Visualising Trade-offs of Objectives in Omnichannel Management:

A Mental Model Approach

Gültekin Cakir

Innovation Value Institute, School of Business, Maynooth University, Maynooth, Ireland

Keywords: Omnichannel Management, Mental Models, Trade-offs, Channel Integration, Visualisation, Customer

Experience.

Abstract: The retail industry is undergoing a major transformation process and retailers struggle in implementing a

sustainable omnichannel strategy. For retailers, it is of crucial importance to achieve channel integration in

order to generate a seamless customer experience. At the same time, balancing profitability while undergoing

transition into omnichannel retailing poses a major challenge for many retail managers. These trade-offs can

increase complexity and additional difficulties in decision-making. Mental models help to understand

complex systems and behaviour and can support managers in decision-making processes. This paper proposes

early work and an initial concept of a mental model arranging three critical objectives in omnichannel

management: channel integration, customer experience generation, and economic value creation. Through a

Venn Diagram approach, the relations between the objectives along with various scenarios of their

achievements are illustrated, representing different states a retailer can undergo while following a transition

towards omnichannel. Recommendations for actions are outlined for each scenario which can help retail

managers to mentally depict dynamic relationships between objectives.

1 INTRODUCTION

With the dawn of the digitalisation of the retailing

industry, the omnichannel phenomenon emerged and

customers today shop across channels and expect a

seamless customer experience (Hagberg et al., 2016;

Grewal et al., 2017; Brynjolfsson et al., 2013;

Verhoef et al., 2009; Verhoef et al., 2015).

However, for retailers, providing a seamless

customer experience across all channels represents

still a huge challenge (Hosseini et al., 2018). Channel

integration is key to achieve omnichannel retailing

and seamless transition across channels (Bijmolt et

al., 2019). Following an omnichannel approach can

be beneficial as studies show that channel integration

is positively related to retail performance (Pauwels &

Neslin, 2015; Cao & Li, 2015) – once realised.

While transitioning towards omnichannel

retailing, decision-makers are required to balance the

trade-offs in fulfilling customer-related as well as

shareholder-value-related objectives (Gademann &

Brandt, 2016; Zhang et al., 2010).

https://orcid.org/0000-0001-9715-7167

Mental models help to understand complex

system behaviour and can support decision-makers in

making appropriate judgements and conclusions,

especially for trade-off scenarios (Kaplan & Norton,

1996a). This paper proposes the idea and initial

concept of a visual mental model approach

understanding the dynamic relationship and trade-

offs between omnichannel objectives. The aim is to

develop a heuristic approach in aligning “Channel

Integration”, “Customer Experience Generation” and

“Economic Value Creation” understood as critical

objectives in achieving transition into omnichannel

retailing.

With a Venn Diagram approach, various

mechanics of the mental model are shown and

implications for different scenarios discussed, giving

potential practical guidance for retail managers for

goal achievement towards omnichannel retailing.

Also, from an HCI perspective, visualisation via

mental models can further contribute to the

development of HCI systems (Li et al., 2016),

relevant in the retailing sector.

Cakir, G.

Visualising Trade-offs of Objectives in Omnichannel Management: A Mental Model Approach.

DOI: 10.5220/0010214002910298

In Proceedings of the 4th International Conference on Computer-Human Interaction Research and Applications (CHIRA 2020), pages 291-298

ISBN: 978-989-758-480-0

291

The rest of the paper is organised as follows. The

next section outlines the basic understanding of

“omnichannel retailing”, the current phenomenon in

the retailing industry, along with its critical objectives

and the notion of trade-off relationships to consider.

Thereafter, the concept of “mental models” is

explained. The subsequent sections outline related

work and the methodological approach, followed by

the proposition of a conceptual mental model,

visualised by Venn Diagrams. Descriptions along the

visualisation with various mechanics and scenarios of

the model are shown. Finally, the last section

concludes the paper, stating limitations and future

research of this work.

2 BACKGROUND

The following section describes the concept of

omnichannel retailing along with its critical

objectives as well as the notion of mental models.

2.1 Omnichannel Retailing and

Trade-offs in Objectives

Omnichannel retailing refers to the concept of

seamless and simultaneous use of all channels by

customers (Shi, 2017). Verhoef defines the

management of omnichannel retailing as “the

synergetic management of the numerous available

channels and customer touchpoints, in such a way

that the customer experience across channels and the

performance over channels is optimized.” (Verhoef et

al., 2015, p.176). For this, digital technologies such

as smart mirrors, beacons, VR/AR, IoT, fog / edge

computing (e.g. Mosquera et al., 2018; Iftikhar et al.,

2019; Zimmermann et al., 2019); AI and AI

applications (e.g. Cirqueira et al., 2019a; Cirqueira et

al., 2019b; Mora et al., 2020) as well as consumer

oriented concepts such as personalisation (e.g.

