Multichannel retailing - definition, challenges and strategy

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Over recent decades retailing trends have changed a lot. Sales are moving from brick and mortar stores to online stores. Marketplaces dominate the markets, and their number is increasing. Customers are very demanding - they want to buy a product at the moment they realize the need, and they expect the product to be available. Under these circumstances a multichannel retailing strategy has become very important for a lot of traders.

Multichannel retailing definition

Multichannel retailing is the practice of selling products and services via multiple channels, to enable customers to make a quick buying decision wherever they are. The most popular example is a mixture of stationary and online trade - a customer can become acquainted with a product in the offline store and buy it in the online store. Multichannel retailing means moving beyond your own website and selling through marketplaces, social media, online and offline stores, and other channels.

According to a study, 73% of consumers used multiple channels while shopping. It’s obvious that selling in physical stores only is not enough. Many businesses still, however, operate through a single channel. Multichannel retailing offers many new possibilities especially to small and medium-sized businesses.

One of the most important advantages of multichannel retailing is that the risk that a customer will drop out due to restrictions on the respective channel is reduced, because it is possible to pick this customer up by another channel.

Differentiation from cross-channel and omnichannel sales

In multichannel retailing, the channels are organized independently of each other. So the customer can’t start in one channel and continue onto another. There is no integration of distribution channels, buying takes place in just one channel.

Cross-channel is a further development of multichannel retailing. By cross-selling several channels are coordinated with each other, the customer may switch between them. So they can buy products in an online store and pick their order up in an offline store.

Omnichannel is a more widely seen concept and is a further development of cross-channel retailing. A single view of the customer and his preferences is created and is modified across all channels he visits. As customer data is gathered and shared across all channels simultaneously the customer may get the same product recommendations in each channel used. This enables the customer to use several channels enjoying a seamless customer experience. It doesn’t matter in which channel the decision to buy is met, the important factor is that it is met.

Benefits

Improved brand image

When compared to the many brands offering multichannel interactions, a single-channel brand would fail to provide a decent customer experience and would seem obsolete. The brands that are present on several channels where the audience interacts, appear responsive to customer's needs, and enjoy more loyalty.

New target audiences

Different audience segments are often active on different channels. For example, Baby Boomers usually shop in physical stores and Millenials prefer making purchases online (and mostly mobile). Also, Millennials are strongly influenced by social media posts and user’s reviews, and they’re likely to buy on Facebook or Instagram directly. To reach a specific audience, you need to sell and communicate via the channel they prefer.

Increased sales

Consumers don’t buy an item the first time they see it. They prefer to browse, read reviews, compare prices. This is true for both offline and online shopping. If you reach customers via more channels, placing your products on social media, online marketplaces, partners’ websites, etc, the chances that they will buy from you increase.

More control over the brand’s future

If you sell on a single channel, you depend on its consistency. In multichannel retail, even if your website’s down, or Amazon changes an algorithm or pay-out structure, or you have to close your offline store - you’re still selling on the rest of the channels. You don’t have to rely on a single platform.

Gaining insights into your customers’ shopping behaviour

You can better understand consumers if you collect and compare data from diverse sources. The analytics of their browsing behaviour on different channels should include how long they browse for, when they buy, and what impacts their choices. This will help you to improve your strategy, separately for each channel, and for all the channels in general. Consumers are more likely to share their personal data if they can do it in a channel they feel confident in using.

The challenges of multichannel retailing

Choosing the right channels

Planning and choosing the right channels can be challenging and it may be a problem for medium-sized and small companies, because of their limited resources. Setting up and maintaining multiple channels is time-consuming, and the golden mean has to be found. You can be very successful using a few channels, if you choose them well. So analyze the statistics for each channel before allocating large marketing budgets to them.

Infrastructure and fulfillment

Selling products and providing customer service on multiple channels requires that you grow your infrastructure and establish new processes. If the infrastructure is not ready to expand beyond one channel, the result may be a backlog of orders. We live in the era of same-day delivery. So try to organize your fulfillment by providing really fast delivery for each of your channels. If possible, try to use different automation tools to support your growth over all promising channels.

