What Is a Distribution Channel?

A distribution channel is the network of businesses or intermediaries through

which a good or service passes until it reaches the final buyer or the end
consumer. Distribution channels can include wholesalers, retailers, distributors,
and even the internet.

Distribution channels are part of the downstream process, answering the

question "How do we get our product to the consumer?" This is in contrast to the
upstream process, also known as the supply chain, which answers the question
"Who are our suppliers?"

Importance Of Distribution
Distribution is one of the important mix among marketing mixes. Delivery of
satisfaction, standard of living, value addition, communication, employment,
efficiency and finance are the major role and importance of distribution.

The role and importance of distribution in marketing and in the whole economy
can be discussed as follows:

1. Delivery of satisfaction
Marketing concept emphasizes on earning profit through satisfaction of the
customers. Besides market research for the development and sales of goods
according to need and wants of consumers, the participants of distribution
channel also help producers in production of new goods.

2. Standard of living
Distribution function helps to improve living standard of the consumers in the
society. Proper distribution of necessary goods and services to the consumers
easily at right time does not only satisfy them but also brings change in their living
standard. Distribution brings improvement in living standard of consumers
through generation of employment, increase in income and transfer of
ownership. Hence, it brings positive effect in the society.

3. Value addition
The functions of distribution such as transportation, warehousing, inventory
management etc. increase the importance of products by creating place utility,
time utility and quantity utility. Distribution mix plays an important role to
increase the value of the products through delivery of goods in right quantity, at
right place and right time.

4. Communication
Distribution serves as link between producers and consumers. Producers can
make flow of information and messages to consumers about their products, price,
promotion etc. through channel members. Similarly, they receive
information about customers, competitors and environmental changes from
channel members.

5. Employment
The function of distribution creates employment opportunities in society. Market
intermediaries work as direct and indirect sources of employment. Different
producers need to supply their innumerable products to consumers. Thousands of
distributors, agents, wholesalers, retailers, brokers etc. involve in supplying the
products to the consumers. Similarly, many persons of the society can get job in
the transport and warehouses sectors, etc.
6. Efficiency
Producers produce limited types of goods in mass quantity. but the consumers
demand different types of goods in small quantity. When goods are produced in a
mass quantity, they can be obtained at lower price. Distribution helps to satisfy
the needs of consumers by supplying assortment of different products of different
producers. From this, efficiency can be achieved in both production and
distribution.

7. Financing
Intermediaries themselves make arrangement to keep reserve and stock of
goods. The producers need not make arrangement and management of
distribution centres and warehouse. The producers need not do anything except
remaining busy in production, the timely payment by intermediaries and financial
helps become more important for smooth operation of production. Similarly, the
role of finance is also decisive in mobilizing other means of production.

Components of a Distribution Channel

• Producer: Producers combine labour and capital to create goods and services
for consumers.

• Agent: Agents commonly act on behalf of the producer to accept payments and
transfer the title of the goods and services as it moves through distribution.

• Wholesaler: A person or company that sells large quantities of goods, often at

low prices, to retailers.

• Retailer: A person or business that sells goods to the public in small quantities
for immediate use or consumption.

• End Consumer: A person who buys a product or service.

What is distribution strategy?
Distribution strategy involves coming up with an efficient method of
disseminating your company’s products or services. The goal of this type of
strategy is to maximize revenue while maintaining loyal customers. Your business
creates a strategy based on your target customer, and you may use more than
one strategy to reach more than one type of target customer.

Your strategy approach should focus on factors such as how your ideal customer
buys your products or services and how your customer would prefer to buy them.
Consider these kinds of questions when planning your distribution strategy:

● Who is your ideal customer?

● How does the product or service fit the person’s lifestyle?
● What type of purchase decision does it require?
● What are the main priorities for your customers? For example, do
your customers care more about cost or convenience?
● Can you improve the purchasing process to make it better and
easier for your customer?

Generally, distribution software helps businesses streamline their distribution

strategies when they implement them.

Distribution Strategies Types

Direct distribution
Direct distribution involves the manufacturer taking orders and sending its
products directly to the consumer. As well as having access to more data about
your consumers and target audience, it can also result in higher profit margins
because there are fewer intermediaries.
Indirect distribution
Indirect distribution involves working with intermediaries to distribute your
products. These can be retailers, wholesalers, franchisors or distributors,
depending on your needs. Wholesalers purchase products in bulk in exchange for
a reduced price, whereas retailers purchase products directly from the
manufacturer to sell in their physical storefronts, or via websites or other
channels.

A franchisor is someone who has purchased the rights to a product or service and
the brand name from the manufacturer, who maintains a certain level of control,
and a distributor helps transport products from manufacturers to retailers.

Hybrid distribution

Hybrid distribution channels use both direct channels and indirect channels. A
product or service manufacturer may use both a retailer to distribute a
product or service and may also make sales directly with the consumer.

Internet distribution
The internet enables the observation and analysis of customer purchase
behaviour which can optimize the distribution network. A better-organized
network created with the help of the internet can deliver to customers more
efficiently.

Distribution Channel Levels

Level 0
This is a direct-to-consumer model where the producer sells its product directly to
the end consumer. Amazon, which uses its platform to sell Kindles to its
customers, is an example of a direct model. This is the shortest distribution
channel possible, cutting out both the wholesaler and the retailer.

