Multi-channel selling - or so-called omnichannel - is one of the many innovations that the growing popularity of online sales is bringing to commerce. In the following article, we take a look at what distribution channels are in the light of economic theory and what it actually means in practice for entrepreneurs.
The concept of omnichannel is related to sales strategy and, more specifically, to customer service strategy. It is the result of integrating the various channels used during the sales process in order to facilitate and improve the entire shopping experience. One of the most common examples of an omnichannel strategy is integrating an online shop with its stationary counterpart and, for example, giving the customer the flexibility to make returns or complaints, independent of the form in which the product was purchased.
Through the use of a variety of distribution channels, entrepreneurs are first and foremost trying to offer a better shopping and service experience to customers, thereby increasing customer satisfaction and thus loyalty. The combination of multiple distribution channels is also beneficial for the retailer, extending its reach. Efficient, fast and hassle-free delivery of goods also plays a key role in online sales. Both small and large businesses choose to work with logistics companies. In this case, the InPost Fulfillment service is reliable. What is it all about? Find out more and contact us using the form to get in touch."
What is a distribution channel?
A distribution channel is a set of interacting and integrated persons or institutions that cooperate in the process of delivering a product or service to a customer. In short: these are all the people who contribute in an orderly and concrete way to the delivery of the goods ordered by the customer to the service recipient.
This understanding of the distribution channel allows three entities to be identified:
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Manufacturers, retail and wholesale buyers and individual or institutional buyers (i.e. persons buying and selling goods, which involves the transfer and assumption of ownership of the products supplied),
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Agents, sales representatives (persons who do not take ownership of the products supplied),
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Banks, advertising agencies, transport companies, logistics companies (institutions/persons who support the whole process of product delivery by assisting producers or commercial intermediaries).
In other words, a distribution channel is the path that a good takes from the producer to the final customer, passing between different intermediaries (or not). In practice, in the context of omnichannel, the wholesaler or distributor can also be considered as the beginning or end of the path that the good takes. A manufacturer may multichannel the goods to wholesalers, just as a retailer may reach an individual customer through multiple channels with goods from different manufacturers.
Distribution channels - classification
The type of distribution channel a company adopts is determined primarily by the type of goods it distributes, current market factors and financial, organisational and legal capabilities. It is worth bearing in mind that the choice of the right distribution channel is very important and affects both the logistics of the entire company and its marketing activities.
Distribution channels in economic theory are classified in a variety of ways, most often on the basis of one specific criterion. These may include: division by the number of participants, the number of intermediate levels, the number of intermediaries at the same level, or the degree of integration of channel participants.
Thus, for example, according to the number of participants involved in the process of supplying the product, a distinction is made between a direct channel, consisting of two tiers: the producer and the final buyer of the product in question, and an indirect channel, in which one or more intermediaries stand between the producer and the final buyer (they can have three functions: transactional, logistical and supporting). In addition, a short channel (only one intermediary) and a long channel (more than one intermediary) are still distinguished from the indirect channel. In turn, with regard to the number of intermediaries at the same level, a distinction is made between a narrow channel, in which a small number of actors are responsible for distributing the product at a given stage, and a wide channel, in which each stage of distribution involves a large number of actors.
The most extensive division is according to a criterion related to the degree of integration of the channel participants, which distinguishes between:
- Conventional channels - each successive stage of the delivery process is recognised as the final recipient for the previous stage, so that the people/institutions responsible for their stage focus only on its execution.
- Vertically integrated ducts - are the opposite of conventional channels. They create a unified and compact product delivery process.
- Administered channels - one main actor coordinates the activities of all the others and distributes the assigned tasks among them.
- Contract channels - are set up by independent operators who decide for themselves whether to participate.
- Corporate channels - participants in this channel performing activities that are normally carried out by independent entities are subordinated to the general management. Thus, the entire distribution process is performed by branches of a single corporation, which serves to increase control and, above all, reduce costs.
Omnichannel in practice
So much theory, but what does this mean in the practice of commercial operations? The most well-known distribution channels are the traditional stationary shop and the webshop . Thus, a manufacturer or distributor of a particular product or group of products may sell them through both channels. In doing so, they may have a greater or lesser level of integration. It seems obvious that it would be best to have the same range here and here, but, for example, some clothing brands have different products on the shelves and others in stationary shops. It is even more common (and more advantageous) for shops with a diverse range and/or selling large items (e.g. furniture). You can save a lot of money by running a small shop with small goods on site and selling larger sized items online. The same is true for customer service. Some companies allow you to collect, exchange and return goods purchased online from a stationary shop, while others do not. The online shop is not the only online distribution channel, by the way. Many (especially smaller) shops sell through auction services in addition to their own online website. As a result, they can use the powerful marketing machinery of these sites to promote their own goods.
The increase in popularity of e-commerce also opens up access to new distribution channels for manufacturers and wholesalers. A company that has hitherto been condemned to selling its goods through an indirect channel - i.e. through independent shops - can now supplement this form of distribution with a direct channel - the online shop. Having one's own online shop enables a manufacturer or wholesaler to offer very competitive prices for its goods, although this also requires some changes in the business profile, hiring additional staff, etc. A specific distribution channel in this case is dropshipping . It is a system in which third parties take care of finding customers and marketing online, but the direct shipment of goods to the customer is handled by the wholesaler.
Thus, we may now have to deal with a situation in which, for example, the manufacturer of a certain commodity sells it directly in a stationary shop (one next to the production plant, or even the whole chain), in its own online shop and through its Allegro profile, as well as through other online shops and auction sites in the traditional model and through dropshipping. And, of course, this does not exclude distribution through the traditional network of wholesalers and stationary shops, which can also sell online through various channels. This is omnichannel.
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