Impact Of Direct/Online Selling On Traditional Channels

ABSTRACT

Today, we are living in the age of information technology. Internet has brought revolution in every sphere of life. It has changed the way of our thinking, working and living. Last decade of 20th century witnessed major market players leaping to cash the dividends of this breakthrough. All major companies of the world are now utilizing the internet as an alternative channel for promotion and selling of their products. This paper critically analyzes the impacts of this transformation on the traditional channels and customers thereby focusing on future of the world markets. The research is backed by critical analysis on various aspects related to marketing channels around the world. At the end there are some useful guidelines for the online buyers.

IMPACT OF DIRECT/ONLINE SELLING ON TRADITIONAL CHANNELS - A CRITICAL APPRAISAL

INTRODUCTION

Wars play a vital role in restructuring of the countries and that of the world. Post World War II era witnessed a steep rise in expansion of the consumer markets. The end of cold war in fact reunited the two blocks and commenced reshaping the world. However, beginning of the globalization had started much earlier. It was the Arab Israel war of 1973, which gave birth to the concept of globalization. It took no time in crossing the geographical boundaries and immediately engulfed the entire world. Globalization played an important role in canalizing the consumer products to newer world markets. Industry grew larger and stronger. Benefit of the arising competition between significant market leaders went to the customers. Consumer market expanded so larger that there came a time in seventies and eighties, when the world seemed to have no other activity but to shop and shop only.

This trend still continues with some hiccups. However, the era of glorious markets seems to be over now. The world now no more relies heavily on the traditional channels of marketing and sales. Advent of technology has carved the world into a global village. It is manipulating our lives slowly but surely. On one hand, technology will keep adding comfort and luxury to the world and on the other hand, it will leave us with not enough time to enjoy the resultant perks. With the passage of time, human is transforming into a machine with pre-fed instructions of performing specific tasks. It is our access to the information which enables us to predict the future. Time is near, when to exercise our discretion will eventually become a rare commodity. It may sound fiction but only to those who have closed their eyes on reality.

The present though is a little different from the past but is miles away from the future too. Despite the fact that today we do not have enough time to shop but yet we have not been converted into a machine as well. The consumer still can exercise his/her right of discretion and the manufacturer has to conform to that. This is a challenging time for both. The world is in the process of transformation and it will remain in such state for some time to come. The market players abiding the latest trends and future requirements still have to cater for traditional ways. Most of the offline sellers are resorting to online selling as well. A dual channel strategy will have to be adopted by the sellers in order to survive the race. [Ruth C King, Ravi Sen and Mu Xia, The University of Illinois, Impact of Web-based E-Commerce on Channel Strategy, 2002]

ANALYSIS OF TRADITIONAL/INDIRECT CHANNEL

Human beings always enjoyed shopping. Visiting super malls is in fact considered an essential part of life. A common person never used to bother about the supply chain activities and the customized product. Since the inception of market concepts, the usual channel relied on indirect contact of the manufacturer with the customer. The channel comprised of manufacturers, distributors and retailers. A product made by the manufacturer reaches the customer through the retailers. Job of lifting the product from the manufacturer to the retailer is performed by the distributor. The job of distributor is sometimes performed by the manufacturer as well. Whatever the case, this channel necessitates the customers to physically visit the retailer, select the product in stock, purchase it and carry it along (most cases). Critical analysis of the channel reveals the following:-

1) This channel provides an opportunity to the manufacturer to focus on the job of manufacturing. This advantage is however offset due to proliferation of specialization in every field of management that allows employees to concentrate on their specifically tailored jobs.

2) The channel has an inherent disadvantage of existing communication gap between the customer and the manufacturer. The manufacturer is generally too late to know what the customer wants. The undesired stock remained for long with retailers. This limits the employment of wide-scaled customization processes. Few special customers may still enjoy certain privileges but in general the concept of mass customization is impracticable via traditional channel.

3) The cost incurred on distribution and retailers is eventually borne by the customer.

4) Prices checks to cope with competition are often traveled to manufacturer who has to compensate by either comprising on the quality or is forced to lay-off.

5) The customer has to choose from the available stock which puts a limit on his/her choice. More-so, the customer has no other immediate source to compare the different products while standing in one retailer shop.

6) This channel however offers the customer to feel the product before purchase. It eliminates the air of uncertainty about the product selected.

ONLINE SELLING / DIRECT CHANNEL

In last ten years, internet users have increased from 10 million to over 600 million worldwide. [NUA, web survey] This rapid increase has brought a paradigm shift in the business strategies and introduced new marketing concepts. According to figures released by US department of Commerce, online retail sales in US alone had crossed over $ 50 billion in the year 2002. [E-Commerce Times, February 26, 2003] Analysis of the sharp rising graph of sales over internet, predicts direct channel to be the most utilized channel of the future. A lot has been written on the subject of e-commerce and its importance in today's expanding world of technology. A critical appraisal of online selling / direct channel highlights the following aspects:

1) The customer has a variety of options by having quick and easy access to all sort of information about a particular product along with a comparative study