 Hello, and welcome back to the lectures on the Supply Chain Digitization course. I am Professor Sushmita Narayan from the Indian Institute of Management, Mumbai. In this lecture, we shall be continuing upon our discussions on channel structures in the supply chain. We had in the last session, try to understand what is meant by a brick and mortar concept in supply chain management. And after that, we are going to proceed to the topics of dual channels, multi-channels and omnichannels. In this discussion, we are going to focus upon the concept of dual channels, where I will give you an overview of what is meant by dual channels and what is the importance of this. And this will act as the foundation for understanding the concept of multi-channels and omnichannels, which we shall take up in the next lecture. So, before we give an introduction to what is meant by dual channels, in the last class, we were looking at the brick and mortar concept, where the customer visits a store and makes a choice of whether to buy the product or not, basis the evaluation of the product in a physical setting. And we had seen what were the benefits and what are some of the challenges that can be present when we try to implement the brick and mortar concept in retail. Now, what we can see here is brick and mortar is a concept that has undergone a huge amount of transformation due to the rise of the platform economy, due to rise of the internet and e-businesses. And some of the disruptions that we can observe over here can be seen through some of the examples that we have witnessed around us as consumers. So, one of the examples that we have is that of entertainment, in which now a days we see that consumers are watching movies not in theatres, but they are watching movies on OTT platforms or over the top platforms as we call such as Netflix, Prime Video, so on and so forth. And these are available across the world, they are available in different formats, they are subscription based, some of them are free and some of these models also enable us to view movies, videos and other kind of content through different kinds of login accounts as well. Now, this is the kind of disruption that we have seen that has not just disrupted the concept of watching movies in theatres, but also the very idea of cable connections that were being used earlier by a lot of the people in order to view different kinds of channels such as news or entertainment or sports programs, so on and so forth. So, this is a huge disruption that has occurred in the entertainment business. And we observe that the brick and mortar concept is the concept where the viewer actually is going to visit a theatre, which is a physical entity where they have a viewing experience that includes visiting the theatre, sitting in a hall and watching the movies, consuming other products such as food and beverages which would be available at the theatre. And a lot of times we observe that there will be many movie halls which could be present within a specific theatre which the consumer can go to, so they can watch movie after movie by just changing the halls. So, a lot of opportunities are actually present and this particular business in itself has seen a lot of advancements as well. A lot of movies and movie theatres are now available in cosmopolitan cities in the malls and other large shopping areas where a lot of viewers who are going to visit the theatre will also engage in other retail experiences such as shopping or healthcare or other experiences that may be provided at the mall or the shopping area. But with the growth of the OTT platforms, we see that a lot of viewers are also now choosing to stay at home and watch movies on their systems that could be computers or smartphones, tablets and other devices. And not only that, because they are able to carry these devices, handheld devices, they can also watch this content when they are traveling. So, what is happening over here is this is a huge kind of disruption that we have observed where there is no requirement even for investing in space such that the viewer gets an experience. So, this kind of a digital experience has been a very unique disruption that has been observed in the entertainment industry. Another concept that we see quite a bit of disruption is the concept of restaurant dining versus that of cloud kitchens. So, a lot of consumers would want to visit a restaurant and eat specific cuisines over there, order from a menu and have a very excellent dining experience. And the ambience of the restaurant adds a lot of value to what kind of experience they have. And this has been the core concept that is propagated through the concept of brick and mortar in dining. However, with the advent of the platform economy, we have seen the concept of cloud kitchens which has come into place, where consumers do not need to visit any restaurant and they can order food from a specific menu which is catering to a variety of cuisines, Mediterranean, continental, Indian, South Indian, North Indian and a lot of other different countries which can be brought in on the menu. And the consumer can actually order from here and the food is delivered to the consumer's location. Again over here we have seen a variety of models which have appeared over here. The consumer doesn't need to be at their home. In fact, this kind of disruption has been observed even to the extent that if there is a consumer who is actually a commuter traveling via rail, they can order food and the food gets delivered to the train when they are departing from the train or when they are on their way. Now, this is the kind of extent of disruption that we have seen because of the growth of the platform economy in which multiple partners are actually being engaged on the platform to deliver the service. Another example that we can see is that of modern trade retail. Now, modern trade refers to the kind of retail experience that a consumer or a customer is going to experience when they visit organized retail stores. In India, organized retail is not a very large portion of the economy. However, there is a large growth of such markets as well. We have examples such as Smart Bazaar or DMART which have shown the path for modern trade when it comes to supermarket shopping. And in this, the experience again is that the customer gets to enter the space and pick out items from a selection which is provided to them. But again, and this was particularly observed during the pandemic era when a