What you'll learn to do: Compare and contrast single channel, multi-channel, and omnichannel retailing
Technology has enabled consumers to search and shop across channels very easily, blurring the differences between them. In response, manufacturers, especially those with leading brands, have worked hard to develop their presence in alternative channels to capitalize upon all outlets. As a result, retailers are at a crossroads, left either to develop similar multi-channel capabilities or commit to a single channel—their brick & mortar stores.
- Define single channel, multi-channel, and omnichannel retailing
- Match descriptions of retailers with single, multi, or omni-channel retailing
- Explain the main difference between multi-channel and omnichannel retailing
Describing Retailers and Channels
Marketing channels, also known as distribution channels, are the ways that products or services get from the producer to the consumer. All of the activities in between are part of a product's distribution channel. This includes:
- Logistics: assembly, warehousing, and transportation
- Facilitation: channel coordination, marketing, promotion, financing, and post-purchase service and maintenance
- Transaction buying and selling
These activities support the exchange of goods, transferring products and services to the consumer, and transferring payments back to the producer. Over time, only value-added activities remain part of a given channel to reduce costs and ensure efficiency.
Earlier, we described the distribution channel for a can of soup. After being produced, it will be warehoused either on-site at the manufacturing facility or at a central distribution center until it is ordered by a retailer. Once ordered, it will be shipped to their warehouse and bundled with other items to be trucked to an individual store. At the store, it will be unboxed and put on the shelf to be available for shoppers.
This example reflects not only the functional activities (logistics, facilitation and transaction), but also identifies groups involved:
- Producers (manufacturers, farmers or craftsmen)
- Intermediaries (warehousers, logistics providers, wholesalers, financiers or credit providers, retailers, etc.)
- Consumers (the individual or institution making the buying decision. Note that the focus is on the individual making the buying decision because the end users of some items, such as baby or pet care products, are not engaged in the transaction.)
It is worth nothing that not all groups are involved in each marketing channel. In fact, marketing channels are distinguished by how the individual groups manage logistics, facilitation and transaction. The four marketing channels are as follows:
- Direct: Producer to consumer
- Indirect: Producer to intermediary to consumer
- Dual: Distribution to consumers through multiple channels, often determined by the producer and their development of intermediaries as channel partners
- Reverse: User to beneficiary (Note: this is an uncommon channel and one that most applies when existing goods are recycled or repurposed to re-enter the market.)
In direct distribution channels, producers market and sell their products directly to the consumer. In doing so, the producers absorb the activities and costs associated with logistics, such as warehousing and distributing their goods. However, as a trade-off, the producer has greater control over the marketing, pricing and promotion of their items. Further, because they interact directly with the consumer, they can benefit from unfiltered feedback, allowing them to optimize products, services, promotional activity or other elements of the customer experience.
Direct channels are common in commercial settings, especially where products and services are customized for individual customers, like enterprise software or industrial components. Tesla is an example of a manufacturer using a direct channel in the consumer space, as they market their cars directly to consumers without going through a dealer network. Catalogue marketing is another good example of direct channels in consumer goods. Similarly, the internet serves as a direct channel that many brands have used to broaden their reach.
Indirect channels are very familiar to us because it's what we most commonly associate with retail, especially in the grocery industry. In indirect channels, producers sell part of their inventory to a collection of wholesalers and retailers who market the product to consumers. While the inclusion of wholesalers and retailers as intermediaries does add some complexity, it also has critical benefits. It allows the individual producers and intermediaries to specialize, increasing efficiency and reducing cost. It also mitigates risk for producers because they don't own the entirety of their inventory. For the intermediaries, they will realize greater revenue for the product than the producer would have, but they've also taken on some risk by buying the product.
Dual distribution describes any marketing arrangement where the manufacturer uses multiple channels to distribute a product. For instance, they may sell directly to end users as well as through other companies for resale. Think about Apple products, which can be purchased through a direct channel either on Apple's website or at the Apple Store or through an indirect channel at a mass retailer like Target or specialty retailers like Verizon or AT&T stores.
