Types of Distribution Channels
What Are Distribution Channels?
Distribution channels are the path products take from their initial manufacturing stage to selling them to consumers. The main goal of these channels is to make goods available to final consumers in sales outlets as soon as possible.
Distribution channels directly impact a marketing company’s sales, so you want to make them as efficient as possible.
The Three Types of Distribution Channels:
Direct Channels
With direct channels, the company is fully responsible for delivering products to consumers. Goods do not go through intermediaries before reaching their final destination. This model gives manufacturers total control over the distribution channel.
This is the case with people who do catalog sales, for example.
Since the manufacturer alone is responsible for delivering products, this channel generally makes it impossible to have a high number of customers.
At the same time, it’s possible to offer lower prices, since the company does not have to pay commission to intermediaries.
Indirect Channels
With indirect channels products are delivered by intermediaries, not by the sellers.
Who are these intermediaries? They could be wholesalers, retailers, distributors, or brokers, for example.
In this case, manufacturers do not have total control over distribution channels.
The benefit is that this makes it possible to sell larger volumes and sell to a range of customers. However, products have higher prices due to the commissions paid to intermediaries.
Hybrid Channels
Hybrid channels are a mix of direct and indirect channels.
In this model, the manufacturer has a partnership with intermediaries, but it still takes control when it comes to contact with customers.
One example is brands that promote marketing products online but don’t deliver them directly to customers.
Instead, they nominate authorized distributors.
Functions of Distribution Channels
Distribution channels provide time, place, and ownership utility. They make the product available when, where, and in which quantities the customer wants. But other than these transactional functions, distribution channels are also responsible to carry out the following functions:
- Logistics and Physical Distribution: Distribution channels are responsible for the assembly, storage, sorting, and transportation of goods from manufacturers to customers.
- Facilitation: Channels of distribution even provide pre-sale and post-purchase services like financing, maintenance, information dissemination and channel coordination.
- Creating Efficiencies: This is done in two ways: bulk breaking and creating assortments. Wholesalers and retailers purchase large quantities of goods from manufacturers. But break the bulk by selling a few at a time to many other channels or customers. They also offer different types of marketing products in a single place. This is a huge benefit to customers as they don’t have to visit different retailers for different products.
- Sharing Risks: Since most of the channels buy the products beforehand, they also share the risk with the manufacturers and do everything possible to sell it.
- Marketing: Distribution channels are also called marketing channels because they are among the core touchpoints where many marketing strategies are executed. They are in direct contact with the end customers and help the manufacturers in propagating the brand message and product benefits and other benefits to the customers.
Factors Determining the Choice of Distribution Channels
Market Characteristics
This includes the number of digital customers, their geographical location, buying habits, tastes and capacity and frequency of purchase, etc.
Direct channels suit businesses whose target audience lives in a geographically confined area, who require direct contact with the manufacturer and are not that frequent in repeating purchases.
Product Characteristics
Product cost, technicality, perishability and whether they are standardised or custom-made play a major role in selecting the channel of distribution for them.
Perishable goods like fruits, vegetables and dairy products can’t afford to use longer channels as they may perish during their transit. Manufacturers of these goods often opt for direct or single-level channels of distribution.
Competition Characteristics
The choice of the distribution channel is also affected by the digital channel selected by the competitors in the market. Usually, the firms tend to use a similar channel as used by the competitors. But some firms, to stand out and appeal to the consumer, use a different distribution channel than the competitors.
Company Characteristics
Financial strength, management expertise, and the desire for control act as important factors when deciding the route the product will take before being available to the end-user.
A company having a large amount of funds and good management expertise (people who have sufficient knowledge and expertise of distribution) can create distribution channels of its own. But a company with low financial stability and management expertise have to rely on third-party distributors.