What is Distribution Channel? Types, Examples, & How To Select

What is a Distribution Channel?

A distribution channel is the path a product takes from being made to being in your hands, making sure it gets to you in the easiest and fastest way possible.

A distribution channel is like a journey for a product, starting from where it’s made to where it’s bought by you. It’s the network of different stops or middlemen that help the product get to you, the person who wants it.

Imagine you buy something from a store. Before it gets to that store, it might’ve been through quite a trip! First, it’s made by someone, then it might go to a middle person (like a wholesaler) who handles a lot of products at once. After that, it could reach a retailer, the store where you see it and buy it.

Think of the channel of distribution as a chain of helping hands, each making sure the product gets closer to you. Sometimes, this chain might be short, with only a few stops, or it could be longer, involving more steps before you see the product on a shelf.

Functions of Distribution Channels

Channel of distribution plays a crucial role in the path of product delivery and ensures the product reaches final consumers as soon and efficiently as possible. The following are its key functions:

Information: One of the primary channel functions is the assimilation and dissemination of marketing information. Organizations collect information about factors and forces in the marketing environment through channel members
Promotion: If a product is to be put forward in the market, the initiation and persuasive communication is done through the market channels.
Contact: The marketing channel helps the firm to develop contact with existing and potential buyers from the market. In other words, members of the channel develop a system whereby the organization’s products and services match the buyer’s needs and
Negotiation: One of the key distribution channel functions is negotiation. Marketing channels through its members develop a win-win situation for both the firm and its customers. Moreover, the channel facilitates a situation whereby both buyer and seller agree on a mutually set price which is key to the transfer of ownership.
Physical Distribution: Member of marketing channel transportation and store goods too.
Financing: Members of the channel are the main source of revenue for the marketing organization.
Risk-taking: One of the key functions, that marketing channels take is the assumption of risk. This risk-taking function is often the key to the smooth flow of products from the production point to the consumption point.

Types of Distribution Channels

There are three ways the products can be brought to final consumers. The three distribution channels include direct, indirect, and mixed:

Direct Distribution Channel

This is like a shortcut, where the product goes directly from the maker to you, the buyer. There are no middlemen or detours. It’s like ordering pizza straight from the pizzeria to your door. Companies using direct channels skip the middle steps, selling right to the customer.

With this channel, companies get up close and personal with customers. They handle everything, from selling to shipping. Ever bought something straight from a brand’s website? That’s a direct channel at work.

Companies using direct channels have full control. They set the prices, handle customer queries, and shape the whole buying experience.

Read More: Direct Distribution Channel

Indirect Distribution Channel

Here, the product doesn’t go directly from maker to buyer. Instead, it goes through middlemen like retailers or wholesalers before reaching you. It’s like a relay race, with the product passing through different hands.

Companies using indirect channels reach more customers. Think of buying a phone from a store; the store got it from a distributor, who got it from the manufacturer. It’s a longer journey, but it reaches more people.

In this channel, responsibilities are shared. Companies don’t handle every step. They rely on others to market, sell, and distribute their products.

Mixed Distribution Channel

This is like having your cake and eating it too. Companies using a mixed channel blend both direct and indirect methods. They sell directly to some customers while also using middlemen for others.

It’s all about options. Companies can choose the best approach for different products or markets. For example, a company might sell online directly to tech-savvy customers while using retailers for broader market reach.

With a mixed channel, companies can adapt to changing needs. They’re not locked into one way of doing things and can switch between direct and indirect as needed.

Intermediaries Involved in Distribution Channels

There are different intermediaries that are involved in channels of distribution that make sure the products reach from producer to end consumers. They are:

Wholesalers: These are the middlemen who buy goods in bulk from manufacturers and sell them in smaller quantities to retailers. They act as a bridge between the manufacturer and retailers, often storing and redistributing products efficiently.
Retailers: They are the businesses where consumers directly purchase products. Retailers can be physical stores, online platforms, or a combination of both. They buy goods from wholesalers or directly from manufacturers and sell them to end consumers.
Distributors: Similar to wholesalers, distributors purchase products from manufacturers but focus on specific territories or markets. They might add value by offering additional services like marketing, sales, and even storage.
Agents/Brokers: These are individuals or firms that act on behalf of either the buyer or the seller, facilitating transactions. They don’t take ownership of the products but earn commissions or fees for connecting buyers and sellers.
Sales Representatives: These individuals work directly for manufacturers and act as the face of the company. They visit potential buyers, explain product features, negotiate deals, and sometimes handle the sale process.
Digital Distributors: In the age of e-commerce, digital distributors or online marketplaces have become prominent. Platforms like Amazon, eBay, and Alibaba connect buyers and sellers, providing a space for businesses to sell their products to a vast online audience.
Resellers: They purchase products from distributors or retailers and then sell them without any significant alteration. Often seen in markets where goods are repackaged or slightly modified before resale.
Franchises: While not traditional intermediaries, franchises operate as intermediaries through a specific business model. They buy the rights to operate a business under a particular brand name and follow set procedures, usually buying products from the franchisor.

