Editor’s Note: While achieving omnichannel distribution may seem attractive in theory, the reality of its execution is more complex and entails deeper consideration for platforms and brands. The distribution channels of today have evolved from a decade ago, even within the online space (think of the shift from standalone websites to marketplaces to social media), and a decade later things may be quite different again. There are also more enablers and platforms supporting brands to expand their distribution channels in a more cost-effective way. Even then, not all stand to benefit from putting their eggs in too many baskets. It is important to figure out whether or not omnichannel distribution makes sense for the platform/brand, factoring in business maturity, product category, client segment, people resources, costs, and competition as well. In this article, Insignia Ventures principal Yongcheng Ong briefly breaks down these considerations.
Highlights and some Questions to Ask:
- Business Maturity: Is there already product-market fit in an existing channel the brand can build upon by expanding into more channels?
- Product Category: Does the product category lend towards both offline and online customer experiences (or what might need to change in terms of the customer experience for each channel)?
- Client Segment: Where is the client segment more likely to buy the product? Is the brand considering to expand into other segments that may not be as savvy in the initially set up channels?
- People: For brands going offline, do you have expertise in store management, distributor management, etc.? For those going online, do you have e-commerce expertise?
- Cost: What are the distributor cuts on the product margins? (offline will tend to be higher than online)
- Competition: Are there competitors dominant in a particular category already? Will the brand be able to sustain growth only in one or a few channels?
Are there any true omnichannel platforms already in Southeast Asia?
Omnichannel is kind of an over-hyped concept. Essentially it just means multi-channel and the hype around it probably originated when people started talking about online-to-offline (O2O) play. The definition is also a little bit loose but generally, you can regard platforms like GrabFood/GoFood as enablers of omnichannel by empowering offline F&B stores to sell online.
There are also platforms that went into omnichannel themselves such as Sociolla, which started out doing online sales but eventually opened offline stores. Brands are also taking proactive steps by opening online storefronts (direct, marketplace) aside from offline distribution channels.
Business Maturity, Product Category, and Client Segment Consideration
The need to go omnichannel depends on the maturity of the business, product category, and client segment. Is there already product-market fit in an existing channel the brand can build upon by expanding into more channels? Does the product category lend towards both offline and online customer experiences (or what might need to change in terms of the customer experience for each channel)? Where is the client segment more likely to buy the product?
For example, for a digital-native brand, going offline helps to build credibility within its consumer groups via flagship stores or experience centers. It also helps to create a flywheel by acquiring customers offline and getting them to do repeat purchases online. Repeat purchases matter a lot when returns on online acquisition start to diminish greatly.
But if customers are naturally digitally savvy and the bulk of the market’s spend is online, the need to go omnichannel might not be as great.
An extreme example of this would be birth control pills. People don’t want to go offline due to privacy reasons and they want it fast so a platform like Ease Healthcare is able to cater to it effectively via online consultation and a 4-hour shipping window. The fact that most of the users who need birth control are young women also reduces the need for omnichannel.
Consideration for omnichannel as a form of distribution extends beyond commerce to fintech as well. In the case of neobanks or digital banks, although they arguably have better economics by remaining branchless, in order to boost financial inclusion in rural areas, they will need some form of omnipresence.
People and Costs Consideration
Beyond the nature of the business, product category, and client segment, it is also important to consider what resources running a multiple-channel strategy would entail.
First of all, running multiple channels requires different expertise. In the case of online-to-offline, you need to build up expertise in store management, and distributor management, among other capabilities. Hiring the right leaders for offline retail management is quite important for digitally native brands that want to go offline. On the other hand, when it comes to shifting online, brands can hire from a more diverse mix (e.g., drop shipper, Chinese e-commerce talent, etc.).
“So what was taken from that is the difficult thing is how to grow at speed when the experience still is lacking the market. So the opportunities within marketplaces from understanding how to best create a product name or how to drive SEO, or how to drive digital marketing, or how to localize services, which is one of the things that I think really is missed in Indonesia as a whole. There is a real Jakarta-centric focus in ecommerce as a whole…
…One of the things I don’t see across most ecommerce enablement providers which are mostly software based at the moment is they don’t spend enough time helping people grow in Indonesia to help this economy grow and to really champion the local businesses here…So great alignment there, but we’ve gotta do that by helping train and educate. And that’s something that we have a very big team already doing. We do [it] very successfully, we have huge numbers that attend our events. And the feedback and follow-up from that just continue to improve.”
– Shipper Chief Customer Officer Craig Wheeler on the On Call with Insignia podcast
There is also the capital and cost consideration. For example, the company needs to be able to give their offline distributors 20-30% margin to play with, though it varies by category. If the cost structure is not set up for it, then it doesn’t make sense to go offline. On the other hand, the barriers to entry to online distribution are lower.
It’s worth noting that these cost considerations apply even to large-scale, multinational enterprises when thinking about supply chain distribution, as cross-border logistics tech enabler Janio Asia CEO Junkai Ng explains on the On Call with Insignia podcast.
“When we look at a brand or when we work with a client and they say, “Look, my supply chain strategy is to expand into Thailand, into Singapore, into Malaysia.” Our job would be to say, “Okay, where should you put your fulfillment centers? How should we build a digital twin of a supply chain? How do we map it out? And these are the players available and these are the players available for you,” and how can we react as your portfolio manager to say, “Look, for $10 million, for example, this is how you should optimize your route,” and how do we maintain a portfolio for you today, and how would that weight change depend on risk appetite? That’s kind of the role we play today.”
We likely will not see horizontal marketplaces opening offline stores compared to vertical platforms unless the horizontal platform is targeting a sub-segment in a very specific manner — think Alibaba and its Hema supermarket.
Next-gen brands must be able to execute well on their omnichannel strategy to eventually take over traditional brands which have high mind-share recall. If not, traditional brands will continue to dominate offline channels while digital brands need to constantly prove themselves in an ever increasingly crowded online environment, while waiting for online penetration to increase and hopefully some of that market share goes to the brand.
“I built the first vertical e-commerce platform in Thailand around the same year 2011 when Lazada [started]…But until now, 10 years later, the business model itself has adapted, right? Because 10 years ago, e-commerce was new. No one knew how to sell online. But talking about today, everyone knows how to sell online. Now the question is, how can Konvy adapt to the [changing] ecosystems of beauty and e-commerce and [continue] to lead a lot of the innovation on how people shop online? [That has] become our role.”
With the consumer insight that we learn on one side, and on the other side with the information that we get from the brands, we are able to come up with new models and new strategies to tackle new consumer behavior…Three years ago, the problem [brands] faced was that the marketplace was booming, but they had no individuals in their company to handle marketplaces. But today, they do have a team for the marketplace now, but now the challenge is that social commerce is coming. TikTok is coming. What should [they] do?”
– Konvy CEO QingGui Huang on the On Call with Insignia podcast