Chapter 3: Multichannel Retailing

3.1 Retail Channels

A retail channel is the way a retailer sells and delivers merchandise and services to its
customers. The most common channel used by retailers is a store. Retailers also use a
variety of non-store channels including the internet, catalogs, and direct mail, direct selling,
television home shopping and automated retailing. The majority of sales are made through
the store channel, but the catalog and internet channels also account for significant sales.

1. Internet Channel: Internet retailing also called online retailing, electronic retailing
and e-tailing is a retail channel in which the offering of products and services for sale
is communicated to customers over the internet. A decade ago, retail experts
predicted that a new breed of high-tech, Web savy entrepreneurs would dominate the
retail industry. Everyone should be doing their shopping over the internet. Stores
would close due to lack of traffic and paper catalogs would become obsolete.

Even though sales through the internet channel are forecasted to grow at about 10%
annually, more than three times faster than sales through the store or catalog
channel, Internet sales are expected torepresent less than 10% of retail stores
(excluding automotive and food services).

2. Catalog Channel: The catalog channel is a non-store retail channel in which the
retail offering communicated to customers through a catalog emailed to customers.
The merchandise categories with the greatest catalog sales are drugs and beauty
aid, computers and software, clothing and accessories, furniture and house wares,
and books, magazines and music.

3. Direct Selling: Direct selling is a retail channel in which sales people interact with
customers face-to-face in a convenient location, either at the customer’s home or at
work. Direct salespeople demonstrate merchandise benefits and/or explain a service;
take an order, and deliver merchandise. Direct selling is highly interactive retail
channel in which considerable information is conveyed to customers through
face-to-face discussions. However, providing this high level of information, including
extensive demonstrations is costly.

Two special types of direct selling are the party plan and multilevel systems.

In party plan, salespeople encourage customers to act as hosts and invite friends or
o-workers to a “party”. The host or hostess receives a gift or commission for
arranging the party. At the party, the merchandise is demonstrated and attendees
places orders. A party plan system can be but does not have to be used in a
multilevel network.

In a multilevel system, independent business people serve as master distributors,

recruiting other people to become distributors in their network. The master
distributors either buy merchandise from the firm and resell it to their distributors or
receive a commission on all merchandise purchase by the distributors in their
network.
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4. Television Home Shopping: Television home shopping is a retail channel in which

customer watch a television program that demonstrates merchandise and then place
orders for that merchandise, usually by telephone, via internet, or via the TV remote.
The three forms of TV shopping retailing are (1) cable channels dedicated to
television shopping, (2) infomercials, and (3) direct-response advertising.
Infomercials are programs usually 30 to 60 minutes long that mix entertainment with
product demonstrations and then solicit orders placed by telephone. Direct-response
advertising consists of 1 – 2 minute advertisements on televisions and radio that
describe products and provide an opportunity for consumers to order them. The
major advantage of TV home shopping is that customers can see the merchandise
demonstrated either on their television screens or through streaming videos on the
Internet. In response to the increase in cooking, decorating, do-it-yourself, and other
lifestyle to the increase in home shopping retailers have incorporated more
demonstrations into their programming in an attempt to educate their potential
customers and create more drama.

5. Automated Retailing: Automated retailing is a retail channel in which merchandise

or services are stored in a machine and dispensed to customers when they deposit
cash or use a credit card. Automated retailing machines, also known as in
workplaces or university campuses. The vast majority of automated retailing sales
are from cold beverages, candy and snacks.

3.2 Benefits Offered by the Retail Channels

1. Store Channel

Store offer several benefits to consumers, that they cannot feel when they shop
through non-store channels such as catalogs or the internet.

