What Is a Distribution Channel?
A distribution channel is the network of businesses or intermediaries through which a good or service passes until it reaches the final buyer or the end consumer. Distribution channels can include wholesalers, retailers, distributors, and even the internet.
These channels are part of the downstream process, answering the question “How do we get our product to the consumer?” This is in contrast to the upstream process, also known as the supply chain, which answers the question “Who are our suppliers?”
Basic Components of a Distribution Channel
• Producer: Producers combine labor and capital to create goods and services for consumers.
• Agent: Agents commonly act on behalf of the producer to accept payments and transfer the title of the goods and services as it moves through distribution.
•Wholesaler: This is a person or company that sells large quantities of goods, often at low prices, to retailers.
• Retailer: A person or business that sells goods to the public in small quantities for immediate use or consumption.
• End Consumer: A person who buys a product or service.
Types of Distribution Channels
A direct channel allows the consumer to purchase goods and services from the manufacturer. Usually, the cost of these products or services are lower to the consumers because they are buying directly from the manufacturer.
An indirect channel allows the consumer to buy the goods from a wholesaler or retailer. Essentially, as a consumer, you are not getting your products directly from the manufacturer. Indirect channels are typical for goods that are sold in traditional brick-and-mortar stores.
Hybrid distribution channels combines the use of both direct channels and indirect channels. A product or service manufacturer may use both a retailer to distribute a product or service and may also make sales directly with the consumer.
Levels of Distribution Channels
This is a direct model where the producer sells their product directly to the end consumer. This is the shortest distribution channel possible, cutting out both the wholesaler and the retailer.
This level has only one intermediary. The producer sells directly to a retailer who sells the product to the end consumer.
Including two intermediaries, this level is one of the longest because it includes the producer, wholesaler, retailer, and consumer.
This level adds the role of the individual who may assemble products from a variety of producers, stores them, sells them to retailers, and acts as a middle-man for wholesalers and retailers.
Choosing the Right Channel
Not all channels of distribution work for all products. Therefore, companies need to choose one that suits their model. The channel should align with the firm’s overall mission and strategic vision including its sales goals.
The distribution method should add value to the consumer. Do consumers want to speak to a salesperson? Will they want to handle the product before they make a purchase? Or do they want to purchase it online with no hassles? Answering these questions can help companies determine which channel they choose.
Secondly, the company should consider how quickly it wants its product(s) to reach the buyer. Certain products are best served by a direct distribution channel such as meat or produce, while others may benefit from an indirect channel.
If a company chooses multiple distribution channels, such as selling products online and through a retailer, the channels should not conflict with one another. You should strategize so one channel doesn’t overpower the other.
Distribution Channels in the Digital Era
In conclusion, digital technology has transformed the way businesses, especially small businesses use direct channels of distribution. With increasing consumer demand for online shopping and easy-to-use eCommerce tools. Direct selling means more success for businesses.
Rather than having to rely on relationships with retailers to sell their products, software and artificial intelligence (AI) sales technology allows companies to manage sales, and automatically achieve high customer relationship management (CRM).
Advertising through social networks and search engines targets specific areas or demographics and social media networks are increasingly considered the industry standard and changing marketing strategies.
If a company continues to use indirect channels of distribution, digital technology also allows them to manage relationships with wholesale and retail partners more efficiently.