A guide for online companies expanding through new sales channels

Abstract

Today most companies have online sales channels. Most commonly have companies started offline and then later expanded online while others have started their business online through, for example, web shops. Even though we today are living in a high technology society, the existence of an offline sales channel is still needed.

But what is the exact definition of a sales channel really? In today’s literature it is very common to confuse this definition with marketing channel and distribution channel. The report explains the following definitions:
• A sales channel is a conduit in which a company supply its products or services to its customers, either directly to the end customer or indirectly through intermediaries.
• A marketing channel is a set of activities with the purpose of making the consumer aware of the product/service.
• A distribution channel is the physical distribution for the products in the sales channel.

The purpose of this study is to help guide online companies within the fashion industry when expanding through offline sales channels. Every sales channel; offline or online has it’s advantages and disadvantages. Is it necessary to have both offline and online channels? In this study four-step procedure for adding a new sales channel found in the literature was examined. The four steps were: Analysing customers’ needs, Setting channel objectives, Identifying major alternatives and Evaluating main alternatives. The four - step procedure was applied on a case company selling tailored clothing, also identified as mass customised products. From this study important aspects for online companies to consider when expanding with an offline sales channel could be detected.

1. Analysing customers’ needs – when looking at an online company producing mass
customised clothing a lot of the existing and potential customers are lacking an offline channel. In order to decide which sales channels that was suitable, online and offline shopping behaviour was studied through surveys in order to map their differences. The surveys were done online, where the respondents were either existing customers or potential customers.

2. Setting channel objectives – by adding an offline sales channel it is important to consider the existing offline competitors, which have further experience in selling through offline sales channels. By adding an offline channel it could make them more competitive.

3. Identifying major alternatives – there are many sales channel alternatives to choose from, it is important to evaluate which are fitting for the company studied and its products. Which resulted that only a certain number of sales channels were studied further.

4. Evaluating main alternatives - In order to evaluate the main alternatives financial-, control- and adaptive aspects were considered. When studying the financial criteria a break-even and an investment analysis were done. The evaluation gave new dimension but also important aspect to consider since it is important to evaluate if the alternative are good from a financial point of view. This showed that going offline does not necessarily require a great investment.

So why an offline channel?
Surprisingly all pointed towards the preferred physical presence of the company. In the case of an online company selling mass customised clothing it showed that the consumer preferred the physical presence of the company. Not only because of the possibility of trying on the clothes, but also in order to feel and touch the product. In order to see what challenges there are, companies that had expanded offline were studied in order to see obstacles and opportunities with offline expansion. Most of the weaknesses the case company struggled with would be eliminated once an offline channel was implemented (for those consumers that were actually able to use the offline channel). Things such as low customer service and not being able to try the products were big issues. By adding an offline sales channel as a complement to the online sales channel you will cover many of the things an online sales channel lacks. Today a great deal of companies do have more than one sales channel. In order to compete on the market it is therefore essential to continuously develop.

However, going from a single channel to multichannel requires some effort and there are many aspects to consider. The advantages and disadvantages of an online sales channel differ depending on the product and company studied. Today’s consumers are seldom single channel users; the consumers use more than one channel in the shopping process, depending on their needs and what stage they are in the shopping process. If a company cannot satisfy a customer’s need it is likely that the customer will use more than one company’s sales channel. One thing that an online company have to consider when expanding offline is the risk of freeriding, which in this case might mean that a consumer uses their offline sales channel in order to get their measurements and then do their purchases elsewhere. This means that the case company will have to motivate the consumer to do their online shopping at their web shop. At the same time they have to encourage their personnel to use their online sales channel so that they do not feel that the online channel cannibalises on the physical store. The conclusion from this is that the company has to use the possible disadvantages to their advantage. For example by using a more expensive channel to reach out to new customers.

Conclusions could be drawn that it is not necessary to add an offline sales channel. But it helps some companies to stay competitive on the market by giving further choices for the consumers, which might make them choose this company over another. Important to mention is that it requires research, partly the customers’ needs and also the product and company type.

Further studies
This study had a range of demarcations, since the studies on online expansion are limited. Therefore the authors believe that there are many more areas for further study. One example is that this study only focused on Swedish companies. Another example would be to study other sales channel further, for example shop-in-shops. Since this study is mainly based on companies that have mass customised products, it might be interesting to study companies with other products more in detail. This can be seen as a pre-study for the need of online companies implementing an offline sales channel.

• author: Gustafsson, Nathalie and Jeppsson, Cecilia
• supervisor: Fredrik Nilsson
• organization: Packaging Logistics
• alternative title: En handbok för onlineföretag som vill expandera via nya säljkanaler
• course: MTT920 20111
• year: 2011
• type: H2 - Master's Degree (Two Years)
• subject: Technology and Engineering
• keywords: online, expansion, mass customisation, sales channels, tailored clothing
• language: English
• id: 2064607
• date added to LUP: 2011-09-08 09:14:32
• date last changed: 2011-09-08 09:14:32