Distribution Channels: Definition, Types, And Examples

You may have heard the term “distribution channels” thrown around before, but what does it actually mean?

And more importantly, what types of distribution channels are there that fit your business the best?

Stick around to get a comprehensive rundown of distribution channels and how genuine brands sell across the globe.

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What Is A Distribution Channel? 🚚

A distribution channel is a system through which a type of product or service is delivered to the end customer; simple enough, right?

In other words, your product’s route from the manufacturer to the consumer.

There are a few distribution channels, but they all generally fall into one of two categories: direct channels or indirect channels, with some additional channels and variations in between.

Let’s take a closer look at each one.

Understanding Distribution Channels 💪

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There are four distribution channels to choose from in a general sense: Direct, Indirect, Exclusive and Nonexclusive 

Direct channels:

Direct channels are when a company sells its products or services to customers through its salesforce or a website. It can involve face-to-face interactions between the seller and the buyer in the case of a local store.

Direct channels are the most costly and time-consuming option, but it gives companies more control over the branding and marketing of products.

Indirect channels:

Indirect channels are when a company sells its products or services through efficient distribution channel partners or intermediaries, such as a retailer or wholesaler, and products are usually pushed online to a great extent.

It’s less costly and time-consuming, but tracking consumer sales and measuring ROI can be difficult.

Exclusive distribution:

Exclusive distribution is when a company sells its products or services through a single partner, gives companies greater control over their products, and allows them to build stronger relationships with retailers.

Nonexclusive distribution:

Nonexclusive distribution is when a company sells its products or services through multiple partners, providing more exposure to consumers.

So, which channels of distribution are right for you?

It depends on your business development goals and what you’re trying to achieve. We’ll get more into that in a moment.

Are There Any Benefits Left For Direct Sales Today? 💸

There are a few benefits to using direct sales as a distribution strategy.

With this type, the manufacturer sells products directly to the consumer. It allows you to maintain a close customer relationship with your customers and is ideal for local businesses.

Customers can see, touch, and feel the product, ask questions, and leave testimonials about it.

This helps to build loyalty, and customers are more likely to return to you if they have a positive customer experience with your company, making you their preferred choice.

With direct sales, there’s no middleman, which means the manufacturer can keep costs down and make a higher profit.

But inherently, you also move less product as you would with channel partners, so there is a balance to achieve with both methods.

By taking full responsibility through direct sales, you have almost complete control over the product, how it’s marketed, and how it’s delivered to the end customer.

And when it comes to closing clients with more of a high ticket offer, that almost always happens through direct interaction as customers want to speak to a representative in person.

This can be anything from online courses that cost thousands of dollars to selling high-end cars like a Bentley.

With direct sales, you’re not as limited as selling through retailers so that you can sell your products or services to anyone interested.

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How About The Benefits Of Indirect Sales? 🤑

Direct sales are great for several reasons. However, this direct approach can be limiting, so many companies use some kind of hybrid model as their choice of distribution channel.

These channels involve a third party, such as retailers or wholesalers. This allows companies to reach a wide range of audiences and sell more products.

But it also means they have to share profits with a third party, making it more difficult to track sales and inventory.

One massive benefit of indirect sales, the most obvious one, is a global reach of potential customers outside your local area.

It also allows the manufacturer to focus on production and quality control while the distributor focuses on sales and marketing, excelling at their expertise. This separation of duties helps to improve efficiency and reduce costs and is usually the method of choice for a more globalized sales operation.

The manufacturer can maintain greater control over the distribution process by partnering with certified partners.

This allows them to ensure that their products are being sold through authorized channels and that the products accurately reach the customers.

Types Of Distribution Channel Strategies Explained 🌟

There are a few distribution channels, but they all have the same goal: getting your product or service to the end user. Let’s explore some of the options!

1. Retail

There are a few different types of retailers, and it’s essential to understand the differences before you decide where to sell your product. The most common types of retail stores are:

Department stores are large, general stores that carry various products in multiple departments, such as clothing, cosmetics, appliances, and home goods.

They usually have a low price point and cater to many consumers.

Specialty stores are smaller retail stores that carry a specific product type, such as sporting goods, pet supplies, or kitchen appliances. They usually have a higher price point and cater to a narrower customer base.

Online retailers are websites that sell products directly to consumers over the internet.

They often have lower prices than brick-and-mortar stores and can be an excellent option for products that are difficult to find in-store.

2. Wholesale

A wholesaler is a company that buys products from manufacturers and distributes them to retailers.

They usually specialize in a particular product type, such as clothing, cosmetics, or electronics. Wholesalers can offer better prices than retailers because they buy in bulk and have lower overhead costs.

There are two main types of wholesalers: direct and indirect.

Direct wholesalers sell their products to retailers, while indirect wholesalers sell to intermediaries who then sell to retailers. Retailers often work with both types of wholesalers, depending on their products and the prices they want to offer their customers.

Some common examples of retailers include department stores, supermarkets, and convenience stores.

3. Online Channels

There are many effective distribution channels, but the internet has recently become an increasingly popular option, especially for digital products.

With the digital revolution of the internet, brands can reach a global target audience quickly and easily through various digital platforms.