a. Touching and Feeling Products – the greatest benefit offered by store is the
opportunity for customers to use all five senses – touching, smelling, tasting, seeing
and hearing; when examining and evaluating products. Although new technologies
such as 3D can enhance representations of products on a computer screen these
visual improvements do not provide the same level of information customers get
when they actually try on a swimsuit or smell the fragrance of a candle.
b. Personal service – although consumers are often critical of the personal service
they get in stores, sales associates still have the unique ability to provide meaningful,
personalized information. They can tell customers if a suit looks good on them,
suggest a tie to go with a dress shirt, or an answer questions customers might have
about what is appropriate to wear at a business-casual event.
c. Risk reduction – the opportunity to use all five senses when evaluating products
and to get personalized information increases the likelihood that consumers will be
satisfied with their purchases. In addition, the physical presence of the store reduces
perceived risk and increases consumers’ confidence that any problems with a
purchase will be corrected. Customers can easily access people in the store to
resolve issues concerning defective or unsuitable merchandise or to get additional
information on how to use a product.
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d. Immediate Gratification - customers can get the merchandise immediately after

buying from the store. Thus, when customers have a fever or a last minute gift, they
do not have to wait for a day or two for the delivery or prescription from the
Drugstore.com or a gift from Amazon.com.
e. Entertainment and Social Experience - in store shopping can be stimulating
experience for some people, providing a break in their daily routine and enabling
them to interact with friends. All non-store retail formats are limited in the degree in
which they can satisfy these entertainment and social needs.
f. Browsing - shoppers often have only a general sense of what they want but don’t
know the specific item they want. So they go to a store to see what is available
before they decide what to buy. Although some consumers surf the Web and look
through catalogs for ideas, most consumers still find it easier to browse in stores.
g. Cash Payment - stores are the only channel through which consumers can make
cash payments. Some customers prefer to pay with cash because it is quicker,
resolves the transaction immediately, and do not result in potential interest payments
or excessive debt. Other customers are concerned about security and identity theft
and thus prefer to use their credit card or debit card in person rather than
electronically sending the payment information via the Internet.

2. Catalog Channel

The catalog channel provides some benefits to customers like safety and
convenience that are associated with all nonstore channels. However, catalogs also
have some unique convenience advantage over other nonstore formats

a. Safety - security in malls and shopping area is becoming an important concern for
many shoppers. Nonstore retail channels enable customers to review merchandise
and place orders from a safe environment – their home.
b. Convenience - catalogs offer the convenience of looking at merchandise and placing
an order from almost anywhere 24/7. However, catalogs are easier to browse
through Web sites. Consumers can refer to the information in a catalog anytime by
simply picking it up from the Coffee table. They can take a catalog anywhere without
using the Internet connection. Finally the information in a catalog is easily accessible
for a long period of time.

3. Internet Channel

Shopping over the Internet provides safety and convenience of catalogs and other
nonstore formats. However, the Internet compared with store and catalog channels
also has the potential to offer greater selection of products and more personalized
information about products and services.

a. Broader and Deeper Assortments - one benefit of the Internet channel compared
with the other two channels is the vast number of alternatives that consumers can
consider. The number of SKUs available in a store is limited by the store’s size. The
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number of pages in a catalog limits the number of SKUs that can be viewed in a
catalog channel.
b. More Timely Information for Evaluating Merchandise – an important service
offered to customers us providing information that helps them make better buying
decisions. The retail channels differ in terms of how much information customers can
access. The amount of information available through the store channel is limited by
the number of sales associates and the space for signage. Similarly, the information
available through a catalog is limited by the number of pages in the catalog. In
contrast, the information available through the Internet channel enables customers
using this channel to solve problems rather than just get information about specific
products. In addition to providing more information, the Internet channel offers
customers more current information whenever they want it. Finally, consumers can
access information from other consumers through Internet channel—information that
may be viewed as less biased than information provided by the retailer or
manufacturer. Many retailers provide an opportunity for customers to post reviews of
products or services they have bought.
c. Personalization - the internet channel has the ability to personalized merchandise
offerings and information for each customer economically since it has the Web’s
interactive nature. Customers shopping on an Internet can drill down through the
Web pages until they have enough information to make a purchase decision. In
addition, using the Internet channel, customers can format the information so that it
can effectively use when they are comparing alternatives. The retailers can play a
proactive role in personalizing merchandise information through the Internet channel.
For example, many retailers offer live chats.
d. Perceived Risks in Electronic Shopping - the two critical risks are (1) the security
of credit card transactions on the Internet and (2) potential privacy violations.
Consumers are also concerned about the ability of retailers to collect information
about their purchase history, personal information, and search behavior on the
Internet. Consumers are worried about how this information will be used in the future.