If you are new to marketing, then one of the terminologies that you’ll have trouble settling with is “distribution channels.” If you intend to enter the business industry, it will be wise to get acquainted with the terms associated. So, what are distribution channels?
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In marketing, distribution channels are part of the foundations of a successful business. The foundations of pillars are the product you create, promoting your product, the cost of the commodity, and then comes placement or, in other terms, “distribution.”
Now that is just distribution. But what about distribution channels? They are chains of intermediaries or industries through which a commodity or service passes before reaching the consumer. We’ll expound more on that and the examples of distribution channels later.
Your distribution channels are vital if you wish your firm to succeed. That is because, if you have an excellent strategy, they can enable you to realize the goal of every business person; And that is expanding borders. On the other hand, a wrong approach will leave you with no hope of picking up again.
In this article, we look at distribution channels. We will also answer the question of the choicest distribution channel for your business. Follow on.
Distribution Channels Made Simple
How do you understand distribution channels? Now, that’s crucial. Because if you are in eCommerce or any business venture, you may make profits or losses based on your understanding. While still digesting that, let’s launch in deep.
A distribution channel is a path that your product follows once it leaves your company to your consumer. If you also look at it from a different perspective, distribution channels will also take you straight to the product vendor.
It’s important to note that the distribution channels can often be long or short, depending on the intermediaries. The fewer they are, the quicker, and vice versa.
The Two Forms Of Distribution Channels
There are two forms of distribution channels. These are;
- Direct Channel
- Indirect Channel
What in the world do these terminologies mean? Let’s look at them independently.
Direct Channels
When a customer, or for instance, you, go to a company to purchase a product, we call it a direct channel. But there’s more. The amount of money you spend on this same product is different from the money you pay when you get it from a retail shop. Consumers get better rates for the products.
It is not just the consumer who reaps much but also the producer. Research shows that companies that use this kind of channel earn more revenue than those that stick to the indirect channel. However, there is a disclaimer. Direct channels work best for small companies. If you are a big company, you should go for the indirect channel.
To ensure that this channel moves without interruptions, the company must sell on the internet and create retail outlets. The company also develops a field team that operates on the ground. The sales representative is the one in charge of overseeing the sales.
One advantage that this channel boasts is that this method gives the company control over its relationship with its consumers.
Indirect Channels
On the other hand, indirect channels refer to getting a product from a retail shop or a wholesaler. As said earlier, you spend money on indirect media as compared to direct channels. And that is because there is no intermediary. Therefore there is no extra cost to cover transportation.
Apart from forms of distribution channels, we also have a marketing distribution channel. There are three marketing distribution channels. These are;
- Direct to end-user
- Selling via a merchant network
- Trading through a Value-added reseller
Again, let us define the distribution channel examples individually.
Direct to End-User
In the Direct to the end-users channel, your firm bypasses a channel. Instead of using the common mediums to reach your consumers, you decide to go to them directly. How is that? Through eCommerce.
Thanks to technology, today, you don’t have to struggle to get your products out of your warehouses. Technology sorts out problems with monotony. You can sell your products to local customers through the usual channels. And those outside your region through your website. Isn’t that something?
If you haven’t set up your website yet, Strikingly is a great place to start from. On the other hand, if you have a website and are having trouble selling your products there, here are some tips. When done the right way, you cannot imagine how productive it is.
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Selling via a Merchant Network
Selling via a merchant network is the longest in the list of distribution channels. How is that? Well, let’s explain it further. This channel deals with every entity. The products leave your company, go to the wholesaler, then the retailer. And then make the final step to the buyer.
This blueprint is the same process that the adult beverage trade follows. The law obliges the beverage producer to sell to the wholesalers, who then sell to retailers. Then it can finally reach the shopper in their respective regions.
In this case, these dealers are the producer’s customers. You, therefore, as the producer, have to back them with marketing materials and drives. You can also invest in training them. That way, you develop a win-win situation.
What happens is that the wholesalers buy large volumes of the commodities from the manufacturer. The products they sell to the sellers are in small volumes.
Selling Through a Value-Added Reseller
Now this one is kind of interesting. In this type of distribution channel, you sell to the retailer, who sells your product to the consumer. So, in this case, you leave the wholesaler out. Therefore you only have one intermediary.
We call the retailer a value-added reseller because he bundles your product with others. After Which the buyer resells your product. In that case, value is added to the product, hence the name. The intermediary can work with the consumer to establish the right product. Then he comes with a system that includes the product you sold to him.
Companies that adopt this channel include those who create costly watches. Companies that develop products from FMCG also use it.
The Functions of Distribution Channels
Unknown to many companies who have doubts concerning distribution channels, they miss plenty of advantages. These are;
- A boost in exchange efficiency. A company achieves this by the depreciation of the required contacts.
- It is making work easier for the producer. The distribution channels perform functions like scaling the operations, storage, advertising, transportation, and selling. In this case, the economy cannot suffer shortages or influx. The distribution channels store the products in warehouses and distribute only according to the economy’s needs.
- It saves time and reduces costs. For a producer to ensure that its goods reach the consumer, it will take a lot of work. That is from spending money on expenses incurred to untimely deliveries since the products will have to get to the consumers late. That translates to unreliability, and the result is a loss in customers.
- Financial supply. We may not want to think of it as a financial supply, but in a real sense, it is. How is that? The producer sells its products to the wholesalers in bulk. The manufacturers get their money instantly and thus can ensure supply is constant. That may not be the case with the intermediaries who have direct contact with the end-users.
- Risk distribution. Every business has to take risks since it is part of the rules that govern the game. In distribution channels, the intermediaries have to shoulder the risks, leaving the manufacturers with only one job; production. The intermediaries have to ensure that the company’s products reach the consumer on time and without damage.
- Creation of employment. Look at the processes that revolve around distribution. It’s a mighty lot of work. You will need thousands of people to get the job done as fast as possible. That is how people get to earn a living. It is giving back to the community. Not only is the manufacturer with his team of dealers winning, but the community is gaining as well.
Do You Need a Distribution Channel?
It’s pretty hard to think about a business that does not need a distribution channel. However, your need will depend on the size and mission of your company. However, if you want to perform well in the competitive market, you want to adopt one of the distribution channels we have touched on.
The Best Distribution Channel for Your Company
The choice of the distribution channel you would like to adopt solely depends on your company. As we discussed earlier, each company has one that will best fit its niche. However, as you choose the best channel for you, thank along these lines;
- Would your consumers want to speak to your salesperson? Would they want to buy your products on the internet?
- How fast would you like your commodities to reach your consumers?
You will realize that you may need one channel or even two, based on the answers you get. However, be keen to ensure that you do not give one channel more privileges than the other. That way, the end-user will be happy whenever, wherever.
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