Understanding channels, their implicit activities and their actors, is important because it helps us understand:
- How products or services get to the end user and payments are transferred back to the producer
- How channel partners mitigate risk and add value to the supply chain
- How and why firms select specific marketing channels
- How elements of the marketing mix (product, price, place and promotion) can be affected.
Single Channel, Multi-Channel, and Omni-Channel Retailing
Let’s imagine you’re planning to buy a new phone. How would you decide on the right one? Would you research online? Would you go to the manufacturers’ websites? What about blogs where users give their feedback and product reviews? Would you visit a store to see all the options in-person, asking the associate questions about performance and how each phone compares to the others? Once you’re confident that you’ve found what you want, would you buy it immediately? Would you compare prices at other retailers or wait for a sale? Would you buy it at a mass merchant or at a specialty retailer? What about online… directly from the manufacturer or through a retailer’s website?
Clearly, there are lots of options for how you can shop for and purchase an item. As you think through your own habits and purchase behavior, you can probably think of situations where you have done nearly all of these things. As a consumer, you are constantly balancing multiple decision factors like product availability, convenience, and value.
What you might not realize is that your path from search to purchase as a customer passes through and between multiple marketing channels, putting them in contrast and conflict with one another. Retailers certainly understand this and the necessity to be present in multiple channels to ensure that they can provide value and satisfy customer needs.
Think again about Apple products, which we referenced in the last section and are available in several channels. How can a manufacturer develop multiple channels simultaneously? In operating a direct channel with their website and their physical store, don’t they also put themselves in conflict with their partner retailers?
Simply put, yes. There is definitely a risk for channel conflict, which is why manufacturers must work well with their channel partners to ensure they do not alienate one another. This is happening for Apple and countless other manufacturers because consumers are no longer shopping and transacting in single channels. Furthermore, they expect accessibility, consistency and service, regardless of how they engage with their favored brands and products.
As such, it’s necessary for us to move beyond our understanding of marketing channels and consider how firms manage them. Their strategic options are single channel, multi-channel, and omni-channel.
Single channel refers to a producer or retailer’s effort to reach customers through only one distribution option, regardless of whether it’s online, face-to-face selling or traditional retail. Multi-channel refers to a producer or retailer’s effort to combine and blend different distribution channels to accommodate where and how consumers shop, ensuring that the producers and retailers will be present when the purchase decision is made. Omni-channel marketing is an expansion of the multi-channel concept by incorporating all the communication and interactions between customer, brand, and retailer, regardless of whether it’s at a point of purchase or not.
The development of channel strategies reflects the effort to provide accessibility and service to consumers, understanding changes to their shopping behavior and needs. But, doing this effectively across multiple channels demands rigor to ensure consistency in message, tone and experience.
Key Differences Between Single Channel, Multi-Channel, and Omni-Channel Retailing
Think again about your own shopping behavior. Perhaps you’re frequently in-store to see the products in-person. Maybe you shop on-line, visiting the store or brand’s websites? Are you connected with retailers or brands on Facebook? Do you follow them on Twitter to learn about new items, special releases or sales? Have you checked on Instagram to find them? Do you participate in fan boards or blogs to track updates or read reviews?
It’s possible that many, if not all, of these activities are reflected in your shopping behavior. Many of these behaviors are very common, as shopper behavior has undergone radical change, supported by greater access to technology and heightened expectations around service and responsiveness.
Why then, with so many channels available, would a brand or retailer choose to engage in anything other than the multi-channel? Simply, there are certain advantages and disadvantages to each channel strategy. That is, not all firms have the need or are capable of managing the expense of maintaining multiple channels well, especially knowing consumers’ requirements for accessibility, consistency and service.