lot of customers were not able to go outside their homes because of regulation or other issues. And the role of home delivery became very, very popular. Home delivery starting from not just the modern trade stores, but also from local retail stores such as Kiranas or other kinds of retail points was being observed as a very fast growing model during the pandemic period. And this is a model which is even there today. A lot of the modern trade stores have actually have provided different kinds of points from where you can have pickup of the grocery items as well. Again, another example which applies to all our dear viewers of this course, we have both possibilities. You could be sitting in a classroom where there would be a teacher who is physically presented providing you the experience of learning the concepts when you are also asking questions and when you are also being explained the content in person. However, again with the platform economy coming into picture, not just did online classes become very common, but we have also seen the growth of several businesses and edutech platforms who have started providing distance learning possibilities to a lot of participants, not just in a specific country, but across the country. So now you can actually experience the teachings and trainings from faculty not just in India, but also across the world. And that is provided to you and you can enroll for certification programs and all of that just like you have enrolled for this program. Now this is another example where the retail concept or the traditional classroom concept has been disrupted due to the growth of technology. So the major insights that we get when it comes to brick and mortar kind of systems is with a lot of technology getting developed, the business models are getting disrupted and the customers are actually demanding more and more real time service deliveries which we can see in all of these cases, whether it is watching movies on the OTT platform, whether it is ordering food on an app, whether it is ordering groceries on an app or whether it is viewing and learning and getting certifications online. So this is mainly due to the growth of technology and information systems over the years as well as the role of handheld devices that have become so common place among all of the consumers, whether it is consumers from higher income strata or lower income strata, we see a huge amount of digital penetration that has happened in the country. The second insight that comes to us is for the same kind of product or service, we can see that there could be two or more ways in which you can target and sell to the customer. The same movie could be shown in the theater and the same movie can also be shown in an OTT platform. The same food can be consumed in a restaurant experience, the same food can also be delivered home, the same kind of grocery items can be purchased when you visit the store and the same kind of items can be obtained when you are purchasing them online. The same kind of courses and concepts can be studied in the classroom versus studying them in an online format. So what we see over here is for the same kind of product or service, we are observing that companies are exploring different ways in which they can reach the consumer. So at the end of the day the question that comes to any of us would be that which channel would actually work out better, whether showing the movie on an OTT platform or distributing the movies in theaters. This is a question that any organization would have whether it, if it's in the entertainment business. And hence we come to the concept of dual channels that help us understand what could be the pros and cons of such channels. So in a typical keeping aside the concept of dual channels, what I have over here is two channels for the same product. In option one the manufacturer can sell the product directly to the customer through an online platform and the delivery of the product is done from the manufacturer to the customer directly. So it is a home delivery which is happening for the customer. In option two the same manufacturer can choose to send the product from the end of the manufacturer to the customer but via a retailer. So the product is going to reach a retailer first before it is getting sold to a customer. Now in this specific concept I am considering brick and mortar retail, where the customer is actually going to visit the retailer and view the product and then make the choice of purchase. Whereas in option one the customer is not going anywhere, the customer is at home or at the location that I have purchased from and the product is going to reach the customer. Now these are the two options which are going to be present and as we can observe that for the same product the manufacturer has choice of two channels either to sell it online and distribute it directly to the customer or to sell it via retailer in a brick and mortar system. So the other third option that could be present for the manufacturer is to choose both the channels as a part of their offering which means the product would be available to be sold directly to the customer and the product could also be available to be sold via a retailer in a brick and mortar system. So how do we make a choice what is the best option for us independent sales through different channels or selling as one particular group? So before that let us go step by step understanding each channel one at a time. So let us consider the first channel, let us say we chose as the manufacturer to sell only online right. So we see this very popular with a lot of startups when they are bringing new types of products into the market many of them are choosing to sell the items only online and the delivery of the product is made directly to the customer. Now if this is the case it has certain benefits associated with it for sure. So firstly you can directly connect with the customer right. So the manufacturer can have personnel who are directly engaging with the customer and dealing with the customer understanding their requirements, technical specifications, location of delivery all of these aspects can be done through proper customer service which the manufacturer can engage talking to the customer on an online platform through chatbots or on the phone whichever medium of communication is being chosen. And one of the benefits that the manufacturer could have is since the manufacturer is able to reach out to several customers through the