Week 5 | Session 3: Channel Structures — Brick & Mortar Model

Course: Supply Chain Digitization — Module 2: Digital Business in SC

Session Agenda

Channel Structures Series — 4 Models

This series: Connects platform economy concepts to concrete SC channel models. Four models: Brick & Mortar | Dual Channel | Multi-Channel | Omni-Channel Why now? Platform economy + digitization + tech advances in information processing, financial transactions, and relationship management have changed how SC channels work. This session: Brick & Mortar — the baseline traditional model against which all others are compared.

Traditional SC Structure — Quick Recap

Flow: Manufacturer → Distributor → Retailer → Customer (material flows forward)
Returns also possible: Customer returns to Retailer | Retailer returns dead stock to Distributor | Distributor returns to Manufacturer
Focus of this session: The last mile — the Retailer ↔ Customer interface
Last mile definition: The final leg of the SC where the product reaches the end customer — most visible part of SC to a consumer
Central question: How is sale and delivery enabled in the last mile?

Brick & Mortar — Definition

Core concept: Customer physically travels to the location of the seller/retailer to view, evaluate, and purchase the product.
Not just retail: B&M applies at any SC level where one party travels to another’s location for evaluation and discussion before purchase.
Most common in: B2C (Business-to-Customer) — but theoretically applies in B2B at every SC interface.
Traditional stores covered: Kirana stores | Departmental stores | Malls | Service outlets (banks, vaccination centers, showrooms)
Key distinction from e-commerce: In B&M, the customer comes to the product. In e-commerce, the product comes to the customer.

What Happens in a Brick & Mortar Store — Customer Experience

Dimension	What the Customer Does	Example
Product experience	Physically views, touches, tries the product before buying	Checking grain quality at kirana \| Trying on clothes in dressing room \| Feeling fabric texture
Negotiation	Discusses quantity, price, discount, delivery terms with store personnel	Loyal customer asks for 10% discount \| Negotiating delivery of refrigerator to home
After-sales support	Returns product, raises complaint, gets replacement/refund at the same touchpoint	Returning defective item to the kirana \| Warranty claim at electronics store
Real-time feedback	Gives instant product feedback to store personnel without even buying	”This price is too high” \| “This shoe is uncomfortable” \| “I saw this cheaper nearby”
Cross-selling opportunity	Customer notices other products; retailer can pitch add-ons	Goes in for apparel, spots children’s clothes for an upcoming festival and buys those too
Social experience	Shopping with friends/family; combining with dining or other errands	Mall trip + restaurant visit \| Buying groceries on the way back from work

Key Point — Why the In-Store Experience Matters

Informed purchase: Customer evaluates the product themselves → reduces post-purchase regret and returns
Human interaction: Real-time negotiation, personalised advice, and trust-building — hard to replicate digitally
Market intelligence: Feedback given during browsing (without even buying) is highly valuable for the retailer and manufacturer
Loyalty creation: Great in-person experience → emotional memory → repeat customer → long-term loyalty (e.g. A restaurant experience with great food + ambience + service → customer returns and recommends to others)

B&M is Not Just Retail — It Applies Across All SC Levels

SC Interface	Channel Type	Who Visits Whom	What Happens
Retailer → Customer	B2C	Customer visits retail store	Customer views/tries product, negotiates, purchases, gets after-sales support. Most visible B&M scenario.
Distributor → Retailer	B2B	Retailer visits distributor’s facility	Retailer views stock, inspects storage conditions, negotiates bulk terms and delivery schedules.
Manufacturer → Distributor	B2B	Distributor/Retailer visits manufacturer	Discusses product specs, production capacity, customisation. Negotiates pricing and supply terms for large volumes.
Supplier → Manufacturer	B2B	Manufacturer visits supplier’s facility	Inspects raw material quality, understands supply capability, negotiates component supply, plans procurement.

B2C (most visible): End customer visits the retailer — direct experience with product
B2B upstream: Retailer inspects distributor stock | Distributor visits manufacturer | Manufacturer audits supplier facility
Key difference at each level: The “customer” changes (end consumer vs. intermediate buyer) but the core activity — physically visiting and evaluating before purchasing — remains the same

Store Types — Organised vs. Unorganised Retail

Unorganised Retail

Definition: Small, independently owned stores with few staff — typically 1–3 people
Examples: Kirana stores | Street vendors | Pop-up stalls | Local tailors
One person often plays multiple roles: owner, salesperson, cashier, stock manager
Product range can be wide but display is basic; negotiation is informal

Organised Retail

Definition: Larger retail chains, department stores, malls — structured operations with dedicated departments
Examples: Shopping malls | Branded apparel stores | Large supermarkets | Bank branches
Dedicated store personnel per section; better ambience, lighting, display
Customer has freedom to browse self-service sections; separate billing counters
Additional services: parking, trial rooms, home delivery, loyalty programs

Key insight: Both types are B&M — the core concept is the same. The scale, experience quality, and cost structure differ.