Coordinating inventory management

When orders arrive from multiple channels, you need real-time inventory syncing. In multichannel retailing, it’s inappropriate to manage stock through spreadsheets and outdated legacy systems. It will result in such problems as understocking, overselling, backorders, and a bad customer experience in the end. Usually, the corresponding software can make multichannel inventory management easy. Implement such software if you still don’t have it or upgrade your existing systems. Use Amazon FBA, third party logistics, drop shipping or comparative services to extend your fulfillment options and support your growth.

Costly investments

Expanding to multiple channels is expensive, considering the infrastructure and marketing expenses. Each channel requires setup, customization, employees to manage it. Do the investments wisely. Test each new channel by analyzing statistics and market trends, before you invest a fortune in it. Don't try to append all possible channels at once. Add the next one only once you succeeded with the previous one.

Maintaining consistent pricing

If you fail to keep your pricing consistent, it will confuse the customers and may result in a negative impact on the brand reputation. Also, the channel with the lowest price will get prioritized.

For example, on Amazon, many DTC brands experience price pressure and have to push down their profit margins.

Changing promotion strategy

You have to adjust your marketing and advertisement to a new approach. The strategy should be built so that the channels complement each other and don’t interfere. For example, in some cases it is counter-productive to redirect customers from social media to your website, when they can purchase right on Instagram or Facebook. The advertising budget should also be adjusted.

How to develop an effective multichannel strategy

Effective multichannel retailing requires effective multichannel marketing. Your products fulfill a certain purpose for your customers and your brand should include a certain message, which should be transferred to the customer. This message should be the same over all channels, but the target group may differ. So the marketing message should be adjusted taking account of which target groups occupy the channels. A good measure for channel-specific marketing could be the number of sales over each channel considered.

Understand your target audience

Your research may be based on your current customers or prospects. Build their personas, define the platforms on which they are present. Segment your customers by demographics, location, and other characteristics. For example, if your customers are in China, you need to sell on Wechat; if they are between 18 and 24 years old and live in the US, they are likely to shop on Instagram.

Consider the specifics of your product

Different channels may offer opportunities depending on the specifics of your products. Fashion and houseware brands sell well using Pinterest because people search there for ideas and can be converted to customers. Household appliances can be sold on TV.

Choose the platforms where you should be present

It doesn’t make sense to try to expand onto every channel. In fact, it’s better to start small, choosing two or three relevant channels, and then to expand later. Measure the success of spent marketing budgets on each channel and make the largest investments only in the most successful channels.

Uniform appearance on all channels

Uniform appearance over all channels may be important not only to transfer the brand value, but also to save costs, eg by unifying processes in your ERP system and creating the same templates for order confirmation, invoicing and so on.

Integrate the distribution channels

Many online retailers have come to realize, that increasing the number of channels leads to increased costs and time spent. Developing a cross-channel solution for product distribution and order processing may help you to avoid precisely these efforts.

Plan your infrastructure and automate the fulfillment

You should take care of all the logistics details before you receive orders on new channels. Fulfilling every single order and preparing for shipment by the service provider takes much time. A good example of fulfillment automation is the Amazon FBA-Program (stands for “Fulfillment by Amazon”).

Prepare everything for high-quality service

Define the type of promotion you’ll use for each channel. Plan the marketing campaign and the communication with customers. Is there any channel-specific content you can deliver? What channel-specific advertising can you use? Will your messaging interfere with other channels?

Define the attribution model to measure your success

You should also plan how you’re going to measure the performance. There are various attribution models for keeping track of the effectiveness of each channel. In this way, you can understand which channels really work well for your company.

Continuously optimize your strategy

It can be helpful to start with several lower-cost channels and expand further as you see the results of your multichannel strategy. It’s important to be flexible and optimize your strategy as you go.

Use a PIM System

Using multiple channels demands that you prepare and optimize the product information according to the channel needs. It can be a very time-consuming process. Use a PIM system as a single source of truth for your product information to support your multichannel strategy. With an increase in channels using a PIM-system can be really helpful and can save you a lot of time and money.

Conclusion

Multichannel retailing is an inevitable step for every retail company. If you’re still selling on one channel, you should start building a multichannel strategy to catch up with the competition. It’s necessary step to increase sales, and improve the brand’s image and customer loyalty. When you go multichannel you no longer depend on a single channel so you lower your risks. Be prepared to invest in the expansion and get your infrastructure ready for increased sales.


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