You can sell products or services online through your website, an e-Commerce platform like Shopify, or you can use online stores like Amazon or eBay as a form of distribution.

The internet lets you connect with customers directly through social media platforms which can be a great way to build loyalty and create repeat customers.

4. Sales Teams

Sales teams are a vital part of a company’s distribution strategy.

They are the people who interact with customers and sell products or services.

Sales teams can be organized in various ways, but most commonly, they are divided into regional or national teams and then into smaller teams that cover specific areas or products.

A company’s sales team is its frontline company representatives, which can significantly impact a product’s success or failure.

It’s crucial to ensure they are adequately trained and have the right tools to do their jobs.

This includes information about the product, its features and benefits, and the company’s sales and marketing strategies.

5. Agencies

There are several types of agencies that can help with distribution.

Here are a few of the most common:

Marketing agencies help to create and execute marketing campaigns for brands. They typically have a broad reach and can help to get a product in front of the right people.

Sales agencies work with retailers to broker deals and arrange sales meetings. They have relationships with major retailers and can help get a product onto store shelves.

Distribution networks are groups of companies that work together to distribute a product. This type of network can be helpful for products that are difficult to distribute, such as those that need to be delivered to individual stores or customers.

Logistics companies provide the logistical support needed to get a product from the manufacturer to the retailer. This includes things like order processing, warehouse management, and shipping.

Choosing The Right Distribution Channel For Your Business 💭

When selecting a distribution channel for your business, you must consider the market, your target audience, what you’re selling, the competition, and your brand.

Sometimes you’ll find yourself going for a hybrid distribution mix depending on many factors.

Market Characteristics

The first is the market characteristics, which include the size of the market, the growth potential of the market, and the level of competition in the market.

The second factor is the company’s business model. Some businesses are built to sell products directly to consumers, while others rely on retailers or other intermediaries to reach consumers.

Finally, the company’s strengths and weaknesses must be taken into account.

For example, a strong marketing and sales company may prefer direct distribution channels.

In contrast, a company that is weak in marketing may prefer to use indirect distribution channels.

Product Characteristics

When choosing a distribution channel for your product, you must consider your specific product’s characteristics.

Some factors you’ll want to consider for physical products are:

• How durable is your product?
• Is it easy to damage?
• How easy is it to use?
• Is it heavy or bulky?
• How quickly does it need to be delivered?
• What are the shipping costs?
• Is it perishable?
• What is the shelf life of the product?

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Company Characteristics

You’ll also need to consider how much control you want to maintain over your distribution process.

• Do you want to handle all the logistics yourself?
• Do you want to outsource some or even all of it?
• Also, ask yourself what type of customers you are trying to reach.
• What kind of distribution channels will reach them most effectively?
• How much can you afford to spend on distribution?
• What are your margins like?
• How much can you afford to spend on marketing channels and advertising?

Considering all these factors will help you decide on the proper distribution channels for your business niche.

Competition Characteristics

Competition among distribution channels can be fierce, as each one is vying for a piece of the market.

To succeed, it’s essential to understand the different competition characteristics of each type of distribution channel.

There are three main types of competition: price, quality, and service, and all play a part in your Unique Selling Proposition (USP).

Price competition is when distributors try to undercut each other on price to win business. This is usually a race to the bottom and should be avoided when possible.

Quality competition is when distributors try to differentiate their products by offering higher-quality attributes for their products.

Service competition is when distributors compete on the quality of customer service they provide, and it’s a great way to stand out.

Examples Of Brands Using Distribution Channels 👏

Many brands use various distribution channels to get their products to consumers. Let’s take a look at just a few examples.

Apple uses a mix of direct and indirect distribution models, which means it sells its products directly to consumers through its stores and website and on marketplaces like Amazon.

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Apple tries to maintain more control over the pricing and marketing of its products to keep the baseline at a premium.

Nike also uses a hybrid distribution model. It sells some of its products directly to consumers but uses a dealer network of authorized dealers and retailers to reach larger market options.

This allows Nike to tap into both the convenience of direct sales and the economies of scale offered by traditional retail outlets.

Ford uses an indirect nonexclusive distribution model. It relies on independent distributors to sell and service its vehicles.

This gives Ford more visibility into the distribution chain and allows it to better track customer preferences and trends.

Distribution Channels: Frequently Asked Questions 🤔

What Are The Challenges Of Using Distribution Channels?

Several business challenges can be associated with using distribution channels.

One of the key challenges is ensuring that the products or services that are being distributed can reach the target market effectively and efficiently.

This can often be challenging due to the number of intermediaries involved in the distribution process and the geographical distances that can be applied.

What Are Some Common Distribution Channel Mistakes?

Several common distribution channel mistakes can be made.

Perhaps the most common mistake is failing to assess and understand the target market’s needs adequately.

This can lead to distribution channels that are either too limited in scope or too broad and unfocused.

Another common mistake is appropriately aligning the distribution channels with the overall marketing strategy.

Wrap Up 🎉

Now that you know what distribution channels are and the different types, you can start thinking about which ones would work best for your business.

Examples of distribution channels are direct sales, online sales, wholesalers, and retailers. So, which ones will you use to get your products in front of your target audience?

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