Technology changes distribution channels – table of contents:
What are distribution channels?
At first glance, it may seem that distribution channels are only the channels through which companies deliver their products. But this is not true. The concept is much broader, as it includes, for example, marketing channels.
To better understand what distribution channels actually are, it’s worth looking at the functions they perform. This was perfectly described by the creators of the Business Model Canvas methodology.
Functions of distribution channels
According to the authors of Business Model Canvas, distribution channels have five functions:
- Awareness. Distribution channels are used to increase customer awareness of the company’s products and services. These channels can include social media, press, or own media, such as a blog, podcast, or YouTube channel.
- Evaluation. Distribution channels are also to help customers express their opinions about products or services. This allows the company to get closer to its customers, listen to their feedback, and improve its offer.
- Purchasing. Distribution channels also determine the buying opportunities we create for customers. Whether we offer online sales or use distribution partners, for example, has an impact on the convenience of their purchases.
- Customer value proposition. Distribution channels determine how we deliver the value proposition to customers. So they perform a logistical function.
- Post-purchasing. Distribution channels can also have an impact on the type of support we provide to our customers after purchase, such as a 24-hour hotline.
Keep an eye on technology
Technological developments have had a tremendous impact on distribution channels – in each of the five mentioned areas. Just look at some of the changes brought about by the popularization of the Internet. Today, in the age of artificial intelligence, blockchain technology, the Internet of Things, and augmented and virtual reality, we’re going even further. How has technological progress affected the distribution channels of brands like Nike, Louis Vuitton, and IKEA? Let’s take a look at twelve interesting examples.
Walmart, the American supermarket chain, is using artificial intelligence in several areas. The first one is online shopping. Walmart customers can use the Walmart Voice Order app to order groceries delivered to their homes using voice commands. The app uses natural language processing technology to understand its callers, who do not have to be precise in their commands. If they don’t specify a particular brand of product when they order, Walmart Voice Order knows exactly what they want. That’s because its knowledge of specific customers is based on their purchase history.
Walmart is also using artificial intelligence in its stores. The floor scrubbers that keep U.S. supermarkets clean also do something else. Every day, they take more than 20 million pictures of products on store shelves. If any of them start to run out, they immediately send a signal to the warehouse so the chain’s employees can replenish the missing items. This has increased their efficiency by up to 15%.
FedEx, in collaboration with Microsoft, has developed a system for monitoring shipments. It’s called FedEx Surround, and it’s integrated with sensors and barcodes on packages, so it can provide real-time information about their location and condition. And it does that by taking into account things like temperature and humidity in the environment. Why is this important? Some shipments, such as pharmaceuticals, must be transported under specific conditions. This was the case, for example, with the transportation of COVID-19 vaccines. FedEx Surround was used then.
FedEx also experimented with an autonomous delivery robot called Roxo. Roxo, which looked like a small industrial vacuum cleaner, was to be used by the company for “last mile” deliveries. It could autonomously navigate sidewalks, avoid obstacles, and arrive at designated addresses. Ultimately, however, the company abandoned the commercial use of Roxo because it turned out that the robot did not meet management’s expectations. Not every attempt to improve distribution channels is successful. As you can see, sometimes it’s better not to try.
Spotify uses artificial intelligence in a very obvious way. As you can easily guess, AI suggests to users of the Swedish music platform what is worth listening to. Based on this, Spotify creates personalized playlists and makes music recommendations. Recently, the company went one step further by introducing AI DJ.
The aforementioned virtual DJ not only suggests new tracks but also provides listeners with interesting information and anecdotes about the songs and their artists. Listening to music on Spotify is supposed to be a bit more like listening to the radio – is that a good thing or not? That probably depends on your personal preferences. In any case, Spotify’s AI DJ is already available in selected countries.
Blockchain has a wide range of applications. Nike knows this and is using the technology for several purposes. First, it secures the authenticity of its products, especially its shoes. Each pair of Nike shoes is assigned a cryptographic token. This allows users to track the history of a particular pair of shoes and verify its authenticity. This makes it impossible for a customer to buy counterfeit shoes on any shopping platform.
But that’s not all. Nike is also reaching out to metaverse and NFT. Thanks to these technologies, the shoe manufacturer from the United States can no longer just sell physical shoes, but also their virtual, digital counterparts. And make a lot of money in the process. Digital shoes from Nike’s CryptoKicks collection cost between $4,000 and $9,000.
LVMH, the French luxury conglomerate, like the American Nike, has turned to blockchain to combat counterfeiting. It wanted to give its customers the assurance that when they buy a Louis Vuitton handbag, they actually buy a Louis Vuitton handbag. That’s why the company partnered with Prada and others to create the AURA platform.
