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Distribution Channel Strategy: Your Go-To Guide (Infographic)

Say you have a great product or service that meets a pressing need.

That’s all well and good — but a million-dollar idea has no path to becoming a million-dollar revenue-generator if you can’t get your products or services in front of consumers and your target market. This is where distribution channel strategies come into play to offer solutions.

A well-planned distribution channel strategy is specifically designed to increase the sales of your products or services as they enter the market. At the end of the day, the fundamental problem most businesses face is not how to develop the product or service, but how to market and sell it to the public.

It may seem easy in the age of e-commerce and social media, but without a defined distribution channel strategy, you stand less of a chance of reaching consumers or making an impact with your target audiences.

Let’s explore the finer points of crafting a distribution channel strategy, the benefits of various channels and what you can do to fine-tune your approach.

What Is a Distribution Channel Strategy?

Fundamentally, distribution is the process of getting a product or service in front of the end consumer. The buying and selling of goods and services may appear fairly simple and linear, but it never is. Distribution is a multifaceted affair that requires strategy and partners.

There are different levels of distribution, including direct and indirect channels. The more intermediaries, the more levels. A zero-level channel would entail a producer selling directly to end customers, whereas a three-level channel includes selling to a distributor and then a retailer before reaching end users.

Consider all the hands a smartphone passes through before reaching the end consumer. Not only is the manufacturer involved, but also potentially a wholesaler, retailer, broker agent or another entity.

There are two basic types of distribution channels:

• Direct: Consumers buy the product or service directly from your business, whether through a physical storefront or an e-commerce website.
• Indirect: Consumers buy the product or service through an intermediary, like a big-box retailer you have distribution agreements with or a broker agent you partner with.

Channels can also be defined as short or long. A short channel involves the fewest steps possible between producer and customer, like with direct marketing . A long channel includes other intermediaries like wholesalers and retailers.

Distribution Channel Strategy vs. Supply Chain Management

An important distinction to make is that channel distribution strategy does not equal supply chain management . Supply chain management involves the sourcing and routing of materials and products through the manufacturing and distribution processes. Channel distribution is often the final stage of the chain —– delivering final products to end users.

Channel distribution is solely about getting your product to the market, whereas supply chain management relates to sourcing the parts or materials that make your product as well as delivering final products to where they need to be.

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How to Develop a Distribution Channel Strategy

When crafting your distribution channel strategy, it is imperative to include a comprehensive plan on how to reconcile your inventory , ensuring seamless management of stock levels to meet customer demands and avoid potential issues such as overstocking or stockouts, ask yourself the following three questions to understand your needs, capacity, limitations and goals:

1. How Do Our Potential Customers Find Us and Our Products and/or Services?

The channels your potential customers use to find you will naturally point toward the channels to target in your distribution strategy. You need to  plan your demand  better, so analyze how social media, search engines, direct marketing, partner sales, industry recommendations and other channels perform in generating customers.

Customers of a millennial beauty products company will have a much different purchasing path than a B2B buyer of network infrastructure. Identifying your main channels is a bit like looking at the channels with your highest level of brand awareness, and then fitting your strategy to maximize performance in those channels.

2. What Is Our Scale and Size?

One reason why long channels exist is that not every business has the relationships or expertise to handle logistics. An energy drink company might develop a new formula that tests great with consumers but lacks the means to ship the product to nutrition stores nationally. That’s where relationships with distributors, wholesalers and retailers become a competitive advantage, and sometimes a necessity.

Distributors can fulfill orders for whole pallets of energy drinks, while wholesalers can find retail buyers to get the product in stores. Established businesses that benefit from enterprise-scale are often able to condense channels or acquire or integrate horizontal business units to take care of logistics and other distribution needs.

3. What Future Business Goals Do We Have?

Always be prepared for new channels.

If your aim is to expand into a new market or territory, determining your channel strategy is an integral part of defining your over go-to-market strategy . If you have no relationships with a regional retailer, your product launch may suffer when trying to grow in that locality. Channel partners, however, can be leveraged to efficiently scale up and expand.

