Bill Wade


Distribution Matters (12)

Internet Support of Multiple Independent Channels

A) Avoid the Train Wreck

B) Make Big Dough

By Bill Wade Wade&Partners

Two recent news items caught my attention in thinking about evolving Internet multichannel support tools (probably the result of too much windshield time):

  • Grainger acquires a tightly vertical web based distributor ... then buys a specialized service supplier ... their first service foray.
  • JCPenney drops “The Big Book”, its semi-annual landmark and century old corporate foundation, in favor of a web/store/mobile strategy.

The basic marketing challenge is not complicated: While making sales through a number of independent (some actually first cousin) channels is relatively easy, capturing the full benefits of multichannel distribution involves much more than simply publishing a catalog or replicating an in-store product assortment online and assuming that industrial purchasers will click and buy.

At least that is not how Grainger does it, and with $1.5 billion in online sales perhaps there is a lesson here. The kind of multichannel distribution that fuels sustainable margin expansion is opportunistic and requires tight coordination across all resources including physical stores, catalogs, the Internet and now mobile.

Each channel needs to play a distinct role in supporting and reinforcing the distributor’s (or "wholetailer" as Merrifield would call it) overall brand equity. How this will continue in light of Grainger’s recent service acquisition should be business school material.

To help distributors understand different ways this approach works, consider the more diverse retail distribution environment, and the divergent strategies of 107-year-old, $18 billion JCPenney vs. relative newcomer (25 years in the US) Swedish firm IKEA.

JCPenney has leveraged its legacy as a successful cataloger into a tightly integrated cross-channel commerce offering. 1100 stores are outfitted with web kiosks, and all point-of-sale terminals have web access so customers can easily purchase product categories, styles and sizes not available at specific stores.

On the cutting edge of mobile applications, JCP is testing a system that allows customers to scan coupons in the store that have been sent directly to their cell phones.

IKEA’s Internet effort, conversely, primarily supports its stores. In fact, it does not offer online sales in many areas. Instead, its sites primarily provide detailed product information to reinforce the company’s reputation for innovation and low prices. Also offered are real-time store inventories and shelf locations to help customers "plan" store visits.

Another important similarity is that each of these companies utilizes the Internet to focus its entire supply chain on building store brand equity by highlighting private labels and deep promotional pricing.

Three Essential Points of Differentiation

There is no one-size-fits-all approach to developing a strong Internet support for multichannel strategy, but the following three generalities point to the importance of data base analytics:

  • Sales and strategy analytics are key. Carefully target above average net margin growth patterns. Decide what exactly your Internet and multichannel strategies are designed to do. Are you trying to acquire new customers online or to capture a greater share of the overall spending of current customers? Understand the value of growth options and rank them by their potential returns and relative difficulty. Systematically analyze different options to make trade-offs, such as deciding whether to invest in mobile commerce vs. aiming for higher traditional branch or catalog-based sales.
  • Understand local competitive evolution. Individual shopping behavior has changed dramatically given the ease and power of Internet access and industrial purchasing habits are certain to mirror these changes. In this case “first is best.” Let customers learn on your system. Pay a premium if necessary to lead the parade.
  • Sell the right products through the right channels by tailoring each category’s product assortment to the economics of different audiences and making it easy for specific customers to buy what they want, when they want, where they want. Critical as well are sound, non-conflicting pricing logic across channel options.

It is widely guessed that the Internet will play a role in nearly half of all retail sales by the end of next year as either an information tool or as a direct sales channel. Ask any car dealer how this works. There's no real need to "ask my manager" when the prospect already knows the answer.

More importantly, research indicates that consumers who shop across a number of channels—physical stores, the Internet, and catalogs—spend about four times more annually than those who shop in just one.

It is now time to plan your own assault on this new marketing beachhead ... as supplier or distributor ... contributing to a joint effort to make the "new industrial buyer" comfortable.

November 24, 2009 Industrial Distribution Magazine

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