A distribution channel generally refers to the group of businesses or intermediaries through which a product or service passes before it reaches the ultimate cayman islands phone number library buyer or consumer. In other words, the way a customer receives a product after purchasing it is usually through an intermediary. A distribution channel can be direct or indirect and can be long or short.
A “direct” distribution channel is one where the manufacturer deals directly with the customer, whereas an “indirect” distribution channel means the product passes through multiple hands before reaching the customer.
Indirect distribution channels involve multiple parties between the manufacturer and the consumer, such as:
- internet
- consultant
- Retailers
- dealer
- catalog
- Manufacturer’s Representative
- Wholesaler
Intermediaries can range from a single intermediary to an extensive network. Ultimately, each distribution method has its pros and cons. Multinational corporations have the resources to implement sophisticated distribution systems, while ecommerce startups may be better off going the simpler route.
The distribution method your company chooses to use may change over time. As your business expands, you may no longer need to rely solely on direct channels and want to focus on indirect channels instead. Don’t put yourself in a difficult position when it comes to distribution. Many companies use several channels.
Distribution Channel Examples:
When Sarah first started her own business, essential change management tools for smooth transitions she made clothes and accessories for the women in her town, and after receiving a lot of support from friends and associates, she decided to open a clothing store.
She rented a place, the first month’s rent was $1,200, and the deposit was $5,000. Wendy showed off some of her items in the store. Many women showed up and were interested in the collection, but they didn’t buy much. She waited two months, but only sold a few pieces.
Due to the loss in her store, she decided to close it down. Although Wendy’s collection was nice and different, many people did not trust her as she was an unknown business owner. Her friend Jessica suggested Sarah to list her products on an e-commerce website and see the market response.
Sarah’s e-commerce website was an inexpensive way to promote her business.
Direct vs. Indirect Distribution Channels
Direct Distribution Channel
A business that uses direct distribution sells to customers without any middlemen. This might be through direct mail, product catalogs, or an online store. Entrepreneurs who use their own website also use direct distribution if they are selling digital items such as e-books, audio recordings, or online courses.
With digital goods, there is no middleman and the sale is made directly from the producer to the end user. Selling directly to consumers can reduce expenses and potentially increase profitability. If the product is delivered online, the business owner’s only expense is setting up and maintaining the website. Although the direct channel is preferable in many ways, as there is no need to order new products or pay for delivery costs, it is no longer essential for e-commerce success.
Direct distribution allows for closer oversight of quality and customer service.
Indirect Distribution Channels
Indirect channels are a bit more complicated and involve more third parties than direct channels. That’s not always a bad thing, but it does require a bit of planning. For example, industries that sell alcoholic beverages utilize multi-tier indirect distribution channels. Distilleries and wineries sell their products to distributors, who sell to retailers, and finally to consumers. However, while wineries must make indirect sales to ship their wines to stores where they can be purchased, many wineries also sell directly to consumers. With both methods, wineries can reach many people through indirect channels and reach a few people directly through stores.
Larger companies with more resources may find that indirect distribution channels are the most effective and profitable. For example, if you’re selling a new Coke product in supermarkets, educating customers online may not be the best way to do it, but it can help you get started quickly.
Consideration of distribution channels
There is a wide range of things to consider b2b fax lead when choosing the best distribution channel for your business. Remember, you can leverage both direct and indirect channels depending on how available resources are.
Before choosing your first distribution channel, it’s a good idea to consider the following questions:
- How do end users want to purchase this type of product? Do consumers want to touch and feel the product or buy it online?
- Do your customers need services that are right for them?
- Can I use it without the service?
- Do I need to install the product?
- How are products typically distributed and sold in your industry?
Distribution channels affect prices
How you price your product is determined in part by the distribution method you choose. In indirect sales, the manufacturer sells to a distributor, who then sells to a retailer, so the goods are priced at wholesale so that each party makes a profit.
Often times when a product passes through multiple middlemen on its way to its final price, the final price paid by the consumer is nearly the same as if they had purchased it directly from the manufacturer. Makers and creators can strengthen their relationships with retailers and make money off their products without having to offer a “direct to you” discount.
In most cases, using an indirect channel requires you to increase your prices. If you choose the direct route, you can often keep your prices lower than if you chose the indirect route. Depending on the type of product, the additional costs may eat into your profits, but customers looking to buy luxury goods may prioritize availability and speed over price.
Although your distribution channel will affect your overall pricing structure, what really matters is choosing a price that your customers are comfortable paying. Your company’s marketing strategy will have a major impact on how you choose to distribute your products.