Diversifying Your Sales Channels With Digital: Understanding Dynamics, Risks and Opportunities
B2B Buyers diversify their ways of buying and have new expectations where digital experience and self-service are keywords. Digitalizing your sales strategy is all about to move to digital channels, and experiment with different sales channels. While we have looked at how to digitalize your current sales channels here, how can you get started at exploring new ones? With such a multiplicity of options, let’s explore this opportunity and how/ why approaching different channels can benefit your business.
There's never been so many routes to reach customers
Companies have never had so many possible routes to reach customers in their markets, this is mainly due to customers’ new digital buying behaviors and companies having to react to their demands. So now there is a huge diversity of sales and distribution models as well as an ever-increasing multiplicity of communication channels.
And all this can be very confusing for companies looking for their optimal go-to-market strategy.
The diversity of sales channels is not new, and certainly pre-dated the digital revolution. Over the years, the creativity of the market gave birth to many models: from the simplest of the sales channels: direct sales, where there is actually no channel, to a multitude of indirect so-called “channels”: distributors, resellers, affiliate partners, agents, value-added resellers, wholesalers, retailers…some sales channels are very specific to an industry, others are generic.
With the digital revolution, this all got more complex. By nature, the digitalization of business introduced new communication channels, sometimes referred to as “digital channels”: websites, email, apps, social networks and kiosks.
This introduced new routes to reach customers. Typically, the Marketplace model, which is seeing a huge traction since developed and popularized by Amazon, operates as a model which is not so very different from an “Agent” sales channel: like an agent, the marketplace is an intermediary that does not purchase and does not own the products sold. The marketplace facilitates sales which may also include fulfillment as well as other services, and gets revenue from it.
The marketplace model, especially the one developed by Amazon, has developed such traction that more than just a new route to markets, it has even developed a new economy. A new category of “Amazon Sellers” has emerged, ‘middlemen’ companies that are centered around the art and science of selling through Amazon FBA (Fullfillment by Amazon), mastering digital marketing and growth hacking many of which appear to have very little bond to the product they are sourcing and selling.
The one thing that is very clear: choices have never been so broad when it comes to establishing the GTM for manufacturers and service providers.
And, with so many choices comes the possibility to harness a multitude of routes. Temptation, opportunity or necessity? It’ll probably depend on the business case. But whenever a company chooses two routes to its customers, it will be confronted with either the risk of channel conflict, or of cannibalization of one channel for another.
Dealing with the risk of cannibalizing an existing sales channel
Let's remember this is not a new phenomenon introduced by the digital revolution. Just as much as the fact that the multiplicity of sales channels predates it, having to deal with conflicts between multiple channels has been around for a long time. We are not facing a new problem.
Every channel is, to some extent, only addressing a segment of the whole market, and the risk of conflict and cannibalization is obvious when two channels overlap and intersect on the market.
When this happens, it means a (sub-)segment of customers are addressed by two channels, which may not necessarily be a problem but it can arise. There are two implications that need careful consideration:
- It might not harm you directly if very clear for your customer (as you can sell to your customers, no matter which channel they use), but it might hurt the intermediaries in your channel: your distributors, agents, brokers, middlemen… they might suffer and might decide to downplay their involvement/ commitment in the relationship or change the rules and terms of your collaboration, which of course can have an adverse effect on your bottom line.
- It might affect you, if confusing your customer. Here, your customers’ perception of you is affected as your offering becomes blurred. When your products or services are available in different ways, you might introduce discrepancies, differences and confusion which can directly impact your customer experience and therefore, your sales performance.
A good example, “pre-digital”, is the case of the car company Renault. Renault owns a distribution channel (since 1898!) and operates this traditional distribution channel (Renault Retail Group – RRG) in parallel to a network of franchised car dealers. For the end customer, it’s hard to decipher the difference. And in this very specific case, there’s clearly a conflict between the two channels, to the point that RRG, which is not profitable, is now evolving its sales strategy, initially closing some of its traditional points of sale and transforming RRG by investing more in its digital presence and reducing direct conflict with its traditional reseller networks. Surely RRG would not be in this situation if there was not an independent network of affiliated dealerships competing with it.
But when parallel channels are built to touch quite different customers and their overlap less likely, the multiplicity of sales channels can reap dividends. And often, harnessing new communication channels can provide access to new segments of customers that are not addressed by other channels. Typically, using social media allows you to reach to a whole different set of buyers than having a storefront on the high street.