Using it, LVMH customers can scan the QR codes attached to products or use NFC technology to obtain information about the origin and authenticity of purchased goods, as well as check their history. In this way, LVMH hopes to improve customer relations and enhance the image of its luxury brand.
Allianz is using blockchain technology to handle international motor insurance matters more efficiently. Until now, it was done this way. If an Allianz customer from Poland was involved in a car accident in Germany, his case was handled by both the Allianz branch in Poland and in Germany. This, of course, lengthened the claims process.
Thanks to blockchain, insurance company employees no longer have to swap emails to share information about the customer and the collision. All this information is stored in one place, speeding up the insurer’s work and reducing the time it takes to pay the claim.
You might think that the Internet of Things is a recent phenomenon. In fact, the term was first used in 1999 during a presentation for Procter & Gamble by British entrepreneur Kevin Ashton to describe a “network of interconnected objects”. This is, in fact, what the Internet of Things is, and the popular beverage brand Coca-Cola has played its part in the development of this technology.
Back in 1982, one-third of the company’s vending machines were connected to the Internet. Today, these machines can do much more than they did then. Not only are they equipped with technology to accept cashless payments, but they also deliver personalized messages, monitor inventory levels, and inform service technicians and suppliers when a machine breaks down or runs out of stock.
The furniture industry is also turning to the Internet of Things. One company that equips its products with a smart component is IKEA. The Swedish brand has created a device – DIRIGERA – which, when connected to WiFi, allows users to control smart home appliances via an app.
In this way, they can, for example, change the color of the light, turn the lighting on or off, control audio equipment, and test indoor air quality levels. All this is within DIRIGERA and the IKEA smart home app, which allows customers to use their homes more comfortably, while the company collects information that it can later use, for example, in marketing campaigns.
When it comes to IoT, Amazon is also using the technology to improve its distribution channels. Just look at the Amazon Alexa, a virtual assistant and smart speaker. It listens to its users, learns their needs, and helps them complete simple daily tasks.
Meanwhile, it builds relationships with them and then uses them for marketing purposes. For example, it encourages them to take advantage of other services and products that Amazon has to offer, such as Amazon Prime, Kindle, and Audible.
Augmented reality is widely used in the beauty industry, and the L’Oréal Paris company is well aware of this. The owners of this French cosmetics company are using AR technology to sell their products online. After visiting a virtual L’Oréal Paris store, customers can “put on” makeup or check out a new hair color without physically changing it.
This is what augmented reality is all about – it is an overlay of the world around us. Users can see what they would look with a particular lipstick, mascara or highlighter by selecting any beauty product from the L’Oréal Paris store and pointing the smartphone’s camera at themselves.
Augmented and virtual reality help Volvo achieve two types of goals, marketing and production ones. When it comes to marketing, it is quite simple. Using VR goggles, Volvo allows its customers to take a ride in a car model of their choice without physically sitting behind the wheel. However, this technology allows for much more. Namely, to do the opposite – get behind the wheel with VR goggles. Why do it?
Just like L’Oréal – to extend reality. For example, potential customers can see virtual obstacles or driving instructions on the road. The same mechanism is used in the manufacturing process. Volvo engineers can use VR and AR to run virtual tests on a machine to design safer and more comfortable cars.
To attract more customers, LEGO has also turned to augmented reality. The maker of the popular building blocks has created an app called Lego AR Studio that allows kids to add virtual elements to their LEGO sets. All they have to do is point their smartphone’s camera at the bricks while playing and see the world around them come to life on the device’s screen.
Choosing distribution channels. Pay attention to…
If you’re thinking about optimizing or upgrading your distribution channels, take inspiration from the examples above – you may find something that fits your business and your customers’ needs. But it’s also worth asking yourself these five questions in the search process.
- Where are my customers?
- Can I use technology?
- What are the competitors doing?
- Do distribution channels support sustainable development?
- Can a given distribution channel be easily scaled?
The first step when choosing distribution channels is to answer the question: Where are my customers? Look for touch points with your brand. Find out where they get their information about your company, how they shop, and what obstacles they face, etc. Then be where they are.
E-commerce, mobile applications, artificial intelligence, or perhaps augmented reality? The possibilities are endless. Think about which technology solutions will help you achieve your business goals. Consider the functions of distribution channels presented at the beginning of this text.
Now ask yourself what distribution channels your competitors are using. They may be the right channels for you as well. However, don’t limit yourself to your market rivals. Look for inspiration outside your industry.
Sustainable development is becoming an increasingly important aspect of business strategies. You may want to consider distributing your products via low-carbon means of transportation. You may also want to incorporate ESG strategy into your business operations.
It is worth investing in channels that can be easily adapted to changing market and customer needs. So, is the technology that powers a particular distribution channel flexible and easily scalable?