MULTICHANNEL SALES   |   7 minute read

Multichannel Distribution System: Benefits, Drawbacks & Strategies

Consumers are shopping in more locations than ever. 56% are likely to shop at a retailer that offers a “start anywhere, finish anywhere” cart experience. Shouldn’t your products be present where consumers are? If so, consider a multichannel distribution system.

What is a multichannel distribution system?

Multichannel distribution system is a method or structure in which a single company sets up two or more sales and marketing channels to reach one or more customer segments—through a brick and mortar store, an online marketplace like Amazon or eBay, a large retailer, wholesale, direct marketing or resellers. 

Think about Starbucks, which started with a physical store in Seattle. Over the years, they’ve sold their products across 29,000 stores and groceries worldwide. And up until 2017, Starbucks coffee was available for purchase through a subscription or their website. 

Or imagine a manufacturer like Goodyear, which develops, manufactures, markets and distributes tires (and rubber-related materials) for various applications. It sends products to their supplier partners, auto service centers, and retailers like Walmart and Sears.

Nowadays, consumers have a lot of places to shop from—both online and offline—using up to 12 channels and devices

A shopper like Marcus, for example, starts his search on Amazon then moves on to Google, prioritizing convenience and location. He visits coupon sites in search of a good deal, then back to Google for a promo code before making a purchase. 

Channel loyalty has disintegrated over the last few years; it’s a thing of the past.

Related blog: What is multichannel retailing?

think_with_google

Benefits of a multichannel distribution system

Consumers expect products to be available in more than one place, making investing in a multichannel strategy worthwhile. Merchants can experience benefits, including:

  • Improved customer perception: Brands that create a seamless buying experience can gain significant customer loyalty. They’re perceived as attentive to consumers’ needs, purchasing habits and digital-savviness. With multichannel distribution, brands can also differentiate themselves not by lower price but through convenience.

  • Increased customer base: When brands place their merchandise in the path of customers who need them, whether in-store or online, sales, exposure, and customer reach will increase.

  • Diversify risk: It can protect merchants from relying on a single sales channel. In the event of a supply chain breakdown or suspension of a major account, merchants who diversify their channels can avoid such a hit against your revenue.

  • Growing into untapped markets: Going multichannel also allows merchants to expose their products to new customers and first-time buyers, leading to more product sales. How? By selling on online marketplaces, opening a new online or physical store, trying a pop-up experience, or expanding to different geographies.
  • Greater control over your brand’s future: Wouldn’t it be nice not to fear Amazon’s changing algorithm or pay-out structure? With a multichannel strategy, you’re not reliant on a single platform. You’re free to optimize your supply chain on your terms, get creative with your marketing, and have complete access to your customer base. How to build a good pre-order strategy

shopping-2616824_640Image by StockSnap from Pixabay 

Disadvantages of a multichannel distribution system

As with anything in business, there are drawbacks to multichannel selling. Although this strategy can increase your sales and brand exposure, be prepared to face:

  • Higher costs in labor and materials: More products in more places mean more suppliers, geographically dispersed warehouses, staff to fulfill orders, and additional shipping costs. This strategy requires more money. But just because you build it, doesn’t mean they will come. You’ll need to set aside a budget for marketing and advertising. 

    You could be spreading yourself and resources too thin. Employees could get overwhelmed and start making costly mistakes.

  • Cannibalization of sales: Opening an online store could eat into your in-store experience. Visits to your physical store could go down significantly once this more convenient option is made available. CNBC’s Jim Cramer even made this comment: “The better Nordstrom’s website becomes, the less incentive you have to actually go to their stores. In other words, they are cannibalizing themselves.”

    Cannibalization is a term used to refer to sales loss caused by a company’s introduction of a new product or sales channel that displaces its own older products (or pre-existing channels) rather than increasing the company’s overall market share. It’s a challenge faced by retailers when crafting omnichannel shopping experiences.

  • Potential for channel conflict: In multichannel distribution, conflict can take many forms: direct sales competing with an independent distributor, two similar distributors competing for the purchase, retailer vs. distributor (Gillette vs Smartly, Target’s private label), small merchants vs. retail goliaths, or your channels competing for the same customer.

  • Increased complexity: You have to manage thousands of inventory and SKUs, fulfill orders, work with suppliers, provide excellent customer service, and guarantee delivery times. Multiply these efforts by the number of extra channels you’re selling on. Management among systems, tools, and your employees can prove to be time-consuming.

    If you can’t keep up, problems will start popping up: redundant processes in warehouses, inability to meet seasonal demand, incorrect displays of stock levels, or slow fulfillment of orders. These seemingly minor issues will start adding up, leading to unhappy customers. 

Related blog: The difference between multichannel and omnichannel retail

MultichannelSalesOptions

Strategies to make multichannel distribution a reality

Don’t let the fear of complexity stop you from expanding your business. Here are three best practices on how to setup the optimal multichannel distribution system:

1. First, mind your silos
With each new channel you enter, there’s a risk of the increasing complexity of your systems, and a higher risk of compromised data integrity due to duplicate records or inconsistent data entry. Employees could be entering bits and pieces of information in multiple systems. 

For example, a VIP vendor of yours may have two different email addresses in your ordering (Shopify) and accounting (Xero) platforms. How do you know which value is correct? How does one system supersede the other?

To effectively manage a multichannel distribution system, agree on a cohesive underlying data. So instead of asking, “which value is more correct,” consider changing your mindset to ask, “how can we unify our data just to have one value?”

2. Create a frictionless sales relationship

Frictionless sales relationships are made possible by quick responses and access to rich information–from sizes, color variety, high-res images, stock levels, etc. Automation is the easiest, least resource intensive way to make this more possible.

Automation can be utilized across many facets of the supply chain, including:
  • Payments and invoicing
  • Order fulfillment and inventory updates
  • Customer service, including tracking generation and email confirmation
  • Picking and/or packing 
  • Setting and tracking revenue and expansion goals
  • Applying bulk actions for high-order volumes
  • Selling across multiple channels, and more.

In a digital age, businesses need to optimize their workflows to maintain a competitive edge. Supply chain automation enables you to do that. Investment in the right tools, processes (i.e., APIs), and resources can also significantly cut down on operational costs in the long run. Such investment doesn’t require a massive investment in a legacy ERP software or a small army of IT staff to implement it. 

3. Future-proof your business

To manage the data coming in from all of these outlets, native integrations, APIs, and suppliers, you’ll need a single source of truth or a “golden record.” 

TradeGecko could be your ally in future-proofing your business. Our software can help you anticipate issues, course-correct, get ahead of trends, and make smart decisions. A single, integrated platform will improve your revenue and speed to market, and reduce operating costs. 

Whether you sell through multiple physical locations, your own website, or one or more global marketplaces, TradeGecko aims to make the experience of managing a multichannel and multi-location commerce company as simple and painless as possible. TradeGecko is a powerful tool that will also help your business use data analytics in predictive and prescriptive ways.

homepage-masthead-2019-sm-2


To find out how TradeGecko can help your eCommerce business reach new heights.

Start your FREE trial today.

Get started