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Originally Posted On: Multichannel distribution system: benefits, drawbacks, and strategies | QuickBooks (intuit.com)
Consumers are shopping in more locations than ever. In fact, 56% of consumers 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 multi-channel distribution system.
Being able to sell your products across various platforms can prove to be highly beneficial to your bottom line. However, there are also plenty of challenges that can hinder your business’s ability to grow. From increasing competition to opening your business for nationwide delivery, there are numerous factors to consider before expanding your business.
We’ve identified the benefits and disadvantages of operating a multi-channel distribution system to help you determine whether this distribution strategy is the right next step for your business. In this guide, we’ve also provided a few strategies to help you combat common multi-channel distribution pitfalls. Keep reading to learn everything you need to know about multi-channel distribution systems, or use the links below to navigate the post.
What is a multi-channel distribution system?
Multi-channel 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. This system can include selling through a brick-and-mortar store, an online marketplace like Amazon or eBay, a large retailer, wholesaler, direct marketing, or resellers.
Think about Starbucks, which started with a physical store in Seattle. Over the years, the company has sold its products across 29,000 stores and groceries worldwide. And up until 2017, Starbucks coffee was available for purchase through a subscription on its website.
Or imagine a company like Goodyear, which develops, manufactures, markets, and distributes tires and rubber-related materials for various applications. The company also sends products to its supplier partners, auto service centers, and retailers such as Walmart and Sears.
Nowadays, consumers have a lot of different channels to shop from—both online and offline—so it’s imperative to increase your selling potential and give them options. Let’s take a look at the example below:
Marcus is a consumer looking for a birthday present for his sister. He starts his buying journey on Etsy and finds a sweater he likes, but it won’t arrive on time. When he doesn’t find the perfect gift, he moves on to Amazon to purchase the same sweater, prioritizing cost and quick shipping options. He then visits coupon sites in search of a good deal, then back to Google for a promo code before making his purchase. In this instance, being able to sell on either platform would have guaranteed a sale.
Benefits of a multi-channel distribution system
Consumers expect products to be available in more than one place, making investing in a multi-channel strategy worthwhile. Merchants can experience benefits, including:
- Improved customer perception: Brands that create a seamless buying experience provide a better overall customer experience, which can help build customer loyalty. They’re perceived as attentive to consumers’ needs, purchasing habits, and digital savviness. With multi-channel distribution, brands can also differentiate themselves not by lower price, but through convenience.
- Increased customer base: With a multi-channel distribution strategy, brands place their merchandise in the path of customers who need them—whether that be in-store or online—increasing sales, exposure, and customer reach.
- Diversifiable risk: Having multiple channels of distribution can protect merchants from relying on a single sales channel as their only source of revenue. In the event of a supply chain breakdown or suspension of a major account, merchants who diversify their channels can avoid a major hit against sales income.
- Growth into untapped markets: Going multi-channel also allows merchants to expose their products to new customers who may become 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 payout structure? With a multi-channel 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.
Disadvantages of a multi-channel distribution system
As with anything in business, there are drawbacks to multi-channel 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. And just because you build it, doesn’t mean cash will flow. You’ll need to set aside a budget for marketing and advertising.
Distributing your products across various selling platforms could spread your business’s resources too thin. Employees could also get overwhelmed and start making costly mistakes.
- Cannibalization of sales: Opening an online store could eat into your in-store sales. Visits to your physical store could go down significantly once this more convenient option is made available.
Cannibalization is a term used to refer to sales loss caused by a company’s introduction of a new product or sales channel. This event can displace a business’s older products (or pre-existing channels) rather than increase its overall market share. It’s a challenge commonly faced by retailers when crafting omnichannel shopping experiences.
- Potential for channel conflict: In multi-channel distribution, conflict can take many forms. Examples include direct sales competing with an independent distributor, similar distributors competing for a purchase, retailer vs. distributor, and small merchants vs. retail goliaths. For a real-world example, take a look at the relationship between Gillette vs. Smartly, Target’s private label. Your channels can even compete for the same customer.
- Increased complexity: With added sales channels, you now have to manage numerous inventory and SKUs, fulfill orders, work with suppliers, provide excellent customer service, and guarantee delivery. Multiply these efforts by the number of different channels you’re selling on, and you’ll see how much extra work you’ll have on your plate. Management among systems, tools, and your employees can also prove to be time consuming.
If you can’t keep up with having multiple channels, problems may start popping up. For instance, redundant processes in your warehouse, inability to meet seasonal demand, incorrect displays of stock levels, or slow fulfillment of orders can occur. These seemingly minor issues will start adding up, leading to unhappy customers.
Strategies to make multi-channel distribution a reality
Don’t let the fear of complexity stop you from expanding. With the right tools and technology under your belt, you can make your multi-channel distribution a reality for your business. Here are three best practices for setting up the optimal multi-channel distribution system:
1. First, mind your silos
With each new channel you enter, there’s a risk of increasing the complexity of your systems. Moreover, there’s a higher risk of compromised data integrity due to duplicate records or inconsistent data entry. Employees could also be entering bits and pieces of information from multiple systems incorrectly.
For example, a VIP vendor of yours may have two different email addresses in your ordering and accounting platforms. How do you know which is correct? How does one system supersede the other?
To effectively manage a multi-channel distribution system, agree on a cohesive underlying data.
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, and stock levels. Automation is the easiest, least resource-intensive way to make this possible. Automation can also be used across many facets of the supply chain, including:
- Payments and invoicing
- Order fulfillment and Available to Promise (ATP) 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
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, and resources can also significantly cut down on operational costs in the long run. Such investment doesn’t require a massive purchase in legacy enterprise resource planning software (ERP) 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.”
QuickBooks Commerce could be your ally in future-proofing your business. This platform can help you anticipate issues, course-correct, get ahead of trends, and make smart decisions in a centralized hub. A single, integrated platform will improve your revenue and speed to market, and reduce operating costs.
Using multi-channel distribution to your advantage
While opening up your business to multiple sales channels may be intimidating, it doesn’t have to be. By implementing the strategies mentioned above and leveraging a powerful multi-channel distribution platform, it can prove to be an endeavor worth pursuing.
Whether you sell through multiple sales platforms or your own website, QuickBooks Commerce aims to make the experience of managing a multi-channel and multi-location commerce easy. QuickBooks Commerce is a robust platform that seamlessly integrates with leading e-commerce apps, including Shopify, Squarespace, Amazon, and Etsy. Take a look at our complete list of QuickBooks Commerce integrations to see where you can take your business next and sign-up today.
Are you looking for more resources for your small business? Check out our thorough guide for small businesses to learn how to grow to your full potential.