On the other hand, opening up more direct channels may be your best option for increasing brand awareness or profit per sale. Long channels mean higher costs and more cooks in the kitchen; a direct channel can lead to a better customer experience or brand impression.

Distribution Channel Types

While direct channels of distribution may seem like the obvious choice, they are not always the right option or even a possibility. Companies in several industries have to comply with various regulations that govern how products and services reach consumers, such as those in finance, food and beverage or medical devices.

Let’s explore some of the most common channels and how to judge whether they are right for your marketing mix:

Need a way to reach more consumers? Placement in a retail store is your best bet for broadening your customer base. But you can’t just walk up to the nearest Walmart or Target and ask for them to feature your product on their shelves. Retailers buy from distributors and wholesalers, meaning you’ll need to pursue longer channels.

However, regional or local chains may be more willing to negotiate on a personal basis — i.e., buying inventory straight from you or your manufacturer. Retail is clearly best for companies that sell physical goods, but just be aware that competition will be high. If you go with a big-box chain, you might be going up against the biggest brand names in the industry. Retailers won’t work repeatedly with businesses that don’t perform.

Direct Marketing

Want to cut out the middlemen and reach out to consumers yourself? A direct marketing campaign can help connect you with potential customers, as well as provide them the means to make a purchase directly. Such channel strategies often manifest as product catalogs, marketing calls, emails or face-to-face sales. While direct channels mean greater engagement and profit, they also require more resources and effort from the brand to manage direct marketing.

Dealer Network

Don’t have an especially large or skilled sales force? You can essentially outsource those functions to a network of dealers, brokers and agents who do the selling for you. This arrangement is particularly advantageous if you have a specialized product or lack deep industry connections.

Insurance companies, for example, often rely on a vast network of brokers to find customers and sell them policies offered by the business. A dealer network still needs support, however, as you’ll need to provide agents with literature, marketing collateral and other resources. You’ll also need to negotiate commissions and fees.

Website Store

The advent of the internet age has opened up a whole new channel for B2C and B2B brands alike, as well as large and small companies. Startups without channel relationships can sell directly to consumers through inbound marketing, cultivating brand loyalty and lowering their go-to-market costs.

Meanwhile, established companies can open up new revenue streams with a website store that long-time brand evangelists can use. Highlighting your website store through messaging, content and social media can help supercharge your marketing. For instance, without the cost of a long channel, you may be able to offer special discounts or promotions on sales that can be traced from a Facebook or Twitter link.

Wholesale Distribution

Long channels of distribution are not innately bad. In fact, they can deliver tangible competitive advantages when working with the right wholesale or distribution partners. What’s the difference? Distributors are basically wholesalers that offer a greater scope of services.

Wholesalers will purchase and resell your goods in bulk, fulfilling orders to retailers — distributors do all that and more as an effective sales agent of the company. Wholesalers are in it for their own business and margins, whereas distributors work much more closely on a strategic level. Both can help lift your brand’s profile and sales.

E-Commerce Site

Online markets like Amazon, Zappos and Etsy have become go-to channels for sellers of physical goods. Merchants can leverage the established base of online customers as well as marketplace tools, allowing them to reach end users with high intent. E-commerce sites operate in a different way than direct online stores, so you’ll want to ensure your ads and product pages are branded in a way that fosters a consistent customer experience.

Value-Add Resellers

VARs, as they’re called, buy inventory from companies, and then make upgrades or package it with their own services. The symbiotic relationship can help you meet goals like expanding your footprint or securing recurring revenue from a VAR buyer. This exclusive channel of distribution works particularly well for companies that have a specialized product, as it’s not about casting the widest net.

What Is the Right Mix of Channels?

In reality, most businesses will employ a multi-channel marketing mix that makes use of both direct and indirect channels, when available to them. The same craft brewery that has to work with distributors, wholesalers and retailers can also sell to customers directly at an on-site taproom. Even agricultural producers can sell at farmer’s markets in addition to working with distributors that get fresh produce to the groceries across the nation. A company specializing in zomu hops farming might use a combination of direct sales at local markets and local breweries, as well as indirect channels through wholesalers, to expand their reach.