Level 1
A producer sells directly to a retailer who sells the product to the end consumer.
This level includes only one intermediary. HP or Dell are large enough to sell their
computer products directly to reputable retailers such as Best Buy.

Level 2
Including two intermediaries, this level is one of the longest because it includes
the producer, wholesaler, retailer, and consumer. In the wine and adult beverage
industry, a winery cannot sell directly to a retailer. It operates in a multi-tiered
system, meaning the law requires the winery to first sell its product to
a wholesaler who then sells to a retailer. The retailer then sells the product to the
end consumer.

Level 3
This level may add the jobber, this level adds the role of the individual who may
assemble products from a variety of producers, stores them, sells them to
retailers, and acts as a middle-man for wholesalers and retailers.

Choosing the Right Distribution Channel

Not all distribution channels work for all products, so companies need to choose
the right one. The channel should align with the firm's overall mission and
strategic vision including its sales goals.
The method of distribution should add value to the consumer. Do consumers
want to speak to a salesperson? Will they want to handle the product before they
make a purchase? Or do they want to purchase it online with no hassles?
Answering these questions can help companies determine which channel they
choose.

Secondly, the company should consider how quickly it wants its product(s) to
reach the buyer. Certain products are best served by a direct distribution channel
such as meat or produce, while others may benefit from an indirect channel.

If a company chooses multiple distribution channels, such as selling products

online and through a retailer, the channels should not conflict with one another.
Companies should strategize so one channel doesn't overpower the other.

Why are distribution strategies important?

Having an established distribution strategy is important because it can help you
deliver your goods and services to consumers effectively. This is essential to
complete sales and obtain revenue. Defining your distribution strategy can
benefit you by:

● Improving the consumer experience: Establishing an effective distribution

strategy can help you determine where and how your consumers prefer to
purchase products. You can share this information with your sales,
marketing and transportation teams to provide a better overall consumer
experience.

● Increasing customer loyalty: Creating a distribution strategy that is easy

and intuitive for customers to use can increase the likelihood that they may
choose to purchase from you again. Having a well-developed distribution
strategy can also save you time and make delivering products more
efficient, which may result in more satisfied customers.
 ● Reducing costs: Selecting an efficient distribution strategy that
compliments your in-house capabilities and resources can help you
decrease costs. For example, you might choose to outsource pieces of the
distribution process to reduce the amount you spend on production and
marketing.

● Opening up new market opportunities: Many companies choose which

distribution strategies to implement based on which new markets they
want to expand into. Aligning your distribution strategy with your growth
objectives can help you reach new customers and generate brand
awareness.

● Increasing sales: Establishing an effective distribution strategy can help you

scale your company faster and increase sales by providing you with access
to a larger target audience of potential customers.

How to select the right distribution strategy?

While there are benefits to each of the five most common distribution strategies,
taking the time to assess your company's specific needs is important to ensure
you implement the best one. Here are some tips to help you select the right
distribution strategy for your organization:

1. Consider the type of product or service

The type of product or service your company provides can a impact how potential
customers may prefer to make a purchase from you. There are three main types
of purchase decisions to consider:

● Routine: If your product is priced low and customers can quickly decide to
purchase it, this might be a routine purchase, such as for hand soap,
 toothpaste or toilet paper. An intensive distribution strategy often works
best for products customers purchase routinely.

● Limited: If your product in moderately priced and customers tend to put

some thought into its usability before they buy it, your product might be a
limited purchase decision, such as clothing or small appliances. A selective
distribution strategy may be suitable for these products.

● Extensive: If your product is high priced and customers tend to put a lot of
thought into their purchase before buying from you, it may be an extensive
purchase, such as a car or a house. An exclusive distribution strategy often
works the best for these products.

2. Determine your target audience

Identify who your current and ideal customers are by creating a target audience.
A target audience is the portion of the population that is the most likely to
purchase your product or service. You can analyse your current customers to help
you determine what key demographics, beliefs, interests, values and goals your
customers have in common. You may also choose to research who your
competitors' customers are to help you identify potential opportunities to expand
into new markets.

3. Assess your warehouse capabilities and logistics

Next, take the time to assess your warehouse capabilities and logistics. Consider
your budget, inventory storage space, number of employees and the skill sets of
your current workforce. Understanding what your in-house capabilities are can
help you determine which distribution strategy may offer you the most benefits.

4. Define your business goals

Review your business goals to identify which distribution strategy is the best
suited to help you reach them. You might determine whether your goal is to
acquire lifelong customers, increase your profit margins, gain more sales or
generate brand awareness. For example, using the intensive distribution strategy
may help you increase brand awareness and sell your products to a wider target
audience, while using the direct distribution strategy can provide you with more
control over your brand messaging and generate higher profit margins.

5. Track your progress

Identify which key performance indicators (KPIs) you can use to track the success
of your distribution strategy. This can be especially helpful if you choose to use
multiple distribution strategies since you analyze your results to determine which
one performs the best. Some KPIs you might consider using include:

● Total number of orders

● Order accuracy rate
● Average sales order price
● Distribution cost per unit shipped
● Revenue growth rate
● Percentage of on-time shipments
● Sales growth rate