online platform they can aggregate demand from many customers and hence if there are any kinds of variabilities observed between different kinds of customer markets or segments these can be balanced out in order to reduce costs of warehousing as well as transportation that could be present. So a large amount of customers could be aggregated for making deliveries over the long haul. This possibility is going to be there or that opportunity is going to be there for the manufacturer. But let us say what are the issues the issues that could be present in such a case would be that the customer is not able to see the product physically before making the choice of purchase. So the customer is not able to understand what exactly are the functionalities of the product or even if they know the functionalities of the product. Let us say you have already purchased this product in the past but you have not seen this product in this current packaging. So for example let us say you are purchasing shampoo you have already used this kind of shampoo in the past but you do not know whether this shampoo bottle which is looking like 300 ml or 400 ml is going to be enough for your requirements as per the purchase point that you want to see. And this may be easier for you to understand if you actually saw the bottle when you visited the store. And this is more of an issue when it comes to apparel or items that are going to be fitted on to the customer or fitted on to certain requirements at home such as furniture and all of that. So in such cases what would happen is if the item is viewed online the efforts required to advertise and sell it would be a little bit on the higher side. In the sense you have to find ways to convince the customer that this product is something that they truly require and something that would truly fulfill all the needs that they have in terms of technical specification price point so on and so forth. Another issue that would be faced by selling through only this channel would be since the customer is located at any location from the manufacturer the distance may be a little bit large. And what would be possible is the customer required a product immediately or the customer requires a product may be in another 2-3 days. But because of the customer's location it could be possible that there are going to be some delays observed by the manufacturer in transporting these products to the customers. So let us say there are a lot of customers who are going to be present in that location then a large proportion of orders are going to get delayed. So in this case what can the manufacturer do? So in this case the manufacturer would need to start investing in resources for expediting product deliveries maybe they would need to choose more of transportation that are more expensive but that are faster. So for example instead of sending the products by rail and then doing last mile connectivity through a tempo the manufacturer might actually choose to send the products via air and then do the last mile connectivity through a tempo or through bike delivery. So as a result what would happen is the delivery could get expensive in order to reduce the amount of delays that we have. And as a result of this this particular challenge is going to be observed when you are going to do direct delivery of products. Another offshoot that we can observe over here is if there is no intermediate warehousing space which is going to be present in this particular channel let us imagine that there is no warehousing space which is going to be present between the manufacturer and customer. So large portion of the inventory that is going to be present is going to be stored at the end of the manufacturer. So the manufacturer would end up with higher amount of warehousing cost as a result of keeping larger amounts of inventories in anticipation of demand that is going to happen in the market. So in some ways we see that there are benefits mainly that there is a direct contact with the customer but on the other hand we see that there are also some challenges mainly because of the cost associated with delays, transportation, warehousing, advertising, selling so on and so forth. So the benefits have to be really really large in terms of how much of a direct benefit you can observe by connecting with the customer and how much of loyalty can actually spill over into future sales. If this is not going to be present then this particular mode might not be worth pursue. On the other hand let us look at the channel which has a retail point in between. So here I am assuming again that the manufacturer is directly selling to a retailer and it is not going through any intermediate warehousing points or storage points. But that is not really the case there could be some intermediate storage points as well. In order to just maintain some amount of simplicity I am assuming that the product is directly moving from the manufacturer to the retailer before being sold to the customer. So this is the case where I am assuming that we have only this option of brick and mortar retail. So what are some of the benefits as we can see over here? Obviously if we can have a brick and mortar system the customer is going to be able to touch and feel the product and this is one of the biggest benefits that the brick and mortar system actually brings in. Not only can they actually visualize the product and see the product but they can also interact with the retailer, have some amount of details on the pricing, negotiate on some of the terms and conditions, maybe get a discount, maybe also place multiple orders if required. The retailer might be able to also incentivize the customer to purchase more quantity of the same product through this particular kind of system. Hence, since there is direct contact between the retailer and customer the amount of effort which is required to sell is actually reduced in terms of converting a potential customer to an actual customer through a realized sale. And the second benefit which we can observe over here is since the customer is going to visit the retailer. So if they decide to purchase a product they can immediately visit the retailer and if they are able to find the product they have quick access to the product both in terms of making the decision as well as in terms of making the purchase. So the entire process gets over very quickly provided the customer has actually visited the retailer. So these are some of the benefits that we can