Single channel refers to a producer or retailer’s effort to reach customers through only one distribution option, regardless of whether it’s online, catalogue, mail-order, face-to-face selling or traditional retail. This approach reduces marketing investments and organizational complexity. However, the risk with this approach is missed selling opportunities as customers shop alternative channels. This is particularly risky, given how connected and empowered consumers are in the digital age. Weber Grills and Jacuzzi Hot Tubs are both examples of manufacturers that sell through established dealer distribution networks.
Multi-channel refers to a producer or retailer’s effort to combine and blend different distribution channels to accommodate where and how consumers make purchases, ensuring that producers and retailers will be present when the purchase decision is made. The objective is to make it easy for a consumer to buy in whatever way is most appropriate for them. Multi-channel marketing allows the firm to reach its prospective or current customers at the point of purchase in a channel of their liking. Most firms with which you interact are engaged in multi-channel marketing, if not omni-channel marketing.
A multi-channel marketing strategy needs to be supported by good organizational discipline and infrastructure. At the most basic level, firms with a multi-channel strategy must ensure that the details and prices of goods are consistent across channels. To be most effective, they should also be mindful of the contribution each channel delivers to the company’s revenue and profit. To do this, they would need to track marketing spend in each channel and review metrics like customer response, conversion rate and loyalty to get an accurate picture of return on investment.
As you can clearly see, moving from a single to multi-channel strategy requires increases in structural support, including systems, analytics, and capital, to ensure consistency in service. This intensifies further with an omni-channel strategy, given that it is an expansion of the multi-channel concept.
The emergence of digital technology, social media and mobile devices have led to significant changes in the retail environment, as firms leverage connectedness in an attempt to be present in all channels of interaction. The omni-channel concept not only recognizes the range of channels available to consumers to transact, but also considers the varied interactions in the shopping process that consumers have before, during, and after purchase. The omni-channel isn’t merely concerned with transactions, it also incorporates the needs, communications, and interactions between customer, brand, and retailer. Thus, it’s important that websites, e-mail campaigns, social media messaging, and physical stores all show consistent messages, offers, and products.
Further, given consumer expectations around accessibility, these channels must also be customer-centric in their service orientation. This requires having appropriate content and responsiveness for an array of possible consumer interactions. It requires that firms maintain multiple platforms through which consumers engage. For example, think of how expectations have changed around online presence. At one time having a company website with location addresses, phone numbers, operating hours and product descriptions was sufficient.
By comparison, consumers now expect company websites to have value-added content, like product information, ratings & reviews, recommendations, and troubleshooting tips. They expect high-resolution photography and video. And some consumers prefer to engage over a wide variety of other media like social networks, not just .com.
Consumers are able to supplement the information they get about products in advertising and in-store with information they search for themselves. They use technology to search independent sites for user reviews and product ratings, as well as for promotional offers. In this environment, manufacturers and retailers must have a service orientation to ensure that consumers can get what they want when they want it. This requires a tremendous amount of content, which needs to be sourced or created and curated.
In that same way, most consumers expect manufacturers and retailers to have e-commerce capabilities. This doesn’t just reflect a need to be able to complete transactions, but requires having a system robust enough to maintain current inventory information, collect and securely store payment information, record order details for accurate fulfillment, and initiate shipping.
It’s clear that the opportunity to be present in all channels of customer interaction carries incredibly high costs. System requirements increase, especially around business intelligence and customer relationship management. The breadth and depth of content expands, meaning that there’s a need for creative production and curation. There are related demands for analysis and customer service to ensure the customer experience. And, of course, there’s a need for security to ensure that consumer information is protected.
Technology has enabled consumers to search and shop across channels very easily. In response, manufacturers and retailers have developed their presence in alternative channels to capitalize upon all outlets. Yet, there are limits to how easily firms can pursue a multi- or omni-channel strategy. Not all firms have the need or resources to maintain multiple channels well. But, for those that can, managing multiple channels of interaction means that they must be present and engage consumers well at all points in the shopping process.
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