Frame of Reference
This section presents a literature review of cross-channel integration and dynamic capabilities, followed by a theoretical framework that will serve as the foundation for this research and be based on the literature review.
Cross-Channel integration is the practise of developing synergy and compatibility between different channels and business units within an organisation (Cao & LI, 2015). Cross-Channel integration is defined by Yan, Wang & Zhou (2010, p. 434) as “the extent to which online and traditional channels interact with each other and, cooperate with advertising and promotion”. These definitions indicate that two areas within cross-channel integration becomes underlined. Firstly, there is a customer-centric view that aims to handle customer connections, increasing cross-channel shopping i.e. engaging customers in more than one channel. Also, the biggest factor to offer customers is a seamless familiarity in between various channels (Verhoef et al., 2015). Secondly, there is a perspective within channel interaction that focuses more on the welfares for the company (Neslin et al. 2006). Some of these important benefits that the companies must achieve are symbiosis between channels, which increases profitability for the MNC, as well as creating a common goal for the entire organisation as different units start working as a single unit thriving towards the same objectives (Neslin et al., 2006). With these aspects in mind, cross-channel integration changes its definition somewhat with e.g. Cao & Li (2015, p. 200) defining it as “Cross-channel integration is the degree to which a firm coordinates the objectives, design, and deployment of its channels to create synergies for the firm and offer particular benefits to its consumers”.
Researchers have divided the concept of cross-channel integration into subdivisions. However, how to divide it differs among different studies. For example, Bendoly et al. (2005) defines two dimensions of cross-channel integration. Firstly: physical integration, which refers to the possibility provided of making purchases across channels. Secondly: informational integration, which refers to the exchange of information that different channels can provide each other. Furthermore, informational integration is sometimes referred to as reciprocity (Bock, Lee, Kuan & Kim, 2012), store locator, or information management (Pentina & Hasty, 2009), but the fundamental sense of the term is, to a great extent, the same despite different names. Lastly, Pentina & Hasty, (2009) states that companies must engage in two types of investments in order to successfully integrate their channels. First, on a marketing level, meaning to spread awareness of the brand across the entire set of channels. Secondly, operation and information management levels, which refers to the integration of customer databases and logistical processes. In order to facilitate the terminology, this thesis will refer to the aforementioned as information integration, with two subcategories, internal and external. Internal, referring to information integration that improve corporate logistics and processes, and external, involving aspects and processes that generates customer loyalty, customer satisfaction and customer retention.
External Effects of Cross-Channel Integration
The external factors in this case refers to influences on the corporation that is the result of the cross-channel integration process i.e. factors such as e.g. customer relations, customer satisfaction and brand awareness. Furthermore, research have shown that cross-channel integration and implementation of omnichannel retailing is effective in terms of external factors. This, since customers operating through multiple channels spend more money, than customers preferring a single channel (Saunders, 2002). Moreover, when measuring the positive effects of cross-channel integration on customers, research has identified three primary variables: customer satisfaction, customer loyalty and customer retention (Frasquet & Miquel, 2017). The first variable i.e. customer satisfaction, can be defined as the accumulated affective response that a customer experiences (Oliver 1980), and has shown to have a tendency to be affected by the degree of customer empowerment. In turn, customer empowerment refers to the level of control that the customer perceives itself to have regarding decision-making when making purchases. With this in mind, as increased accessibility and product availability are two outcomes of cross-channel integration, researchers such as Wallace, Giese & Johnson (2004) as well as Frasquet & Miquel (2017) argue that the consumer empowerment also increases, which in turn affects the satisfaction in a similar manner. However, there is a flip-side to that coin as contradictory opinions have been presented in previous research as well, with e.g. Mick, Broniarczyk & Haidt (2004) saying that cross-channel integration and implementation of an omnichannel might actually cause choice paralysis and Broniarczyk & Griffin (2014) claiming that it can cause decision difficulty instead, which would not necessarily decrease the level customer empowerment, but might cause the customer satisfaction to decrease due to complexity. Finally, this has shown not to be exclusive for products as a broad multichannel portfolio of services has also shown to increase customer satisfaction in a similar manner.
