Customers in the target market are located at different locations across the country. The company needs to make the product easily available and accessible to customers everywhere. Therefore, selecting the right distribution channel for the product is the main element for the success of the company’s marketing strategies. When the product is easily available to the customers, then it increases the profit for the business.
What is the Distribution Channel?
A distribution channel is a process of delivering the product to the end customers. The route or channel could be in the form of wholesaler, retailer, distributor, etc. or it could be the direct contact between the customer and the company. The route or channel could be long or short depending upon the geography and other factors; it’s the company that decides what route to choose for the delivery of the product.
We can say that the distribution channel is comprised of many interrelated and interdependent intermediaries that collaborate to deliver the product.
Functions of Distribution Channel
It’s very important to understand the role of distribution channel that it doesn’t just deliver the product. It is more than that; it also performs many other functions that are as follows;
- Information. One of the most important functions of the distribution channel is that it carries and transfers the information about the company, brand, product’s features, and other important things.
- Promotion. What product to promote at a certain time, it’s the function of the distribution channel. They stop the supplies of other products, and customers have no choice but to use a certain product. That’s how they manipulate their power.
- Contact. Contacts are very important in the distribution channel. Having a list of all the right contacts is an asset to your business. It’s because if you choose the wrong people for distribution, then they’ll get your product delayed.
- Matching. Choosing the right distribution channel that matches the product price is the key to the success of the business.
- Negotiation. Distribution channels would negotiate the product’s price with suppliers on your company’s behalf. Without their negotiations, your product won’t end customers.
- Physical Distribution. Distribution doesn’t mean that you’re delivering and moving the products around. Sometimes, you have to assemble, store, manage, and transport the final product from the manufacturers to the end consumers.
- Financing. When wholesalers and retailers jump in and buy the company’s inventory in bulk quantity. It’s great news for the manufacturers and the customers as well. That’s how long the distribution channel facilitates the product to minimize the cost.
- Risk-Taking. The distribution channel isn’t all about transporting. Sometimes, distributors have to take risk of buying a company’s product without knowing whether the product would sell or not.
Types of Distribution Channels
Different types of distribution channels and their sub-channels are as follow;
Direct Distribution Channel
The direct distribution channel is when the manufacturers sell their products directly to the end customers. It doesn’t involve many channels and intermediaries, because the route is short.
Company’s retail shop, selling through mail order, door to door selling, or sale at your shop are some of the main examples of direct distribution channels.
Indirect Distribution Channel
The indirect distribution channel is when the manufacturer or the company employs middlemen or third-party personals to sells its products to the consumer. We can categorize the indirect distribution channel into three categories depending upon the number of channels involved.
One Level Channels
One level channel means that only one channel is involved. For instance, the company sells its product to the retailers, and then retailer to the end customer. Or the manufacturing company has its retail shop, and sell its products to the end consumers. It’s also the example of a one-level channel. The automobile company sells its cars to the dealers.
Two-level channels mean when two channels/intermediaries/middlemen are involved between the company and the customers. It starts when the manufacturer sells its product to the wholesaler, wholesaler to the retailer, and then retailer to the end customer. Companies follow the two-level channels when they have to cover the vast and larger customer market.
Three Level Channels
Three-level channels mean where three channels/intermediaries/middlemen are involved. It usually occurs when manufacturing companies employ agents and brokers to contact wholesalers, wholesalers to retailers, and then retailers to end consumers.
Companies follow the three-level channels when the product is limited, and the customer market area is big and geographically dispersed.
Dual distribution means when the manufacturing company uses more than one channel/intermediary at the same time. For instance, a company uses wholesalers and agents to target customers while the company has its retail shop to sell products directly to the customers.
Mobile phone companies have their retail franchises and stores and they also use wholesalers to target wider markets.
Reverse channels occur when the end customer returns the product to retailers, retailer to wholesaler, and then wholesaler to the manufacturing company. Warranty claims are very good examples of the reverse channel.
Distribution Channels for Services Company
Tangible products have definite physical characteristics; you can store them in the warehouses and then sell them to the end customers. Intangible services like software don’t have any physical existence, storing it wouldn’t be a problem. It doesn’t mean service companies don’t need distribution channels. The Internet serves as the intermediary here in the era of technological advancement.
Ecommerce the Emerging Distribution Channel
The Internet has indeed removed the unnecessary channels and intermediaries like customers can buy software directly from the service-producing companies. But it has also revolutionized many manufacturing and service delivery processes.
However, many small manufacturing companies use online platforms like Amazon, Alibaba, Draz, etc. as an intermediary to sell their products directly to the end customers. Many e-commerce stores serve as the intermediary channel between the customers and the manufacturers.
How to Choose the Right Distribution Channel
Now, the question is how to choose the right distribution channel for your product. Some of the factors affecting the choice of distribution channel are as follows;
Type of Product
If your product is fragile and easily perishable, then you should use the short route channel for the distribution of your product. If the product has a long term expiration date, then you have many options to choose a variety of distribution; short, long, or dual.
If the product is tech-oriented, it means that you have to employ tech sales personals to sell the product, it’s better if you choose the short for the sale of technical products. If the product has a high value, it’s preferable if you sell it through sales travelers rather than employing the intermediary channels.
If the target market of your business is consumer-based, B2C, then retailing is necessary. However, if your market is business, B2B, then you won’t need retailers.
If your company planning to cover a larger market area, then you’ll need a chain of intermediaries to reach the final customers.
When your product is frequently used items and customers use it over and over again like food items, then you should use different channels like retailers and wholesalers.
If you analyze the customers’ information like location, number, size, and the purchasing habits of customers, then it would give you an idea that what channel you should use for your business. Most important, whether your target customer is patient enough to travel and wait for your product.
Intermediaries and middlemen play a vital role in the decision making of choosing the right channel. You should prefer those intermediaries that market your product along with delivering it.
You should also prefer those intermediaries that promote your product at the lower channel.
Most importantly, you should prefer those intermediaries that provide the maximum sales even at a lower unit price. A maximum sale would help you to meet your targets easily.
The size of the company also matters a lot in the selection of the distribution. If the company is big and well established, then it won’t employ many channels to sell its products. On the other, a new small company would use many distribution channels to sell its products because it has to make a name for its brand and it has less experience.
If the economy of the country is in recession, then the company would use short and cheaper distribution channels. If the economy is prospering, then it would have many options. Distance and transport also matter a lot in some products.
The marketers of your company should closely look at what types of distribution channel competitors are employing. It would give you an idea of what other distribution channels you should use. For instance, if competitors are using the retailing, then you should use the door to door sale to have a better impact.
The Future of Distribution
As the world and market place is moving towards online store and e-commerce. Now, the future of distribution channels is brighter than ever before. However, it would become more technical because of technology and the internet. If distribution channels adopt the changes earlier, then it’s very good for their business.
After reading about distribution channels, its role, different types, and how its future would be like. We have concluded that choosing the right distribution channel for your business is the key to the success of your product. Most importantly, you should keep in mind the different factors and choose the distribution channel that better matches your product and company’s marketing objectives.