A great example of this is Hummel, the Danish sports clothing brand. It started its digital transformation with a strong focus on brand and having control of its brand in its respective channels. It introduced consolidated e-Commerce approach, both via B2B and B2C channels. But when one might think that the opening of direct routes to customers (D2C) could hurt its channel resellers, be they online or physical stores, it’s actually the contrary. One of the results of its transformation was a successful increase of e-Commerce volumes, and perhaps surprisingly more on the B2B side than on the B2C, suggesting that more than cannibalizing an existing channel, the brand increased its reach and its conversion thanks to a controlled multi-channel sales strategy.
If we think in terms of extension, for the company, it can be seen as a simple equation: is the added value of a new channel greater than the possible damage to the existing channel?
But, it’s not that simple: channels are not independent, and the Hummel case, among others, reminds us of the importance of ensuring consistency and also creating bridges across channels. Up to a point where the greater benefit of a consistent omnichannel brand presence might even offset the potential channel conflicts.
So as the benefits seems as obvious as the risks, where should you start?
In the first part of this article, we looked at the opportunity to diversifying your sales channels to better meet your customer's expectations and demands. Understanding the context of risk and opportunity is a prerequisite before embarking on the digitalization of your business. Here we take you through the considerations:
Deciding on the right channel mix for your business depends of many things, especially on the following parameters:
- The nature of your products and services (Simple or complex? Commodity or high-consideration?)
- The strength of your brand and your ability to diffuse it into digital channels, create engagement, interest but also remain authentic and consistent.
- Your existing sales channel (how do you sell now and how is sales performance?)
We will explore later how these criteria should impact the decisions related to digital channel strategy. Before that, let's look at the different channels relevant to B2B Companies.
As explained earlier, there are many routes to reach and sell to your end-customers. In order to simplify, we’ll look below into three clear different new options brought by Digital.
- Direct Digital Commerce is when you operate your own e-Commerce channel to reach your end customer, whether it is a consumer (then D2C), a business (we’d then speak of D2B for Direct to Business), a governmental organization or others. You are creating a direct connection to the final buyer of your product thanks to digital commerce.
- Existing B2B Marketplace is an external sales channel where a third-party player (the marketplace operator) connects you (as well are your competitors) to your customers and acts an agent or middleman facilitating the sale.
- Digital Commerce via Online Reseller is another type of go-to-market where you don’t disrupt the value channel but count on your distributor or resellers (or on new distributors or resellers) to sell to their customers online. In this approach, your focus is selling to your reseller / distributor, but also providing digital tools to help him sell to the end-customers (minisites, e-retailing, find-a-reseller…)
The table below gives you some of the main differences between these three approaches:
|Direct Digital Commerce||Existing B2B Marketplace|
Digital Commerce via Online Reseller
Customer experience control
|Can be as unique as required/ desired||Not differentiating from your competitor||Not differentiating from your competitor|
|Product Type||Enable digitalizing sales of complex product or services||Limited to standardized products||Limited to standardized products|
|Hybrid sales approach (digital+sales team or telesales)||Complex sales engagement can be digitalized with help of a configurator and interactive quoting, including negotiation||Impossible||Depending on the reseller, they might provide additional services and sales guidance on behalf of the manufacturer|
|Post-purchase engagement||Unlimited||Minimal (order management and fullfillment)||Depends on the partner|
|Unlimited. Possible to build strong brand story telling||Limited but possible||Limited but possible and can leverage co-branding campaigns|
|Speed to market||Slow but highly dependent on digital maturity||Fast||Medium|
|Customer acquisition||Average but highly dependent on brand equity and digital marketing capabilities||Strong||Depends|
|Loyalty and retention potential||Strong||Weak||Medium|
This list shows strong differences as well as some clear complementarity.
We believe that for many companies, these three channels are more complementary to each other than being exclusive of one another. Even when there’s overlap between a direct online sale, and an online sale that’s available via online resellers they are by no means exclusive of one another, as long as this is properly taken into account in the relationship with the resellers.
Actually, all channels seem to be capable of bringing value and are good candidates for your sales channel mix. There are many possible routes that can be explored, considered and built, but there’s also the risk to try to do everything at the same time, which is not viable. Depending on your case, you will want to build a “digitalization roadmap” and not try to explore and win all sales channels at the same time.
This brings me back to the three parameters introduced above, which probably can be instrumental in deciding of the best strategy.
Brand, Brand, Brand
One learning from all successful transformations is a prerequisite to have total control of your brand, its digital representation and by extension, your branded product communication. You need to be able to disseminate and deliver them through a multiplicity of channels without ever squandering or diluting them. As we elaborated in an earlier post, building a consistent brand is a crucial foundation of your digitalization strategy.
