We have written this book to provide guidance on how a supplier can manage the multiple distribution channels—physical and digital, independent and company-owned—through which its products reach end consumers today. Multi-channel distribution is sometimes conflated with omni-channel marketing but the two are very different. Omni-channel is primarily a retail concept. It represents efforts by a retailer to integrate its different touchpoints with consumers so that the consumer’s overall experience with the retailer is “seamless.” A consumer might want to get advice from a salesperson in the retailer’s brick-and-mortar store, order a particular color and size for same- or next-day delivery on the retailer’s app, and perhaps exchange or return part of the order back in the store. The retailer, who owns all of these interfaces, tries to coordinate the whole series of transactions and the relationship with the consumer—the same as you would experience if you were conversing with a friend in person, over email, on the phone, or by text. The memories, the relationship, and the flow of topics of conversation all remain uninterrupted. Omni-channel is harder to execute than it appears at the surface, and most retailers are still struggling to perfect it.
Now consider an upstream supplier who sells its product line to and through different types of retailers (even if it also has a direct-to consumer retail operation). The retailers are independent firms that compete with one another, and the supplier does not have ownership control over them. Can the supplier create a seamless omni-channel experience for consumers across all those retailers? Browsing at one retailer, purchases at another retailer, returns at a third? Most likely not. Should the supplier even make that an objective? The same products, the same services, the same prices everywhere? In some instances, perhaps. In many others, probably not. The supplier’s perspective, certainly by necessity and often by choice, is one of multiple channels and multiple channel partners. Of course, the supplier’s multi-channel distribution is driven by where, why, and how consumer segments shop, and it requires coordination. But the coordination is focused on the supplier’s various independent channels as it strives to optimize market coverage and selling effort while minimizing conflicts among channel partners. Satisfying the requirements of omni-channel resellers needs to be part of a supplier’s toolkit, but that is only one of many important considerations in multi-channel distribution.
Consider Brooks Running, a company we will come back to frequently in this book. As a performance running shoe manufacturer, it wants to meet runners where they search and where they buy, so it distributes its full product line through multiple channels, from specialty running stores to omni-channel general sporting goods chains and some pure-play online retailers, and it has its own direct digital channel. Companies like Brooks must develop a set of metrics by which to measure distribution coverage and channel partner efforts and consider whether they should reward some channels for being used as showrooms, even if purchases, especially repeat ones, are made elsewhere. In contrast, many other suppliers don’t want to sell the same products at the same prices in all channels, especially online. Burberry decided to sell a few products through Amazon.com in exchange for Amazon’s cooperation in weeding out unauthorized sellers but it keeps most of its product line for its own stores and for selected retail partners. In both cases the goals are the same—to reduce channel conflict and preserve the equity of their flagship brands while still having sufficient distribution coverage—even if the approaches are different.
The web and mobile have occupied center stage in most descriptions of how distribution channels are evolving, but this is far from the whole story. Even companies that were “born digital” have discovered that they need to be present in, if not master, traditional distribution channels. Walmart-owned clothing marketer Bonobos not only has its own web and brick-and-mortar “guide shops” but is also using independent retailer Nordstrom. Jessica Alba founded the Honest Company as an e-commerce business (proclaiming that supermarkets are not where consumers should have to shop for diapers, detergents, and the like) but the company is now working hard to get its products on the shelf in the grocery channel. Like brands that are rooted in physical distribution and are now navigating digital channels, these suppliers too must figure out which channels they need to be in and why, how much coverage is right, and how to attain and keep it.
Technology and the prospect of greater profits have encouraged more suppliers who traditionally relied on third-party channels not just to open up but increasingly emphasize the direct-to-consumer route. Nike has clearly stated its goal of accelerating its direct-to-consumer business and becoming “more personal at scale.” Competing with their customers creates the obvious but difficult problem of channel conflict. But, in addition, some suppliers find they need other middlemen to provide special services or must invest in those services themselves, while also having to expand their product line and marketing budgets to attract consumer traffic to the direct channel. Hotel companies like Hilton and Choice Hotels have invested heavily in loyalty programs and advertising campaigns, but they also need meta-search platforms like TripAdvisor to route traffic to Brand.com. Meanwhile, the Marriott-Starwood merger is motivated at least partly by wanting the scale to build up the direct channel. So is AT&T’s acquisition of Time Warner. These companies must (a) consider the full set of costs, not just the benefits of going direct, (b) ensure that the consumer still receives all the services she expects along the path-to-purchase and beyond, and (c) figure out the long-term strategic role of their independent and direct channels.
The consequences of many of these multi-channel distribution decisions are hard to foresee. With the plethora of choices available today, it is even more important to select and organize channels in a way that delivers the experience shoppers demand, while generating the volume and margins for everyone in the channel that are needed to sustain the business. Keeping the breadth and depth of distribution in line with the evolving nature and location of demand is not only a question of having a clear strategy, but also one of careful measurement and monitoring. Along with distribution channels, product lines, pricing, and channel incentives also trend toward more complexity. Wishing it could be simpler does not make it so. Instead, we believe that managers must accept the challenge of managing the increasing channel complexity with clear objectives, good frameworks, and the right metrics. Our goal with this book is to help managers, MBA students who will soon step into those roles, and the professors who train them, meet that challenge.
—Kusum L. Ailawadi and Paul W. Farris