Wetzlinger et al., 2017; Bielozorov et al., 2019) are

leveraged.

Realising an omnichannel approach implies the

ability to integrate and align all existing channels

(Bijmolt et al., 2019; Zentes et al., 2016; Rigby,

2011). Channel integration is defined as the degree

to which different channels interact with each other

(Herhausen et al., 2015; Bendoly et al., 2005) in order

to provide a seamless customer experience. This

entails the integration on different levels such as

organisation (Saghiri et al., 2017) or operations

(assortment, inventory, pricing, logistics, etc.) (Zhang

et al., 2010), representing a crucial objective to realise

while undergoing omnichannel transformation.

Customer experience developed to the most

critical aspect in the retail industry today

(Brynjolfsson et al., 2013; Piotrowicz & Cuthbertson,

2014; Verhoef et al., 2015) and represents the leading

management objective (Lemon & Verhoef, 2016) as

well as is a strategic objective of non-financial nature

(Cakir et al., 2019). It is defined as “a

multidimensional construct focusing on a customer’s

cognitive, emotional, behavioural, sensorial, and

social responses to a firm’s offerings during the

customer’s entire purchase journey …” (Lemon &

Verhoef, 2016, p.71). It is of also crucial relevance

for the development of competitive advantage

(Kranzbühler et al., 2018).

Conflicting goals represent a trade-off problem

where a decision-maker is confronted with trading off

the realisation of one goal against another goal

(Keeney & Raiffa, 1993, Figure 1).

Figure 1: Trade-off-relation between two objectives

(simplified, based on Keeney & Raiffa, 1993).

Each decision (shown by x on the graph, Figure 1)

depicts a trade-off situation where the degree of

achievement of one objective is sacrificed against the

achievement of the other objective.

The aspiration towards the realisation of an

omnichannel strategy implies dealing with

conflicting objectives. Meeting customer-related

goals (represented by the objective “customer

experience”) can conflict with existing shareholder-

value-related business objectives (Gademann &

Brandt, 2016). Shareholder-value-related goals

usually represent economic value creation and

objectives of financial nature (e.g. profitability, return

on investment). As the transition towards

omnichannel retailing can pose significant shifts and

realignment in resource allocation as well as drastic

investments in digital technologies, overall

profitability is stressed as a consequence (e.g. Zhang

et al., 2010).

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Of course, conflicting goals are true for any

business in general; however, in an omnichannel

context, realising customer experience is of particular

importance as the customer is the core of any activity

out of an omnichannel strategy (Gademann & Brandt,

2016). This is also evident through an increase in the

role of “customer experience” as a concept of interest

in recent retailing research (Cakir et al., 2019). More

importantly in this context, “channel integration” is

key to align the above-mentioned objectives. The

assumption is, once channel integration is achieved,

superior customer experience along all channels can

be realised (e.g. Herhausen et al., 2015), postulating

a positive relationship between these objectives.

2.2 Mental Models

Mental models can be understood as mental

representations of external systems that are used by

individuals (e.g. managers) in order to describe,

explain, and predict behaviour of those systems

(Johnson-Laird, 1983). They are of subjective nature

and intend to support a decision-maker’s judgements

and decisions (Markman, 2013; Markman & Gentner,

2001) as they are created and adjusted through

interactions with real business systems (e.g. business

operations) they manage (Capelo & Dias, 2009).

They, therefore, involve assumptions and

expectations based on experience and knowledge on

system behaviour (Kaplan & Norton, 1996; Lant et

al., 1992). Meadows et al. state that “each person

carries in his head a mental model, an abstraction of

all his perceptions and experiences in the world,

which he uses to guide his decisions…” (Meadows et

al., 1974, pp. 4-5). Mental models are also used in the

context of teamwork and team performance. The idea

represents the ability to predict team member

behaviour and needs in order to improve coordination

and decision-making (e.g. Denzau & North, 2000;

Converse et al., 1993).

A well-known exemplary mental model is the

“Circle of Competence” developed by Warren Buffet

and Charlie Munger (Figure 2). With the help of an

Euler Diagram, the visualisation differentiates

between an inner circle “What you know” and an

outer circle “What you think you know” in an

investment context (Street, 2013). The concept aims

to show the boundaries of one’s own competence to

realise the limits in decision-making (“only invest in

those things you know about”). The idea is to respect

your own boundaries and make investment decisions

according to your knowledge sphere and not to follow

“what you think you know”.

