In an effective retail distribution channel, information flows freely and efficiently among the three main parties: supplier (manufacturer and/or wholesaler), retailer, and consumer. This enables the parties to better anticipate and address each other’s performance expectations. The flows are highlighted in the following Figure and the information needs of the parties are described next.
How information flows in a retail distribution channel
A supplier needs to know different kinds of information. From the retailer, the supplier needs estimates of category sales, inventory turnover rates, feedback on competitors, the level of customer returns, and so on. From the consumer, the retailer needs to know about attitudes toward given styles and models, the extent of brand loyalty, the willingness to pay a premium for superior quality, and the like.
A retailer also needs to know different kinds of information. From the supplier, the retailer needs advance notice of new models and model changes, training materials for complex products, sales forecasts, justification for price hikes, and so on. From the consumer, the retailer wants to know why people shop with the retailer, what they like and dislike about the retailer, where else people shop, and so on.
And the consumer needs different types of information. From the supplier, the consumer needs assembly and operating instructions, the extent of warranty coverage, where to send a complaint, and so forth. From the retailer, the consumer needs to know how various alternatives compare, where specific merchandise is stocked in the store, the methods of payment accepted, the rain check policy when a sale item is out of stock, and so on.
Retailers often play a crucial role in collecting data for other members of the value delivery chain because they have the most direct contact with shoppers. They can assist other channel members by:
- Permitting data to be gathered on their premises. Many research firms like to conduct surveys at shopping centres because of the large and broad base of shoppers.
- Gathering specific data requested by suppliers, such as how shoppers react to displays.
- Passing along information on the attributes of consumers buying particular brands and models. Because many credit transactions involve retailer cards, these retailers can link purchases with consumer age, income, occupation, and other factors.
For the best information flows, collaboration and cooperation are necessary – especially between suppliers and retailers. This is not always easy. Managing supply chain systems, processes, and infrastructure and the associated changes to transform legacy store-based operations to omnichannel is complex and difficult. The lack of visibility across supply chain functions, as well as fragmented, incomplete, insufficient data, and/or manual processes of pre-existing systems and infrastructure, are not ideally suited for omnichannel functions. This results in the limited ability of existing retailers to compete effectively with new retailers deploying systems designed for omnichannel operations.
Fortunately, many retailers are working to improve their information-sharing efforts. And as in many aspects of retailing, Walmart is leading the way. Thousands of suppliers have online access to Walmart’s database through its password-protected online Retail Link system, which handles hundreds of thousands of information queries weekly. Retail Link was developed to promote more collaboration in inventory planning and product shipping, and it is a linchpin of Walmart’s information efforts.
Avoiding Strategies Based On Inadequate Information
Retailers may rely on non-systematic or incomplete ways of gathering information due to time and costs, as well as a lack of research skills. But the results can be devastating. For example:
- Using intuition. A movie theatre always charges $10 for tickets. The manager feels that because all patrons are seeing the same movie, prices should be the same for a Monday matinee as a Saturday evening. Yet, by looking at data stored in the theatre’s information system, she would learn attendance is much lower on Mondays. Because people prefer Saturday evening performances, they will pay $10 to see a movie then. Weekday customers have to be lured, and a lower price is a way to do so.
- Continuing what was done before. A toy store orders conservatively for the holiday season because prior year sales were weak. The store sells out 2 weeks before the peak of the season, and more items cannot be received in time for the holiday. The owner assumed that last year’s poor sales would occur again. Yet, a consumer survey would reveal a sense of optimism and an increased desire to give gifts.
- Copying a successful competitor’s strategy. A local bookstore decides to cut the prices of best-sellers to match the prices of Amazon.com. The local store then loses a lot of money and goes out of business because its costs are too high to match the chain. The firm lost sight of its natural strengths (personal service, a customer-friendly atmosphere, and long-time community ties).
- Devising a strategy after speaking to a few individuals about their perceptions. A family-run gift store decides to have a family meeting to determine the product assortment for the next year. Each family member gives an opinion, and an overall ‘shopping list’ is then compiled. Sometimes, the selections are right on target; other times, they result in a lot of excess inventory. The family would do better by also attending trade shows and reading industry publications.
- Automatically assuming that a successful business can easily expand. A Web retailer does well with small appliances and portable TVs. It has a good reputation and wants to add other product lines to capitalise on customer goodwill. However, adding custom furniture yields poor results. The firm did not first conduct research, which would have indicated that people buy a standard, branded merchandise via the Web but are reluctant to buy custom furniture that way.
- Not having a good read on consumer perceptions. A florist cuts the price of 2-day-old flowers from $17 to $5 a dozen because they have a shorter life expectancy, but they don’t sell. The florist assumes bargain-hunting consumers will want the flowers as gifts or for floral arrangements. What the florist does not realise (due to a lack of research) is that people perceive the older flowers to be of poor quality. The extremely low price actually turns off customers!
What conclusion should be drawn from these examples? Inadequate information can cause a firm to devise and enact a bad strategy. These situations can be avoided by using a well-conceived retail information system and properly executing marketing research.