When sitting down to hammer out a distribution strategy, always be open to the different combinations that can be made with direct and indirect channels. However, just be sure that conflicts will not arise. Retailers may have certain stipulations for working with them, as other intermediaries would. Also be sure to not spread yourself too thin, especially if you’re just starting out. If you introduce new channels into your mix, devise a plan that gradually integrates them, and sets standards and expectations for performance and costs.

Keep all this in mind when developing your strategy. But always be aware that unique factors like the industry in which you operate will be influential to your decision-making.

Editor’s Note: Updated June 2022.

Adriana Sandoval

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What Is a Distribution Channel?

• How It Works
• In the Digital Era
• Choosing a Distribution Channel

The Bottom Line

• Supply Chain

What Is a Distribution Channel in Business and How Does It Work?

A distribution channel is the network of businesses or intermediaries through which a good or service passes until it reaches the final buyer (the end consumer). Distribution channels can include wholesalers , retailers , distributors, and the Internet.

Distribution channels are part of the downstream process, which addresses the business question "How do we get our product to the consumer?" The downstream process is in contrast to the upstream process—also known as the supply chain—which addresses the business question "Who are our suppliers?"

Key Takeaways

• A distribution channel represents a chain of businesses or intermediaries through which the final buyer purchases a good or service.
• Distribution channels include wholesalers, retailers, distributors, and the Internet.
• In a direct distribution channel, the manufacturer sells directly to the consumer.
• Indirect channels involve multiple intermediaries before the product ends up in the hands of the consumer.

Jessica Olah / Investopedia

Understanding Distribution Channels

A distribution channel is a chain of businesses or intermediaries through which a good or service passes until it reaches the intended consumer. Distribution channels can be short or long, depending on the number of intermediaries required to deliver a product or service.

Increasing the number of ways a consumer can find a good can increase sales, but it can also create a complex system that sometimes makes distribution management more difficult. Longer distribution channels can also mean less profit for each intermediary along the way.

Components of a Distribution Channel

Producer : Producers combine labor 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 they move 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.

Types of Distribution Channels

A direct channel allows the consumer to make purchases from the manufacturer. This direct (and short) channel may mean lower costs for consumers because they are buying directly from the manufacturer.

An indirect channel allows the consumer to buy the goods from a wholesaler or retailer. Indirect channels are typical for goods that are sold in traditional brick-and-mortar stores.

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

Distribution Channel Levels

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

A producer sells directly to a retailer, who then sells the product to the end consumer. This level includes only one intermediary. For example, Hewlett-Packard and Dell are large enough to sell their computer products directly to retailers, including Best Buy.

Including two intermediaries, this level includes the producer, wholesaler, retailer, and consumer.

In the wine and adult beverage industry, a winery cannot sell directly to a retailer. A winery must utilize a multi-tiered system, like a Level 2 system; 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.

This level may add the role of the individual, sometimes referred to as a "jobber." A jobber is a small-scale wholesaler or middleman in the retail goods trade. This role may involve assembling products from a variety of producers, storing them, selling them to retailers, and acting as a middle-man for wholesalers and retailers.

A distribution channel can be part of a company's marketing strategy, which also includes the product, promotion, and price.

Distribution Channels in the Digital Era

Digital technology has transformed the way businesses, especially small businesses, use direct channels of distribution. With increasing consumer demand for online shopping and easy-to-use e-commerce tools, direct selling usually equals more success for businesses.

Rather than having to rely on relationships with retailers to sell their products, software and artificial intelligence (AI) sales technology allows companies to manage sales and automatically achieve high customer relationship management (CRM) .

Online advertising, through social networks and search engines, targets specific areas or demographics; social media networks are increasingly considered the industry standard and are changing traditional marketing strategies. 

