Ready with your product. Facing difficulty, buy it in the market but your sales are not meeting the criteria, looking for a way where your product can reach the desired customers. A distribution channel is your solution. We know your mind is flooding with questions like what is this, how does this work, and can this benefit your business?
To get answers to these questions you need to read through the blog.
What is a distribution channel?
A distribution channel is the pathway the network of businesses or intermediaries takes to reach the final buyer or the end customer. These channels are also referred to as marketing channels or marketing distribution channels. They may include wholesalers, retailers, distributors, and sometimes even the Internet. This can be better clarified from an example. For instance, a company launches its new sunscreen. Instead of a business plan writing service, the company can send samples to wholesalers helping in gaining insight about the product. Later these sunscreens will be kept on the shelves of wholesalers, retailers, and distributors from where the customers can buy the product for use.
Companies develop links with distribution strategies or channel strategies for their products and services. This is based on multiple factors and potential steps that are vital in the distribution process.
Understanding the types of distribution channels
Before getting an answer to the question, what is distribution in business and how does this help, we need to have some background knowledge of the types of distribution channels. These channels are sorted into three categories, direct, indirect, and hybrid.
Direct distribution channel
This channel allows customers to make purchases directly from the manufacturer. This is a short channel meaning lower costs for customers as they are directly connected to the product owner. The seller delivers the product or service directly connecting with the customers. The seller can also sell its product through e-commerce. The expense of building a team for e-commerce is solely the company’s responsibility. Products are directly in the hands of buyers with no intermediate interactions involved. One of the merits of this channel is the profit goes directly from customer to manufacturer. One of the demerits is that the company using direct channels has to invest a lot of amounts in sales and marketing without relying on partners.
Indirect distribution channel
The indirect channels of distribution business allow customers to buy the product or service from either a wholesaler or a retailer. This channel is ideal for those companies where goods can be sold in brick-and-mortar shops. This channel can be shaped into two categories:
- Single-tier: Using this distribution model, vendors can build direct connections with channel partners that can help them sell the product/service to customers.
- Two-tier: An ideal choice for small vendors who face difficulty in building connections with large vendors. The manufacturer sells the final product to the distributors that help in building channel partners, as a result of delivering the end product to customers.
The benefits of this channel include wider access to the market via established distribution channels. The manufacturer does not need a huge initial investment. The drawbacks of indirect channels are the vendor has less control over the branding and pricing of the product. They cannot connect to the customers directly.
Hybrid distribution channel
A hybrid channel is a combination of both direct and indirect channels. For instance, a manufacturer sells items to the customer through an e-commerce website. Then uses an intermediary to deliver the physical product to the customer. The customer is still connected directly with the vendor, but an intermediary is involved in the process. Some challenges companies might have to face during hybrid distribution include channel conflicts, complexity in managing multiple channels, confusion between customers, and high investment in resources. The benefit of this channel includes more reach to customers with better service.
The role of distribution channels in business
The distribution channels business play a pivotal role in businesses. These serve as a pathway through which the goods are moved from the manufacturer to the end customer. These steps involve the role of intermediates like, wholesalers, retailers, agents, and sometimes logistics services to facilitate the customers. The way the channel works includes:
- Producer: The individual who creates the product or service. They may produce goods in-house or can hire a third party to get the product ready. Their ultimate goal is to produce a product that stands out in quality and is available for the customers.
- Wholesaler: The wholesalers purchase the goods in large quantities from the company outlet, and sell them to the retailers in smaller quantities to retailers. They often serve as a communicator between the manufacturer and retailers, handling roles such as inventory management, bulk order purchaser, and transporter.
- Retailer: These brick-and-mortar store owners sell the products directly to customers. They may have an online store with the latest technology. These purchasers buy goods either directly from producers or from retailers, selling them at a profitable cost.
- Broker: In some places, these agents act as an intermediate between buyers and sellers. They earn a commission for facilitating the customers. They may either be with the producers or retailers, helping in negotiating deals, managing relationships, and coordinating with the logistics.
- Logistic service: These services are responsible for transporting goods from the producers to wholesalers, retailers, or even directly to customers. They play a crucial role in managing the timely and efficient delivery of products, helping in managing the reputation of your company.
- Customer: Some companies use the facility direct customer model. This allows companies to control the pricing, branding, and custom relationships. This facility uses online platforms. Either utilizing the complete process of passing through every stage or using an online platform, the end product is delivered to the customer.
Digital era and distribution channels
The digital revolution has funded reshaping the ways goods and services are distributed across the globe. Traditional distribution has undergone certain changes.
The popularity of e-commerce has made traditional distributors migrate to online platforms. This shift has opened the gateway for global access without the need for physical storefronts, reducing operational costs and widening their connections with customers.
With the boost of technologies, companies have started avoiding intermediaries and establishing strong connections with their clients. Utilizing social media, influencer marketing, and targeted advertising can engage with the target audience and build loyal customer relationships.
Compiling it together: look for a channel that can work for you
Each type of distribution channel plays a crucial role in a vendor’s life. If successfully executed one of the channels, either one that completely focuses on one mode (direct method), or embraces multiple methods (hybrid mode). This can help in opening and expanding markets, ultimately succeeding in sales goals.
Boosting revenue, also broadens the portfolio of a company, opening broader connection options with customers. The final goal is to meet the customers’ demands.
Also read: SBA Business Plan