Figure 2: "Circle of Competence" mental model.

3 RELATED WORK

Literature addressing the tension between achieving

different objectives while undergoing omnichannel

transition is scarce. Nevertheless, several studies

contribute to the discourse from different

perspectives. The following provides an outline of the

most relevant studies.

For example, Kumar et al. (2017) propose a

framework aligning strategies and actions from a

market, firm, store, and customer perspective,

influencing the overall objective “retailer

profitability”. Although not explicitly discussing

objectives and their relationships, the study shows

“customer experience” as a strategic aspect affecting

the overall objective “retailer profitability”.

Furthermore, the study is not specifically

demonstrating an omnichannel emphasise but covers

the notion from a higher industry level. Through a

qualitative grounded theory approach, Cao & Li

(2015) find out that cross-channel integration

stimulates sales-growth. However, a customer

experience perspective is left out. The study by Oh et

al. (2012) relate channel integration (enabled by IT)

to firm performance and takes into account human

resources. Empirically grounded findings postulate a

positive relationship and underline efficient offering

delivery and innovativeness in future offering

creation. However, customer experience is not

addressed explicitly, and the context can be regarded

as pre-omnichannel / cross-channel.

4 METHODOLOGY

The concept of Venn Diagrams is used to visualise

the mental model, along with shared and overlapping

sections (Venn, 1880). Three circles represent the

above-outlined concepts

What you

know

What you

think you

know

Circle of

Competence

Visualising Trade-offs of Objectives in Omnichannel Management: A Mental Model Approach

293

• Channel Integration (CI)

• Economic Value (EV) Creation and

• Customer Experience (CX) Generation,

resembling the three critical management objectives

to realise a sustainable omnichannel strategy (Table

1).

Figure 3: Mental model visualised as a Venn Diagram.

The intersections depict the relationship between

the concepts of the model. The larger the overlap the

more complementary the two objectives are to each

other, reflecting their positive relationship (Figure 3).

Table 1: Description of omnichannel objectives.

ective Description

Channel

Integration

This objective is realised when

channels are integrated in such a

way that alignment and interaction

among these are ensured and

operational. Realisation is driven

through investments in e.g. digital

technologies, restructuring efforts,

or acquisition of relevant know-

how.

Customer

Experience

Generation

This objective is realised when a

seamless transition along the

customer journey across all

available channels is ensured for

the customer. Reflects customer-

oriented ob

ectives.

Economic

Value

Creation

This objective is realised when the

retailer is able to generate financial

value (e.g. profitability). Reflects

shareholde

-value ob

ectives.

E.g. a high overlap of channel integration and

customer experience depicts a strong positive

relationship (“the realisation of channel integration

relates to the generation of customer experience”).

Theoretically, full overlap, evident by fully congruent

circles, would reflect a perfect harmonic relationship

between all three objectives.

For the approach in this study, trade-off

relationships are considered under certainty to

simplify and eliminate uncertain consequences

(Keeney & Raiffa, 1993). Furthermore, in line with

the subjective nature of a mental model (Markman,

2013; Markman & Gentner, 2001), the concept

follows a non-formalized approach (Keeney &

Raiffa, 1993) because of the same reason.

The underlying theory is provided by Gross et al.

(2016), which is based on the Attention-Based View

of the firm (Ocasio, 1997). The study discusses

founders’ mental models (and cognitive boundaries)

and how they influence business model configuration

/ innovation based on the specific decisions the

individuals make. For this, the authors decompose the

business model configuration into components

(customer value proposition, resources and

capabilities and economic logic) and reflect their

mechanics for business model configuration (Figure

4).

Figure 4: Mental Models for Business Model Configuration

(Gross et al., 2016).

5 MENTAL MODEL

VISUALISING OMNICHANNEL

MANAGEMENT OBJECTIVES

The mental model can reflect five basic constellations

and scenarios a manager might be confronted with

while pursuing an omnichannel approach.

(1) High CX Generation / Low EV Creation

This scenario shows the positive relationship between

the objectives CI and CX (Figure 5). However, EV is

not or barely achieved. This mental model

constellation can represent scenarios in which a

retailer is achieving a distinct customer experience

Economic

Value

Customer

Experience

Channel

Integration

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through effective channel integration but fails to stay

profitable while doing so. The priority lies in the

customer experience generation and thus can

represent retailers who are customer-centric and

follow a strong customer-oriented strategy. This is in

line with the omnichannel principle in aligning all

channels in order to generate positive customer

experience (e.g. Verhoef et al., 2015).

Here, it is recommended to exploit the high CX

achievement and translate the value created to

financial impact. In addition, improving cost-

effectiveness for CI activities can further increase the

achievement of EV goals.

