If you have a company that sells a physical product, you’ll need to use distribution channels to ensure the product reaches the endpoint—your customer. In short, it’s the path your goods travel to get to the consumer.
Any means by which this happens is called a distribution channel. If you sell clothes, for example, your warehouse, stores, logistics companies, and your website are all different forms of distribution channels. Some people call distribution channels, “placements” so don’t let the terminology confuse you because it all means the same thing!
Direct or Indirect Distribution Channels
Typically, your distribution channels are either direct or indirect.
A direct channel is when someone buys straight from a manufacturer whereas an indirect channel is when a customer purchases from a physical store or an online retailer/wholesaler.
Ideally, your company should make it as easy as possible for your customers to buy what they want from you. Sometimes this involves having several distribution channels which will naturally increase your sales, reputation, and customer base, however, the more channels you have the more you have to manage, which inevitably means money. As such, if you experience a dip in sales, this could significantly cut into your profits. You may even have to charge customers more to cover these extra channels. So, be sure to undertake a cost-benefit analysis to see whether it’s worth your while.
Types of Distribution Channels
So, what types of distribution channels are there?
- First: A long channel that has the following components—producer, wholesaler, retailer, and customer. For example, a vineyard that makes wine, sells it to a wholesaler, who then sells it to a store, who finally sells it to a customer. When you add this to a catalog and a manufacturer’s representative, this makes for a long chain.
- Second: A medium channel—this one skips the wholesaler. You make something that you then sell to a store, which they then sell to the customer.
- Third: The short channel. Here, the wholesaler and retailer aren’t needed. It’s where you make something and sell it directly to the customer.
It’s important to factor in that whichever channels you use for your company should be in line with your business strategy and vision. For example, if you want to tell customers “from our door to yours in a day,” your channels have to provide that.
If you think you’re going to need more than one distribution channel, for example, by selling your products online as well as in-store, you have to ensure that your company’s strategy takes this into account. The last thing you want is for the different channels to overpower each other.