Secondly, customer satisfaction tends to drive customer loyalty, meaning that the beneficial effects of implementing omnichannel retailing in terms of customer satisfaction, indirectly improves customer loyalty as well. Furthermore, as previous research has shown, there is a strong correlation between customer loyalty and profitability (Wright & Sparks 1999; Zeithaml, Berry, & Parasuraman 1996), and as customer loyalty emerges as a result of a positive perception regarding a product over time, resulting in a clear positive correlation to maintain a sustainable customer base in the long run (Oliver, 1997), it also becomes an important aspect to consider in the cross-channel integration process (Frasquet & Miquel 2017). In addition, cross-channel integration has been proven to benefit both online and offline channels in terms of increased customer loyalty, which in turn can result in further benefits for retailers in terms of word-to-mouth marketing and a greater willingness among customers to pay higher prices (Frasquet & Miquel, 2017; Schramm-Klein, Wagner, Steinmann & Morschett, 2011). Moreover, although Neslin et al. (2006) have identified that it is more difficult to increase customer loyalty on an online platform than an offline platform, if the offline channels experience high degrees of customer loyalty and trust, these values will most likely be automatically reflected on the online platform as well as a result of a halo effect i.e. the cognitive perception being influenced by previous actions within relatable contexts (Farag, Schwanen, Dijst & Faber, 2007). Hence, retailers with wide presence of physical stores and offline platforms tend to have higher degrees of customer loyalty than solely online retailers (Cao & Li, 2015). Therefore, Cao & Li, (2015) argue further that well-established brick-and-mortar retailers, with an already high customer loyalty, will benefit relatively less from cross-channel integration than retailers with either low physical presence, or low degree of customer loyalty. Furthermore, Grewal, Iyer, & Levy (2004) list several benefits of integrating different channels, e.g. customised and personal customer interactions, greater accessibility, availability and gratification. However, it has also shown to be possible to question the positive effect of cross-channel integration on customer loyalty and customer retention by discussing the concept of switching costs i.e. the barriers of seeking for other alternatives when considering a purchase (Wallace et al., 2004). As retailers adapt to omnichannel retailing and facilitates all processes regarding searching and buying products, customers switching costs decreases. As a result, the customers become less attached to specific retailers, and in general, price transparency increases (Wallace et al., 2004). In turn, this can lead to an overall decrease in customer loyalty and customer retention as well, i.e. retailers’ ability to retain customers over time (Bendoly et al., 2005). Therefore, Bendoly et al., (2005) argues that product availability affects customer retention to the largest extent when the switching costs are low and that inadequate availability,therefore, can have both short-term and long-term effect on retailers, from the perspectives of customer retention and brand reputation.
Internal Effects of Cross-Channel Integration
Integration between different channels in an MNC creates many opportunities. Ultimately, the objective is to create a better customer experience, increase customer loyalty as well as ensuring a high customer retention rate (Cao & Li, 2015). Although cross-channel integration provides many advantages to MNCs, internal conflicts easily emerge in a multichannel stage as well as the development occurs. Conflicts in between channels can be explained as states that appear as different stakeholders within different channels are in some way preventing the other channel of achieving its goals, or as goals of different channels are in conflicts with each other as well as competition amongst different channels (Balasubramanian, 1998). Further on, when integrating brick-and-mortar companies with e-commerce existing customer information needs to be transferred within the different channels in order to enable customers to use different channels for purchasing goods. This however, becomes an issue as brick-and-mortar companies use older systems and implementing these with new systems is a major challenge and expense for MNCs (Du, Cui & Su, 2018). As the cross-channels integration process is ongoing, a coordination strategy needs to be implemented between the channels in order to create understanding, identify various capabilities in the different units and of that information create an effective portfolio to implement in order to achieve additional value for consumers (Sirmon, Hitt, Ireland & Gilbert, 2010). As the coordination policy is in action, it creates the opportunity for MNCs to integrate resources as well as creating a synergy among the units (Du et al., 2018). As MNCs achieve these objectives, defining capabilities within different units as well as finding concepts and procedures to implement these capabilities within an entire organisation, the online and offline will be complementing each other and performing simultaneously in synergy. It is of importance to clearly define the coordination policy and make employees aware of it and encourage them to take action in the pursuit of omnichannel. This since, employee empowerment has been proved to positively affect retailers’ performance and effect on customers (Ugboro & Obeng, 2000).
Further on, as the strengths and capabilities within the different units have been identified, they need to be implemented within the additional channels added in the organisation. As MNCs implement new channels these have to be able to align and be compatible with the current resources of the company (Du et al., 2018). Another reported issue as brick-and-mortar companies aim at implementing an online channel is the lack of knowledge regarding how to operate online and a culture reflecting this within the company is still present (Lewis, Whysall & Foster, 2014). Therefore, Lewis et al. (2014) discusses that companies of this kind, that go through a channel transformation, also need to conduct a cultural transformation in order to be able to adapt the brick-and-mortar organisation with the newer system.
