Points of purchase and sales channels
The point of purchase is the meeting point between the product and service and the shopper; it is where the conversion from shopper to buyer takes place. For the shopper, the point of purchase is the place to satisfy the needs generated by the intended consumption need states. The choice of type of point of purchase depends on the attributes the shopper looks for that best meet the needs at the specific purchase situation. These attributes can be price level, service level, payment methods, proximity, etc. The sales channel reality is continuously changing. A change that comes from the interaction of economic, societal, technological and infrastructure development, shopper behavior, channel investments and new business models. Infrastructure change and the dispersion of car ownership are the basis for the big box retail business model. With increasing disposable incomes, consumer credits and credit cards, in connection with more spare time and decreasing prices due to improving productivity rates and low-cost manufacturing, shopping has soared and has developed into a pastime activity. With higher quotas of women in employment, the need for extended service hours has grown, as well as the need for pre-processed solutions and immediate consumption occasions. With less time, convenience solutions become more important. Digital supports convenience in information seeking, as well as in the purchase, delivery and pickup process.
One of the most important influences on the sales channels has been the technological development and above all the internet. This has given companies the possibility of personalizing a service, although it has also complicated the supply chain by incorporating the last yard to the shopper into the route to market system. In parallel, activities that have traditionally been perforated by companies are being outsourced to the consumer and shopper to increase convenience, but also to decrease costs and prices. One example is the Swedish furniture manufacturer IKEA, which has outsourced the assembly of its furniture to the shopper in exchange for lower prices. Internet banking has led to the closure of branches and customers are increasingly being served through the internet. Services, like account information, and transfers are performed by the customers themselves. Buying computers is increasingly done through the internet. Often different types of computers are not available in stores and have to be purchased over the internet. The shopper has to inform himself and
Figure 4.1 Evolution of sales channels
Frequency of use of sales channels in Spam, 2017 and expected future use.
Source: Minsait, 2017
become knowledgeable about the category. Depending on the category, the importance and role of the internet differs. The internet not only lowers costs for manufacturers and retailers, it is also a tool to improve shopper loyalty and increase the sales share with each shopper.
In retail, much of the competition between players has been through offers, promotions and activation. One result has been that shoppers jump between retailers to catch the best offers and thereby reduce the overall cost of their shopping basket. With e-commerce the share of purchase by shopper can be increased. As there is often a minimum purchase to make the internet order worthwhile in terms of delivery cost or time investment there is an incentive for bigger orders.
As sales channels have evolved, the management of them has changed. Broadly, the channel landscape has changed from a single-channel, through multichannel, to an omnichannel environment. In short, a single-channel environment is the predominance of one type of outlet, normally traditional outlets. The multichannel environment describes the parallel existence of different channels that compete, e.g. modem and traditional trade, but also e-commerce, while omnichannel describes the interaction between sales channels with complementary roles to the shopper.
The growth of modem retail was seen as a threat by many manufacturers, as well as by the traditional trade. The same occurred with the growth of internet e-commerce, which additionally was seen as a threat by modem retailers. The emergence of modem and e-commerce retail are the two major changes to the point of purchase reality. They have often been seen as a threat to margins and brand equity by manufacturers, even if they multiply the opportunity to reach shoppers efficiently.
Traditional channels, although more complex to manage, have less bargaining power and thus exert less influence on the margins of manufacturers. Important challenges with the traditional channels are product and service availability and the dependence of intermediaries to reach the point of purchase. With the growth of modem retail, their bargaining power grew, leading to important conflicts of interest between manufacturers and retailers. In addition, charnel conflicts grew. The differences in bargaining power led to discrepancies of pricing in different charnels, and between channels and distributors, leading to cross-channel purchase, i.e. small outlets buying fr om other sales channels instead of buying through distributors or directly from the manufacturer. To solve charnel conflicts channel management evolved with specific offerings and activations by channel. Still, market regulation and shopper knowledge limit these approaches, as discriminatory customer treatment is prohibited. The perceived differences between the offering by sales channel type are not always important enough to incite specific shopper behavior by channel. For retail, carving out the role and developing the shopper experience has become key to staying competitive and relevant to the shopper.
Channel development has been viewed with some determinism. The view has been that the traditional channel landscape will develop into mainly modem big box retailing. There is a certain corr elation between economic development and the development of modem retailing. At the same time, economic development is associated with the growth of immediate consumption, e.g. restaurants and cafés, a channel that is normally fragmented with fewer chains. Still, in some countries the occurrence of chains in immediate consumption is relatively high, e.g. in the USA and UK. There are also countries, e.g. Pern, where traditional channels are growing with economic development.18 In many countries, traditional charnels are still very important and there are few signs of their disappearance.