If a company continues to use indirect channels of distribution, digital technology also allows it to manage relationships with wholesale and retail partners more efficiently.

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 to 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.

What Is a Distribution Channel and What Components Does It Have?

The term “distribution channel” refers to the methods used by a company to deliver its products or services to the end consumer. It often involves a network of intermediary businesses, including manufacturers, wholesalers, and retailers. Selecting and monitoring distribution channels is a key component of managing supply chains .

What Is the Difference Between Direct and Indirect Distribution Channels?

Direct distribution channels are those that allow the manufacturer or service provider to deal directly with its end customer. For example, a company that manufactures clothes and sells them directly to its customers using an e-commerce platform is utilizing a direct distribution channel. By contrast, if that same company relied on a network of wholesalers and retailers to sell its products, then it would be using an indirect distribution channel.

How Is Placement Important in a Distribution Channel?

Placement is the way a company ensures its target market has access to its products or services in the location where they are most likely to look for that product or service. An effective distribution system ensures that products are placed in the right location as needed.

A distribution channel is the network of businesses or intermediaries through which a good or service passes until it reaches the end consumer. 

Distribution channels can contain many levels or intermediaries, such as wholesalers or retailers, as products move from manufacturer to consumer. The introduction of e-commerce platforms has streamlined the distribution process, enabling producers to sell directly to consumers.

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Distribution Channels: What They Are, Types, & Examples

Have you defined the distribution channels that your company intends to use?

If not, it’s time.

In short, distribution channels determine the path goods take from the manufacturer to the final consumer.

Thus, they have a direct impact on sales.

There are many types, formats, and levels of distribution channels.

The first step is to understand each of them.

To help you with this task, this article details the many aspects of distribution channels, including:

• What distribution channels are
• The three types of distribution channels
• Three distribution methods
• Distribution levels
• The main intermediaries
• How to define them

Before we get too far into it, let’s start with an explanation.

What Are Distribution Channels?

Distribution channels are the paths products take from their initial manufacturing stage to selling them to consumers. For instance, if you go to a retail store to buy a product, the distribution channel typically includes the manufacturer, a distributor, and the retailer.

Let’s use the laptop computer as an example. The distribution channel for a laptop can include the manufacturer, who produces the laptop, a distributor who warehouses and ships the laptops to retail stores, and retail stores who sell the laptops to the final customer.

In the case of online selling, the distribution channel might have some variations.

The Three Types of Distribution Channels

As detailed below, there are three ways to ensure a product gets to the final consumer.

1. Direct Distribution Channels

With this model, the company is fully responsible for delivering products to consumers through direct channels . Goods only go through intermediaries after reaching their final destination. This gives manufacturers total control over the distribution channel.

An excellent example of a use case is people who do catalog sales. Since the manufacturer alone is responsible for delivering products, this channel generally makes it impossible to have a huge volume of customers.

At the same time, offering lower prices is possible since the company does not have to pay commissions to intermediaries.

2. Indirect Distribution Channels

With indirect channels , intermediaries deliver products rather than sellers.

Who are these intermediaries? They could be wholesalers, retailers, distributors, or brokers.

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.

3. Hybrid Distribution Channels

Hybrid channels are a mix of direct and indirect channels.

In this model , the manufacturer partners with intermediaries in this model but still controls customer contact.

One example is brands promoting products online but not delivering them directly to customers.

Instead, they nominate authorized distributors .

Three Methods for Distribution Channels

You can use a few different distribution channels to get your product into customers’ hands. They are:

• exclusive distribution
• selective distribution
• intensive distribution

Basically, these channels determine who can sell and distribute your products as shown in the visual from Waalaxy below:

Let’s look at them in more detail.

1. Exclusive Distribution

With exclusive distribution , intermediaries take the company’s products to specific sales outlets.

This means that only exclusive retail outlets can sell the items to consumers.

Depending on the quality of the product, this is an excellent strategy for manufacturers and the retail outlets or chain stores selected.