If you are quite not yet there, it’s very obvious that this is an area of focus. This means focusing your digital effort in building a digital content hub and mastering the different workflow of your content operation. The key domains here are around content management, content strategy, content operation and workflow.
If your brand equity is strong and you are on top of your digital brand operation, then you can consider almost every possibility!
Your product: high or Low Consideration Products? Simple or complex products?
If your product is a commodity, selling it online is also nothing really out-of-the-ordinary. So expect if your brand equity is so that all potential customers would go to you first, there’s a high chance you should consider marketplaces.
On the other side of the spectrum, if your product is very complex, and highly considered as something unique, your prospect probably doesn’t look for it at the supermarket, or at any seller that has no expertise whatsoever. Customer will want a close dialog with you, whether it is through humans or self-service, they want to ask you the question, and get your answer as the authority on the product.
Your current sales channel. What is it and how is your sales performing right now?
Finally you should factor in your current way of selling. This will help you decide on the right strategy. For instance, if today, you are selling indirect, via a network of distributors and resellers, maybe even because this is enforced by regulation (think healthcare, or any regulated products), you can’t easily disrupt the existing way you sell, and what you’ll have to consider is bringing automation and performance through digital tools that will complement and progressively take over from the sales team, without however necessarily changing the channel.
On the other hand, if you don’t have strong constraints dictated by regulation or supply chain, (an example would for instance be Enterprise Software) and your sales performance is too low or showing some limits, then there’s nothing blocking you from re-inventing your sales channel, selling directly through the Cloud or others, considering at the same time changing your product (an amazing example here would be the pivot from Adobe to sell desktop software through traditional software sellers to moving it into a direct sale on the cloud via its “Creative Cloud” which ends up nothing else than a digital sales channel….)
Here are some insights on how they can best complement each other:
|Direct Online Commerce|
A progressive, iterative transformation driven by Innovation and Business Value
The table above shows that different channels can play a different role at different stages of your digitalization. They all can bring tremendous value.
For instance, pushing inventory on a marketplace presents probably the fastest route to market for those companies which are far from ready of being able to operate their own e-commerce operation and/ or do not have a strong online reseller in their given market.
In that sense, a first phase could be to publish a company’s entire product catalog on a marketplace, ensuring there is a digital route to customers, and in parallel, develop a direct digital commerce program. Once the required capabilities are owned and the program is launched, a natural evolution would be to give exclusivity to this direct channel (or to a value-added reseller) for some premium or companion products that could be promoted to customers coming from the marketplace.
This strategy of capturing customers by transferring them from one channel to another is obviously not easy to pull off, and the marketplace operator – whether it’s a giant such as Amazon or Alibaba, or a niche marketplace – will certainly not facilitate it. However, it is still possible through interaction with the product and through increased branding effort.
For those companies that already have solid sales channels, digital or physical (as long as they’ve not been interrupted by the pandemic), it might be wiser to first focus on mastering digital branding and digital marketing before launching a true e-Commerce channel directly.
And of course it depends on so many elements, and with each company having its own unique way of doing things there just isn’t one single way to approach this. Ultimately, when it comes to Digital Transformation in general, it is first and foremost about mastering innovation, both from a business model perspective and from a technological perspective.
Truly innovative companies will experiment across different options to identify which one is the best to take and if all of them should be in play. And assessing this should be purely based on customer value and customer experience.
The bottom line: just as much as owning and controlling your Brand, mastering innovation is key. This encompasses ensuring speed time-to-market for new product initiative, having control of costs and being able to progressively invest in experiments, being agile both from a business and from a digital perspective to adapt to ever-changing conditions and finally, having the comfort of relying on future-proofed organizations and technology.
We, at Ibexa, provide a Digital Experience Platform build to help companies digitalize their sales strategy. Among other capabilities, it offers the option to explore all possible channels combining integration with key solutions and services with built-in capabilities.
It also offers the guarantee of being capable of building the most frictionless and memorable customer experience thanks to the very customizable experience platform as well as to the strong personalization capabilities bundled with the platform.
Relying on a modern composable software architecture, it allows modularity and flexibility to be used to deliver the best time-to-market for every project you will launch on the platform.
Finally, our solution is very easy on the business, relying on a very progressive subscription-based pricing model generating significantly lower TCO than other players on the market.
If you are interested in exploring more about our offering, please contact us.