Benefits & Challenges of Brick & Mortar

Benefits of Brick & Mortar	Challenges of Brick & Mortar
Physical product experience → informed purchase decision	Customer must travel → effort + time cost deters visits
Retailer = dedicated touchpoint for complaints, returns, after-sales	Queuing time in-store for browsing, trying, billing
Real-time market feedback captured directly from customer at point of sale	Retailer must invest heavily in space, layout, lighting, billing counters, parking
Cross-selling and upselling possible with trained store personnel	Large manpower cost: salespeople, cashiers, security, managers, material handlers
Strong customer loyalty built through great in-person experience	Limited geographic reach — retail store can only serve nearby customers
Human interaction provides trust + personalised service	Scaling requires new stores OR expanding existing — adds fixed cost
Acts as physical brand presence in the market	If demand is low → store is underutilised → costs not justified

Retailer’s Cost Burden — Why Scaling B&M is Hard

Fixed costs: Store space (rent/purchase) | Layout and fixtures | Lighting and ambience | Billing infrastructure | Parking
Variable costs: Salespeople | Cashiers | Security | Material handlers | Store managers
Scalability problem: Each new store = full fixed + variable cost again. Cannot scale cheaply like a digital platform.
Utilisation risk: If demand is low → store sits idle → high cost per unit sold → store becomes unviable
SC planning challenge: Retailer must continuously decide: add stores | expand existing | relocate | shut down → each decision ripples upstream through the SC

Geographic Reach — The Core Limitation

A single B&M store: Can only realistically serve customers within a limited catchment area (travel distance / time constraint)
Customer side: If store is far → customer may not bother → lost sales
Retailer side: Must choose locations carefully — wrong location = low footfall = underutilised space
SC side: Supply chain’s reach to end customers is fundamentally capped by the density and location of B&M stores
Platform economy insight: E-commerce removes this geographic constraint entirely → infinite reach at near-zero incremental cost per customer added

Customer Loyalty — B&M’s Biggest Advantage

In-person experience creates emotional memory: product quality + service quality + ambience + personalisation → strong brand recall
Loyalty dimensions: Repeat visits | Word-of-mouth referrals | Willingness to pay premium | Tolerance for occasional failures
Banking example: Positive teller interaction → customer trusts bank → less likely to switch → high lifetime value
Digital channels struggle here: In-person relationship depth is hard to replicate online — this is B&M’s sustainable advantage

Platform Economy Disruption — What’s Coming Next

The platform economy has fundamentally disrupted B&M retail in several ways:

Customers can browse and compare products online without visiting a store → reduces footfall
E-commerce delivers to door → removes travel friction entirely
Online platforms aggregate sellers → customer has far more choice than any single B&M store can offer
Digital payments → eliminate the need to visit bank or billing counter

But B&M is not dead: Physical experience, trust, and loyalty remain B&M’s core strengths. Result: New hybrid channel models have emerged → Dual Channel, Multi-Channel, Omni-Channel. Next sessions: How these models work and how they blend B&M strengths with digital platform advantages.

Session Summary

Brick & Mortar: Customer physically travels to seller’s location → views product → negotiates → purchases
Applies at: All SC levels (B2C and B2B) — not just retail
Last mile: Retailer-to-customer interface — focus of B&M discussion
6 dimensions of B&M experience: Product experience | Negotiation | After-sales | Real-time feedback | Cross-selling | Social experience
Store types: Unorganised (kirana, pop-up) vs. Organised (malls, departmental stores, chains)
Key benefits: Physical product trial | Dedicated touchpoint | Real-time feedback | Cross-sell opportunity | Customer loyalty
Key challenges: Travel burden | Time cost | High retailer fixed + variable costs | Limited geographic reach | Scaling difficulty
Platform economy: Disrupts B&M by removing travel friction + extending reach → forces evolution to Dual/Multi/Omni-Channel models
Next sessions: Dual Channel → Multi-Channel → Omni-Channel