase or significant purchase, they tend to search information, evaluate different brand choices, determine the quantity to buy, decide where to shop, and then make a decision. For repeat purchase or buying things they have knowledge about, they pre-determine a list of things they plan to buy before heading to the shop. The brands, quantity and shopping destination are also determined without further information search or evaluation. In either case customers demonstrate planned purchase patterns, that is, the purchase is a carefully planned action. Planned purchase follows the proper decision-making process (see Figure 6) and constitutes a major part of consumer shopping tasks (Solomon, White, & Dahl, 2016).

Figure 6. Process of Planned Purchase

Shoppers may also demonstrate a pattern of impulse purchase, i.e., they just notice something and then quickly decide they want it without much deliberation (Cobb & Hoyer, 1986). Impulse purchase is also important. Much of shopping experience comes from impulse purchase and shoppers derive great satisfaction from it.

Figure 7. Process of impulse purchase

The COVID-19 pandemic interferes with both purchase patterns. First, shoppers’ designated shopping destination may not be accessible due to government restrictions. They could be diverted to online stores to purchase. Some shoppers are forced to make a purchase on a website they never purchased from before. They need to learn the procedures of conducting online purchase. Some shoppers prefer to see or feel products in person, and now they have to evaluate product quality merely from photos and descriptions.

Second, gone is the familiar environment which offers the shopping experience. Based on previous shopping experience, a shopper can easily locate the isles and shelves in a brick-and-mortar store for the items he or she wants. For example, even though many shoppers complain about the store layout of IKEA as a “maze”, many of them can still successfully navigate to the shelves to get their mechanise. When switching to online shopping, shoppers will now experience difficulty in finding the items. This is because the webpage “location” of an item in an online store is based on category browsing or key word search, which may not be accurate.

Third, the conditions for impulse purchase are interfered by COVID-19. Impulse purchase is based on a direct interaction and instant ownership with a merchandise in a short period time, for which store ambiance, including but not limited to store design, décor, and merchandising activities plays a pivotal role(Levy, Weitz, Grewal, & Madore, 2017). Apparently, online shopping does not provide with the same shopping atmosphere as in an offline store. When many shoppers derive instant gratification for shopping in an offline store, online purchase deprives them of the pleasure. For example, a shopper who comes to a supermarket to purchase some groceries may be attracted by the newly set up signages for Mother’s Day, and hence, suddenly decides to purchase something as a gift for her mother. She can have the gift in possession instantly, with an imaginary gift presentation scenario formed in her mind. Online purchase makes it difficult to come up with similar shopping experience.

Finally, COVID-19 makes product returns more difficult. Product returns have been an important issue for shoppers, by which they salvage their unsatisfied purchase. At brick and mortar stores, shoppers can easily bring back their purchase. This is not easy for an online purchase. Shoppers need to interact with the post office first. Aside from the extra shipping costs, they are concerned that the returned products may be damaged or even lost on their way back to the seller, resulting in further hassles or losses. In addition, some online sellers charge a “restocking” fee for product returns, which further aggravate shoppers’ anxiety. As the COVID-19 pandemic has forced a number of stores to be closed, product returns have become difficult for many consumers.

3.Opportunities to Omni Channel Businesses

There is no doubt that under COVID-19 many online businesses enjoy a boom. For example, by September 2020, the e-commerce giant Amazon has added 14 million new users to its prime member list in the United States from 2019, reaching a total of 126 million. Amazon’s net sales have climbed 40% in the second quarter of 2020 comparing to the same period in 2019, reaching 88.9 billion USD (Helmore, 2020).

For omni-channel operators, COVID-19 is not totally bad news. It also offers an opportunity to embrace the cyberspace further. Many traditional businesses are unwillingly pushed themselves to operate online, and therefore, they have yet fully exploited the synergy of multiple channels. Fully integrated omni-channel operations will further improve their performance, and give access to a potential market they are unable to tap before.

3.1.Expanding Market Reach

As COVID-19 drives many shoppers online, omni-channel operators can leverage the store-brand loyalty among those shoppers to keep them. Many omni-channel businesses operate a limited number of offline stores, which geographically restrict their customer base. If they grow their online presence to compensate for the lost business due to COVID-19, they do not just keep their existing customers, but also win new customers.