According to Hübner, Wollenburg & Holzapfel, (2016), one can describe a single channel as the classic standpoint, operating only within one channel and with a supply chain approach that is focused on e.g. solely brick-and-mortar or an electronic platform. In turn, when online shopping rose as a phenomenon, the single channel business model developed with it and businesses got the opportunity to enter people’s everyday life. As some entrepreneurs started their businesses online, developing a new type of single channel system, brick-and-mortar businesses got another opportunity to establish additional channels, in order to both communicate and sell to customers, becoming so called “bricks-and-clicks” retailers (Herhausen et al., 2015; Hübner et al., 2016). Furthermore, As Neslin et al., (2006 p. 96) defines multichannel as “the design, deployment, coordination and evaluation of channels to enhance customer value through effective customer acquisition, retention and development” it can be further argued that when companies started adopting a multichannel structure, they were making sure that their availability towards the customers increased and that they further built connections with the market. This opened up for customers to always be able to interact with companies and order goods, not only when the store is open, but also at the customers’ convenience. Further, research argue that creating, maintaining and developing multiple channels became a vital part of traditional MNCs growth and survival with the evolving markets (Wind, Mahajan & Gunther, 2002). However, the multichannel system is based on the idea that customers interact with a single channel whether online or offline, and although multiple options exist, they do not appear to be integrated from the customer’s point of view (Beck & Rygl, 2015). Furthermore, as the number of channels grow and as the markets’ digitalisation develops further, researchers have been arguing that it is no longer a question of whether or not multichannel is a necessity, but rather how to approach it in the most efficient way (e.g. Gallino Moreno, 2014; Hübner et al., 2016). With this in mind, it is argued that interacting with the market through separated, non-interactive channels has developed into not being a sustainable business model any longer (Herhausen et al., 2015; Oh, Teo & Sambamurthy, 2012). Moreover, as the multichannel systems have grown larger within corporations, flaws and fears within the systems arise: Firstly, the fear of channel cannibalisation i.e. that revenue only transfers between channels instead of creating new streams, which in turn has been a topic that researchers have been divided within (e.g. Herhausen et al., 2015; Verhoef et al., 2015). Some claim that without a synergy between the multiple channels within a corporation, a risk arises in that it is vital for MNCs to make sure that the channels can grow in symbiosis without one challenging the other but instead allowing the different channels to grow simultaneously (Verhoef et al., 2015). At the same time, studies have claimed that this cannibalisation generally does not necessarily have to be an issue, but can instead result in a complement and a tool to increase sales (Neslin et al., 2006). Nevertheless, researchers generally agree on that when there is a functional synergy between these channels, this is no longer an issue as it has been shown that this can increase the company performance through e.g. enriching the value proposition (Gallino & Moreno, 2014; Frasquet & Miquel, 2017).
Secondly, a risk with the multichannel system is the diversity, lack of collaboration and the lack of integration between the different units. As the different units are under different departments there might arise e.g. differences in pricing, promotion, marketing as well as funding towards the various units (Piotrowicz & Cuthbertson, 2014). Early on, the lack of integration was not necessarily regarded as negative, but rather as positive, seeing that it gave the customers an opportunity to do their work on various fronts. For example, Balasubramanian, Konana, & Menon (2003) discuss that for example traders, thanks to the multichannel approach, now could divide their assets into multiple online-offline components. Nevertheless, as the electronic commerce platform has developed and gotten more established into most people’s daily routine, the demand for being able to combine different channels more smoothly without losing any data rose accordingly, which has left the multichannel system as an unmodern model that has provided more problems than solutions (Verhoef et al., 2015). It is therefore of high importance for companies to start considering how to prevent this and make sure that the different channels complement each other instead and make sure that the entire business works as one instead of through silo-structured channels (Gallino & Moreno, 2014; Hübner et al., 2016; Verhoef et al., 2015).
1.4 Research Question
2.0 FRAME OF REFERENCE
2.1 Literature Review
2.2 Theoretical Framework
3.1 Research Philosophy
3.2 Research Purpose
3.3 Research Approach
3.4 Research Strategy
3.5 Previous Literature Collection
3.7 Credibility and Trustworthiness of Research
4.0 EMPIRICAL FINDINGS
4.1 Multichannel Transformation Programme
4.2 Fear of Cannibalisation?
4.3 External Aspects
4.4 Internal Aspects
4.5 Channel Development
4.6 Omnichannel Management
5.1 Dynamic Capabilities in Cross-Channel Integration
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