Many manufacturers have organized themselves following the idea of multichannel management with departments for modem retail, traditional channels and now e-commerce. With
Figure 4.2 Webrooming and showrooming
Webrooming is when shoppers browse the internet to then purchase in brick-and-mortar stores, while showrooming is the opposite: shoppers browsing stores to then purchase online.
Source: Bolsalea, 2019 the internet the perspective has somewhat changed. From viewing which sales channels the company can use to reach the shopper, the view has gradually turned toward which sales channels the shopper uses and prefers to reach the products and services of the manufacturer. The starting point of the omnichannel perspective is the shopper and his or her needs. These needs range from receiving and exchanging information, buying, and changing and returning goods. The shopper seeks to satisfy a consumption need state in the best maimer. The sales channel is not an objective in itself but a tool to satisfy a consumption need state. The attributes that best meet shopper needs for the specific purchase situation will define the point of purchase the shopper will prefer. Sales channels can interact during the purchase process, e.g. click and collect solutions, showrooming and webrooming.
Points of purchase have multiple roles, especially as points of information and of purchase. Christinas 2015 is seen as the breakthrough of omnichannel shopping in the UK. Internet shopping boomed without sales in brick-and-mortar channels falling. The shoppers did not decide between channels, but used them in a complementary way.
There are different ways to categorize points of purchase to define their roles to the shopper in the purchase process.
The simplest categorization is the distinction between direct and indirect sales channels. In direct sales channels shoppers purchase products and services directly from the company. The choice of sales channel strategy is dependent on its effectiveness in reaching and activating target shoppers and its efficiency in optimizing profits. Direct sales strategies will therefore be associated with more complex products and services, high sales values, the
Figure 4.3 Omnichannel behavior
Global top and bottom online shopping activities for selected categories. Information gathering and deal seeking is mainly done online.
Source: Nielsen, Q4 2015
Figure 4.4 Single, multichannel, omnichannel
Multichannel is the parallel use of different channels for different shopper experiences and differentiated offers. Omnichannel is the complimentary use of different channels to optimize a coherent shopper experience.
Source: Wordpress, 2017 importance to further the brand image and shopper experience, or when direct sales can be more cost efficient, as in some cases with e-commerce and telephone selling, such as banks and conununication operators.
Reach is closely related to direct and indirect sales channels. Direct channels do not normally have the same reach as indirect mass charnels, such as retailers. The more mass-oriented the channel, and the more the variety of categories, the less able the channel to offer tailor-made solutions or provide specific expertise. With the spread of the internet, shoppers can seek information and expertise, and in an omnichannel mode combine high information abilities with potential price advantages of mass charnels.
Another distinction is between digital and brick-and-mortar sales channels. In brick-and-mortar channels the shopper can normally encounter the product and service and evaluatethem with his or her senses. In digital channels this is not possible from the outset. E-commerce companies and retailers therefore often allow for generous return policies. Digital channels have revolutionized the route to market in industries such as travel, banking and retailing.
Size of the sales channel is an important dimension as it defines the potential of shopper reach. Modern retail makes it possible to reach a large number of shoppers, including shoppers who did not plan to buy that specific categoiy, brand, product or service when entering the point of purchase. Before the rise of the modem retail, manufacturers needed to manage a multitude of individual traditional stores, either directly or through distributors. The emergence of big box retailing has changed shopping habits, as has the development of e-tailers. Big box stores started as supermarkets, and then developed into hypermarkets and department stores. This development was possible because more and more people had cars, and shoppers could reach stores further away and could cany more products. These new formats changed the entire industry in terms of behavior, supply and the relationship between manufacturers and retail. With the revival of urban lifestyles, as well as the interaction between e-tailers with brick-and-mortar stores, smaller stores are now increasing in importance.
Associated with size and reach is the emergence of retail chains. Retail chains can comprise several formats, from convenience, supermarket, hypermarket, to e-retail, and different levels of reach, from regional, to national and international. Many retail chains started as purchasing cooperations to counterbalance the negotiating power of manufacturers. Some belonged to shoppers to ensure favorable end prices, while others cooperated to improve their margins. Size does not only imply increased negotiating power, but also information power, both in terms of market offer, prices and margins, and in shopper insights. Manufacturers will normally be more focused on consumers and consumption occasions, while the focus of retailers are shoppers and the shopping basket. In addition, within the shopping basket each category' and brand have their specific role. It could include building traffic, being a destination product, driving margins or generating complementary' purchases. The different views on categories, brands, products and services between manufacturers and retailers are inherently conflictive, and has led to the development of collaborative programs, such as ECR, to smooth and solve these conflicts.