Traditional offline retailers have limited shelf space, and as a result, the variety, i.e., the number of different merchandises offered (it is called stock keeping unit, SKU in retailing) is also limited. Expanding online operations gives infinite shelf space to omni-channel operators. Existing customers will purchase merchandise online that is not usually available in an offline store, resulting in additional sales. For example, Wal-Mart has only five to ten different kids bicycle models in its offline stores (Figure 8), trying to appeal to shoppers with the most popular models. However, that small number of SKUs may not have sufficient converge for sizes, brands, and price levels to cater to the demands of different customers. On its website www.walmart.com, the limited selection of kids’ bicycles is no longer an issue; Wal-Mart offers more 600 kids’ bicycles to choose from (Figure 9). Customers who never shop at Wal-Mart for kids’ bicycles may be attracted to do so.

Figure 8. Kids Bicyles Section in Wal-Mart Store

Figure 9. Kids Bike Choices Offered on Wal-Mart Website

During COVID-19 pandemic, many omni-channel businesses offer a combo of online order and curbside pick-up. Take Staplesone of the largest office equipment suppliers in the world—as an example, a shopper places her order online at Staples’ website, but indicates curbside pick-up rather than shipping to her address. The shopper then decides the location of pick-up, which is the closest Staples store to her address. Usually in less than a week, the shopper receives an email confirmation saying the order is ready for curbside pick-up; she is given a time window, usually within two weeks, to pick up her order. The shopper drives to the pick-up location. Up arrival, she calls the store, and an associate will bring out her order. She stays in her car, and receives her order after the associate checks her ID and order confirmation.

This new shopping method indeed caters to a new cohort of shoppers who prefer online shopping. Those shoppers usually will not go to a brick-mortar store because they disklike getting a parking spot, clueless search, and checkout waiting. Curbside pick-up solves all these issues. Shoppers wait in the car all the time; no parking is needed. Online purchase bail them out from getting lost in a grid or loop store layout. And there is no waiting for online checkout.

3.2.Implement Customer Segmentation

Omni-channel operators can customize their pricing and promotional messages on different channels to cater to different shopper segments. For example, Costco sets its online prices of appliances 5-10% higher than its in-store prices in order to cater to those shoppers who do not want to go through the hassle of loading and moving merchandise. MacDonald’s sends coupons via its smartphone app to customers to attract them to use the app for ordering whereas those customers who directly go to a MacDonald’s restaurant may not receive them.

The COVID-19 pandemic has greatly shaped individuals’ behavioral and psychological patterns, and hence, added new variety to consumer segments. For example, some customers may value the safety and therefore, prefer infection-free shopping. In comparison, some customers may cherish the physical contact with merchandise and in-person interaction with sales associates. Lots of people now work from home, and they spend more time than before on PCs. The new cohort of work-from-home may significantly swarm to the websites for shopping. On the other hand, under the pandemic many households suffer from reduced income. They may cut spending and become price sensitive and bargain prone.

Omni-channel operators shall seize the opportunities to customize and to reach out. For shoppers who prefer safety and risk-free shopping environment, they can be guided to pure online channel for information and merchandise. Emails, cellphone text messages, and app feeds can be used to reach those customers to constantly remind of new promotional activities. For shoppers who stick to offline shopping, they can still be welcomed to offline stores. Nevertheless, those stores shall offer smaller depth in price discounts or less frequent promotions, plus a waiting line for access and checkout, with shortened store hours. In other words, those shoppers also bear some of the increased operational costs caused by government restrictions. Since those shoppers will purchase in store anyway, promotion offerings will not significantly increase store traffic, and hence, shall be minimized.

As discussed earlier, regulatory restrictions that aim to contain the pandemic significantly increase the operational costs of offline stores. Omni-channel operators may prefer to divert the offline traffic to their online establishment. For example, how to direct the purchase of bargain-prone shoppers to the online website? Those shoppers are characterized by ample shopping time and high price sensitivity. A long waiting line for a good deal will not deter but attract them. Therefore, when omni-channel operators implement fewer in-store promotions, those bargain-prone shoppers are indeed de-incentivized to shop offline. On the other hand, to prevent losing those shoppers to competitors, omni-channel operators can pre-emptively send bargain-prone shoppers coupon codes via mails, emails or smartphone app feeds that can be redeemed only online.

4. Conclusion

Businesses, especially retailing businesses, have taken a heavy hit from COVID-19 pandemic. Omni-channel operators have an edge over pure offline channel businesses since they capitalize on the synergy of different channels for merchandise distribution and information transmission. In order to truly capture the synergy, omni-channel operators have to adapt to a new environment, to adjust operations, and to adopt new retailing strategies. Some changes in retail operations could be permanent. Although COVID-19 pandemic may continue to plague the world in a foreseeable future, shopping demands will not disappear, and they will be met anyway.  Omni-channel operators have an edge over other businesses, and they shall seize the opportunities for growth.