observe. What will be the challenges in brick and mortar systems? As we have seen earlier in brick and mortar systems some of the challenges would be that the retailer has to invest in space in manpower and in a lot of other aspects in order to ensure that the retailer is going to be benefiting from this particular endeavor. One of the things that the retailer could be doing is actually procuring the product from manufacturers storing it at the point of retail and then showcasing the product and then selling the product to potential customers before the sale is actually being realized. So huge amount of investment can happen at the end of the retailer. So what will the retailer do? The retailer will then choose to mark up the product a bit more in the market. So they can maybe play around with the final retail price that is going to be sold to the customer within you know the given regulated prices that are possible for the product. So in India we have the concept of MRP which is the maximum retail price. So the retailer can choose to charge up to the maximum retail price and may charge full price for the products for the customers. Now as a result of this in order to maximize the margins since this is going to be one of the goals of the retailer if they are not getting sufficient margins or sufficient volumes of customers for the product obtained from this particular manufacturer they might actually start trying to sell products of competitors for this particular manufacturer. So as a result the manufacturer is dependent upon the retailer to sell the product but because the retailer would have other objectives and because the retailer has to also look at his or her own benefits it may be possible that the manufacturer is not able to target the entire customer base that was required. So this would become a challenge for selling the product to the customer although the benefit is definitely there that the customer if convince touches immediately. Now the second issue that we observe over here is because of the role of the retailer being closer to the customer there would be many such retail points that would be required in order to cover many geographies and also retail space would have more capacity limitations as let us say warehouse space or manufacturing space which is generally going to be located very far from the location of the customer. Now as a result of this capacity constraints which would be present at the point of the retailer more retail points would be required which means there will be more requirement for investment in real estate manpower so on and so forth which can vary from geography to geography. So there would be certain cost implications that would occur because of the proliferation of several retail points that are required to reach the customer. Now in the direct online selling and delivery method there was no need for additional investment in retail points but in this case we have that additional investment which is also going to take place. So either the manufacturer has to invest in retail space or needs to find retailers who already have existing space in order to engage with them. The other challenge that we observe over here particularly in cosmopolitan cities as we see is the effort required by the customer in order to come to the retailer and make the purchase. If the cost of transportation are very large or if the effort required to perhaps reach the product within the retail store is going to be very high because of congestion and other issues then the customer might actually be driven away from making the purchase all together. So the convenience of making the purchase can be very low in such cases specifically this is a challenge that we observe in cosmopolitan cities. So what can the manufacturer do? The manufacturer here can adopt what we call is a dual channel strategy. So in a dual channel strategy the manufacturer is going to view the entire ecosystem as one in which there are multiple channels possible to reach the customer. One of them is the direct delivery method the other being the brick and mortar retail system. So the customer can purchase the product online or the customer can go to the retailer and make the purchase. The role of the manufacturer is very important in understanding how to make this combined channel successful. In this kind of an integrated system an effective strategy would combine the benefits of both of these independent channels which were there namely over here in brick and mortar retail customer is able to see the product in person and pick it up while in online selling the customer has a convenience of staying at home and making the purchase. So there are benefits over there that we can observe while balancing the cost of you know transportation and losses which we can observe in service in each channel. So over here the cost of retail could lead to higher prices for the customer whereas here there could be huge costs associated with warehousing and transportation that the manufacturer would need to absorb and there could also be delays which occur in selling the product to the customer. So in an effective strategy what we could try to do is look at how do we allocate portions of the market demand to each of the channels, understanding what kind of product mixes are going to map to each channels. In some cases we may even encourage spillover of business if one of the channel is not performing well for example let us say direct delivery is not performing well the retailer might be encouraged to send some of the business to the direct delivery channels. You may also look at enabling proper contracts with the intermediate players within the channels such that this particular channel is not going to perform poorly or if it performs well it should not take over another channel altogether. So these are some of the things that can be done when we are trying to implement a dual channel strategy. In the next series of lectures what we are going to do is extend this concept to omnichannels and multichannels and see some examples which are in place today and connect this to the concept of channel structures and coordination that we had seen in earlier lectures. So that we get an understanding as to how platform economy can actually be utilized in order to reach a variety of customers. At the same time how do we use brick and mortar systems to reach the same variety of customers in an effective way. So thank you very much and I will see you in the next lecture.