Levels of Distribution Channel

Intensive, selective, and exclusive are the three main levels of distribution levels. These distribution levels refer to how extensively a product is made available in the market. Let’s break them down:

Intensive Distribution

Intensive distribution aims to saturate the market by placing the product in as many outlets as possible. Think of it as casting a wide net to ensure the product is available almost everywhere. Products like beverages or everyday household items often use intensive distribution to ensure consumers can find them easily, be it in supermarkets, convenience stores, or even gas stations.

With this strategy, the goal is visibility and accessibility. It’s about being where the consumer is, ensuring they encounter the product frequently, thus boosting the likelihood of purchase.

Selective Distribution

Unlike intensive distribution, this level targets specific outlets in particular locations. Rather than being everywhere, the product is strategically placed in chosen stores or regions. It allows for a level of control over where the product is sold, often targeting high-end retailers or specific demographics.

Read More: Penetration Pricing Strategy

Selective distribution strikes a balance between mass market saturation and exclusivity, maintaining the product’s value while ensuring access to the intended consumer base.

Exclusive Distribution

This level involves very limited outlets, oftentimes skipping wholesalers and retailers altogether. The product is available only through select channels, offering a high degree of exclusivity.

Exclusive distribution suits luxury or niche products aiming for a high-end market, associating exclusivity with premium quality. Brands like Apple use this level, maintaining direct control over how and where their products are sold, ensuring a unique brand experience for consumers.

How To Select the Right Distribution Channel?

Selecting the right channel of distribution is key to effectively delivering your product to end consumers. Here are some factors or strategies that affect channel selection:

Know Your Product & Market

Understand your product’s nature, whether it’s perishable, high-end, or everyday use. Match it with the market preferences and buying behaviors. Know what you’re selling and who wants to buy it. Match your product with where people are likely to find and buy it.

Read More: Price Skimming Strategy

Study the Competition

Analyze how competitors distribute similar products. See what’s working for them and understand their market reach. Look at what others selling similar stuff are doing. Learn from their success and see where they’re selling their things.

Consider Cost and Profitability

Assess the cost of distribution against potential profits. Some channels might be cheaper but could limit your sales reach. Figure out how much it costs to sell your product in different ways. Sometimes cheap isn’t always the best for selling lots of stuff.

Evaluate Customer Habits

Understand how your customers prefer to shop. Do they love online shopping or prefer visiting physical stores? Think about how people like to buy things. Some like to click, some like to stroll around stores. Know what your customers prefer.

Align with Brand Goals

Ensure your distribution strategy aligns with your brand’s image and goals. If you’re all about exclusivity, a wide-reaching strategy might not fit. Make sure how you sell matches what your brand is about. If you’re fancy, selling in every store might not fit your style.

Test and Adapt

Start with a few channels and test their effectiveness. Adapt and change if something isn’t working well. Try a few ways to sell your stuff first. If it’s not going great, change it up until you find the best way to sell.

Examples of Distribution Channels

To better understand, let’s explore the examples of some great companies:

Amazon

Amazon revolutionized e-commerce through its online platform, offering a vast array of products. They built warehouses globally for efficient order fulfillment, introduced Prime for faster deliveries, and engaged third-party sellers to expand their product range.

Apple

Apple embraced an exclusive distribution approach for its premium products. They established Apple Stores, creating a direct channel, controlling customer experience, and offering expert guidance. They also limited third-party retailers, maintaining brand exclusivity.

Coca-Cola

Coca-Cola employed an intensive distribution model for its beverages. They partnered with numerous retailers, vending machines, and restaurants globally, ensuring Coke is available almost everywhere, especially in high-traffic areas.

Nike

Nike uses a selective distribution strategy for its sports apparel and footwear. They focus on key retailers, maintaining control over product availability. Simultaneously, they operate Nike Direct, selling directly to consumers through their website and stores.

What is Reverse Distribution Channel?

Reverse distribution channels involve the process of moving goods from the consumer back to the manufacturer or retailer. It’s a path for handling returns, exchanges, recalls, or recycling products. Unlike the typical distribution channel where products move from manufacturer to consumer, in reverse distribution, goods flow in the opposite direction, enabling companies to manage returned items efficiently, refurbish or recycle them, and minimize waste. This channel is crucial for maintaining customer satisfaction, managing product defects, and implementing sustainable practices by reusing or responsibly disposing of items.

Arti

Arti Kushmi holds a BBS (Bachelor in Business Studies) degree and shares her business and marketing knowledge through this website. While not writing she will be reading and enjoying the moment.

What is Distribution Channel? Definition, Functions, Types, Examples, and Selection Factors