Figure 5: High CX Generation / Low EV Creation.

(2) High EV Creation / Low CX Generation

In this constellation, there is a positive relationship

between the realisation of CI and the objective EV.

However, no substantial CX generation is achieved

(Figure 6). Here, ineffective channel integration

efforts are made making the business profitable but

failing at generating important CX. This might be

explained by ineffective but cost-effective CI

measures that favour meeting profitability goals over

CX goals.

The recommended action here is coordinating

channel integration activities towards CX (effective

CI) as well as considering investing in more CI

activities. Prioritising CX over EV while doing so

represents the appropriate rationale and direction in

achieving omnichannel transition.

Furthermore, it should be noted that this

constellation cannot be of sustainable nature if there

are no long-term investments towards CX generation

made as the industry and competition follows the

trend in providing a distinctive customer experience.

This constellation and constellation (1) represent the

typical trade-off problem current retailers are faced

with.

Figure 6: High EV Creation / Low CX Generation.

(3) Low CX Generation / Low EV Creation

This scenario can be described as a pre-omnichannel-

stage as CI is not fulfilled as well as there is no CX

generation. As a result, no substantial EV is created

(Figure 7).

In this scenario, the business is deemed to fail in

achieving any critical objective and should reconsider

the current strategy immediately. It is recommended

to drive CI activities to generate CX.

Figure 7: Low CX Generation / Low EV Creation.

(4) High CX Generation / High EV Creation

but no CI Achievement

In this scenario, the business generated high CX and

is profitable at the same time (high EV creation).

However, this is a result of no CI activities as channel

integration is not achieved (Figure 8).

This constellation can depict scenarios in which

retailers provide a high CX without following an

omnichannel approach with integrated channels. In

those cases, it is important to realise that this strategy

does not lie on a sustainable ground as competition

successively follows an integrated approach, and

sooner or later the retailer will fall back (customers

will turn towards integrated retailers and EV will drop

eventually). It is recommended to make use of the

Visualising Trade-offs of Objectives in Omnichannel Management: A Mental Model Approach

295

high EV output and make sustainable investments in

CI activities.

Figure 8: High CX Generation / High EV Creation but no

CI achievement.

(5) Towards Omnichannel Approach

The intersection between all three objectives

represents a balanced constellation, harmonizing all

three objectives. Achieving CI leads to the generation

of high CX and high EV creation at the same time

(Figure 9). CI activities are effective. It represents the

ideal scenario and serves as a mental aspiration.

Once achieved, it is recommended to keep this

constellation and optimise further the balance

between the objectives. This scenario reflects a

successful direction towards a sustained omnichannel

approach.

Figure 9: Towards Omnichannel Approach.

The above-mentioned scenarios reflect a possible

setting while undergoing omnichannel

transformation. Especially, it is shown that the mental

model is able to

• depict relevant and critical objectives in realising

an omnichannel strategy,

• support decision-makers in realising the trade-off

relationships between those objectives, and

• support decision-makers in realising implications

of certain scenarios and understand possible

actions to overcome shortcomings in their current

state.

6 CONCLUSIONS

The challenge in realising an omnichannel strategy is

of major relevance for current retailers and demand

an understanding of trade-off relationships between

critical objectives. This paper proposes an initial idea

of utilising a mental model approach, relating the

omnichannel management objectives “Channel

Integration”, “Customer Experience Generation” and

“Economic Value Generation” and visualising

different dynamics and scenarios in their

achievements. With this, retail managers are able to

reflect the need for balancing financial and non-

financial objectives, realise the trade-offs while

achieving one objective or the other, and understand

and predict certain scenarios with the aim to act

towards omnichannel realisation.

This short paper is an early work and involves the

following limitations. It represents an initial idea and

is subject to be further developed. Currently, there is

no validation as the concept requires to be evaluated

by empirical means such as case studies. Another

limitation is given by the fact that the proposed

constellations of the mental model are not covering

all relevant scenarios. More elaboration would also be

necessary regarding the time perspective: e.g. how do

those scenarios relate to each other from a time

perspective? Additionally, reflecting upon an HCI

application perspective can further help to contribute

to the field and eventually develop towards a potential

instantiation (e.g. scorecard tool).

ACKNOWLEDGEMENTS

This project has received funding from the European

Union’s Horizon 2020 research and innovation

programme under the Marie Skłodowska-Curie grant

agreement No. 765395, and was also supported, in

part, by Science Foundation Ireland grant

13/RC/2094 and co-funded under the European

Regional Development Fund through the Southern &

Eastern Regional Operational Programme to Lero –

the Irish Software Research Centre (www.lero.ie).

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