There is a correlation between economic development and the evolution of modem retail, approximated through the square meter of retail space per inhabitant. Digitalization and the search for convenience due to new urban lifestyles is challenging this development.
When it comes to traditional brick-and-mortar stores, they are very important in many markets, and, even with continuous economic development, they will most probably stay important for a long time. Traditional channels often give a different service than modem retail, ranging from opening hour’s, proximity, and services offered. Modem or organized retail is increasingly entering this part of the market, as market expansion opportunities in the big box environment are stagnating.
The emergence of the digital channel has fundamentally changed the game. Amazon and Alibaba are clear examples, but also direct-to-consumer sales, adopted by the likes of Dell, or by subscription models such as Hany’s, are changing shopping.
Another categorization of channels is based on the behavior of the consumer and the shopper. The distinction is between channels of direct and indirect consumption. Indirect consumption is when products and services are purchased, but consumed at a later stage and at a different location, e.g. at home. Direct or immediate consumption is when products and services are consumed immediately dining or after the purchase, and normally at the
Figure 4.5 Categorization of sales channels Ways to categorize sales channels.
Figure 4.6 Relationship between economic development and modem retail
Correlation between GDP per capita in purchasing power parity and the importance of modem retail channel hi Argentina. Pern. Colombia and Chile in 2011 in square meters (m2) of retail space per thousand inhabitants.
Source: Central Intelligence Agency, n d.; Author
same location where they were purchased. These are often channels like restaurants and cafés, and often include categories like meals and beverages. Other denominations for these type of channel are on-trade, immediate consumption or HoReCa (hotel, restaurants, cafés). Indirect channels, especially for groceries, are often denominated at home and off-trade. In immediate and direct consumption channels, purchase and consumption are interrelated and often the shopper and the consumer are the same, although this does not need to be the case, e.g. eating out with family or friends. The success of sales channels is due to two main dimensions: meeting shopper needs, and providing marketing and operational advantages for manufacturers and suppliers. For example, the products of the clothing company H&M are found only in their own stores, and although there could be an interesting opportunity in selling through other points of purchase, this would be against the chosen route to market strategy. There are also important changes over time, as in the travel industry.
Figure 4.7 Channel structure of the ten leading economies by GDP
Importance of modem trade compared with traditional trade on the horizontal axis, the importance of e-commerce to shopper retail spending on the vertical axis of the ten biggest economies in GDP hi USD in 2018. The size of the bubble reflects the average e-commerce spending in USD in 2018. The percentage over the arrows shows the expected e-commerce growth between 2018 and 2023 (n.d. is no data available).
Figure 4.3 Sales channel relevance
Sales channel relevance matrix based on whether the channel has a marketing and operational advantage for the manufacturer, whether the channel meets the needs of shoppers and how it changes over tune. Example from the travel industry.
Figure 4.9 Selection criteria of sales channels to list products and sendees Importance of listing criteria of different sales channels of points of purchase. Source: Author
The route to market can be the company strategy itself, as in the example of Airbnb, which has built a business model around the internet channel. In the example of travel, it is clear that there has been a development of sales channel usage, moving from travel agencies to internet sales. Much of the discussion has traditionally been about channel conflict, first between traditional and modem retail channels, and then with e-tail. With the emergence of the more shopper-oriented omnichannel view, the complementarity of channels to serve the shopper has moved into the center of the discussion. With the development of sales channels, their role has also changed, from merely a distribution arm for manufacturers to reach consumers and shoppers to become a marketing platform in their own right.
To reach target consumers the right shoppers have to be activated in the channels they frequent to satisfy the consumption need states. To build preference the different touchpoints toward the point of purchase need to be managed, and the right point of purchase with the attributes that meet shopper needs have to be selected, managed and activated. Furthermore, the interrelationship and multiple roles of points of purchase in an omnichannel approach need to be coordinated. With very strong brands and purchases with a high involvement, shoppers will take the initiative to encounter the brands, products and services they prefer. However, for the majority of purchases the involvement and the brand preference are not that high, and the solution set is open to alternatives.
The description of the retail landscape gives insights into how different sales channels need to be managed, while the role of the point of purchase to the shopper gives insights into how it needs to be activated to convert shoppers into buyers.