By
Sarah Harris
Distribution channels, also sometimes referred to as channels of distribution, are a key facet of any business. If you’re familiar with the “4 Ps” of marketing, distribution channels fit into the “placement” category, which means that they are a crucial element of any marketing strategy.
The end goal of a distribution channel is to get a product or service into the hands of a consumer as fast as possible. The main reason distribution channels are so important for business is that they help a company increase its revenue and expand its reach into other areas that offer potential.
What is a Distribution Channel?
What exactly is a distribution channel? It’s the route that a good or service takes from production to the consumer or buyer. Each company’s distribution plan can look somewhat different, but almost all paths include a producer, a wholesaler, a retailer, and of course, a buyer or consumer.
Distribution channels don’t act as a one-way street, though. They can also show the path of money that flows from the buyer/consumer back to the producer. After all, distribution channels have a direct effect on sales.
The Role of Distribution Channels in Business
For channels of distribution to be effective and efficient, they must be organized with the fewest amount of stops possible.
Every distribution channel will have a producer and an end consumer, but the number of intermediaries — including wholesalers, brokers, transporters, distributors, and retailers — can vary. The more intermediaries there are, the more it will affect the product or service’s price and positioning in the market.
While a business’s distribution channel needs to be as efficient as possible, you don’t want to cut out necessary intermediaries just to save money. Frequently, these intermediaries are essential to your product’s successful path along the distribution channel. Cutting them out would leave a giant hole in the process and can cut into your revenue, too.
The Three Types of Distribution Channels
With the basics of distribution channels clear, let’s get into the three main types of distribution channels: Direct, indirect, and hybrid.
1. Direct Channels
In some cases, a producer or manufacturer of a product or service is all that is needed to get the goods to the end consumer. This is a direct channel because the goods go directly from the producer to the customer. In other words, the manufacturer has 100% control over the process without getting anyone else involved.
A simple example of a direct channel would be your local bakery. They produce the bread and pastries right there in the bakery and sell them directly to the consumer. There is no need for other retailers, transporters, or other intermediaries.
Direct channels are also common among very high-end products or those in limited supply — for instance, catalog sales.
Usually, because direct channels are within a niche market, the number of customers will be limited for logistical reasons. Still, prices can be lower with direct channels; as there are no intermediaries that need to receive a cut of the sale.
2. Indirect Channels
As you would expect, indirect channels do involve intermediaries. This might be anything from a one-level channel that includes just a retailer; or a three-level channel that includes an agent, a wholesaler, and a retailer.
These parties work together to bring the product/service to market. Additionally, each party takes its percentage of the earnings along the way.
The downside to indirect channels is the manufacturer doesn’t have complete control over their product. Therefore, manufacturers usually have to increase their product’s price to include the intermediaries’ costs. The upside is that you can have a wider client base, which means that you can more easily increase sales.
3. Hybrid Channels
Hybrid channels are a combination of direct and indirect channels. They often involve a distributor that the producer partners with to get their goods to the masses. This option allows the manufacturer to enjoy more control over the process but still relieves them of some logistics responsibilities.
Distribution Channel vs. Supply Chains
At this point, you might be wondering, so what’s the difference between a distribution channel and a supply chain? They seem very similar in that they both reference manufacturers, distributors, and customers.
For many companies, there is a sort of overlap between distribution channels and their supply chain setup.
The main difference between the two is that a distribution channel primarily focuses on the demand aspect of the supply and demand model. However, the supply chain focuses on both supply and demand; usually with a bit more of a focus on the supply side.
In other words, the distribution channel is always thinking about getting the end-product placed in front of the consumer; while the supply chain is thinking about how to get things into their hands.
How eCommerce Changed the Distribution Game
One major change to occur in recent years when it comes to the world of distribution is the eCommerce boom. eCommerce has changed the way distribution works in several ways, including:
- Fluidity: Entities can easily switch between being manufacturer, wholesaler, and retailer
- Customer Base: Nets can be thrown long and wide very quickly
- Storage: The need for multiple locations is reduced
- Big Data: Analyses allow accurate predictions for inventory and shipment
When companies can sell their goods online, they can better manage their inventory, employees, and productivity. They also get interactive advertising that increases sales and revenue, all while needing fewer intermediaries in their distribution channels.
Distribution Channels Made Easy
If your company needs to create or update its distribution channels, finding the right intermediaries for the job is key. One intermediary to consider is a third-party logistics (3PL) partner like Print Bind Ship. We can produce, pack, ship, and warehouse your products, so you don’t have to!
With over 60 years in the printing and fulfillment business, we know how to implement cost-effective and fast shipping solutions while integrating the latest technologies to make the process smoother than ever before.
Get in touch for customized solutions for eCommerce distribution channels and fulfillment!
FAQ
The three main distribution channels are direct, indirect, and hybrid (or omnichannel) distribution. Direct distribution involves selling products directly from the manufacturer to the consumer, while indirect distribution uses intermediaries such as wholesalers, distributors, or retailers. Hybrid or omnichannel distribution combines both direct and indirect methods, allowing businesses to reach customers through multiple channels simultaneously.
Choosing the right distribution channel depends on factors such as your product type, target market, business goals, and resources. Consider your product’s characteristics (e.g., perishability, customization needs), your target customers’ buying habits, your desired market reach, and your company’s capacity for managing different channel types. You may also want to consult with a 3PL like Print Bind Ship for the most customized approach!
Direct distribution involves selling products directly from the manufacturer to the consumer without intermediaries. Indirect distribution uses intermediaries like wholesalers, distributors, or retailers to get products to consumers. Direct channels offer more control but may have limited reach, while indirect channels can provide broader market access but with less control over the sales process.