2. Selective Distribution

With selective distribution , the company allows sales to a specific group of intermediaries who sell the items on to final customers.

An important factor in how successful this strategy will be is the intermediaries’ reputation since they directly impact the company’s performance.

In this case, the intermediary becomes the real consumer consultant, answering questions and recommending appropriate products for their needs.

3. Intensive Distribution

In intensive distribution , the manufacturer places a product in as many sales outlets as possible.

This method involves the manufacturers, sales teams, and commercial representatives; They distribute products to sales outlets.

Manufacturers of low-cost products generally use this distribution method with a high frequency of consumption.

Distribution Channel Levels

Distribution channels can also operate on different levels.

Their levels represent the distance between the manufacturer and the final consumer.

Level 0 Distribution Channel

The manufacturer and the client have a close and direct relationship at this level.

For the company, the relationship costs with the consumer are higher.

Level 1 Distribution Channel

In level 1, the manufacturer sells the products to the distributor, who might sell them to consumers via retailers or wholesalers.

The distributor keeps some of the rights to the product but not all.

The distributor is also responsible for sales and transportation costs to sales outlets.

Level 2 Distribution Channel

Level 2 is similar to Level 1.

The difference is that the distributor delivers products only to retailers, who sell them to consumers.

Level 3 Distribution Channel

Level 3 channels are a traditional distribution model.

The product’s journey from the manufacturer involves the distributor, retailer, and customer.

The costs relative to sales and marketing are divided between the parties.

The advantage of this model is that it’s possible to reach more consumers.

On the other hand, products have a higher price because of the parties’ operational costs.

The Nine Main Intermediaries in Distribution Channels

Now you know all about the operation details, it’s time to detail the main intermediaries who take products to consumers.

1. Retailers

A retailer is an intermediary between the consumer and a manufacturer.

There are a lot of examples out there, but some of the most common are pharmacies, supermarkets, bars, and restaurants. In these situations, the business has full sales rights.

The bulk of the time, you’re going to see higher product prices at a retailer. Generally, product prices are higher in retailers. Take a look at the different types in this example from Chegg:

2. Wholesalers

Wholesalers are intermediaries that buy products in bulk ready to sell on to retail stores. As the products are sold as bulk, they’re sold at a discount.

The wholesaler also stores products, transports them to retailers, and offer credit accounts for retailers.

Note that you’re generally not going to see these entities selling a smaller quantity to the end consumer, but you might see exceptions. One prominent one is supermarkets like Costco that sell in the wholesale model .

Prices are lower because sales involve large quantities.

3. Distributors

Distributors ensure products get from the manufacturers to the end consumers. They might also provide logistical support, financing, and market research.

Agents are intermediaries that connect producers with the end customer. They help the producers sell products to consumers and earn a commission for their sales.

They also transfer the title of goods/or services during the distribution phase.

As opposed to agents, brokers have short-term relationships with the company. Brokers, like real estate agents and insurance brokers, for example, also receive a commission.

6. The Internet

To those who sell tech and software , the Internet is the distribution channel’s intermediary.

The consumer only has to download the material to access it.

E-commerce companies also use the Internet as a distribution intermediary.

7. Sales Teams

Companies often have their own internal and external sales teams. Usually, these teams will work with manufacturers and distributors.

It’s the sales team job to find prospects, create leads, and close deals.

There is also the possibility of creating more than one team to sell to various segments and audiences if the company has a wide range of products.

8. Resellers

Resellers purchase from manufacturers or distributors. They then sell them on to consumers at a mark up. to sell on to consumers.

Catalog sales involves a sales person selling products direct from a printed publication. Think Avon or Natura. Salespeople in this model also usually earn a commission for their sales.

Reverse Distribution Channel

Those are the types and methods available for products to reach customers. However, what happens when consumers need to return items to manufacturers?

Consumers must rely on reverse distribution if they receive defective products or need to return clothes or shoes they bought online that don’t fit.

In this case, the consumer is responsible for returning the items and needs to find information from the manufacturer about how to do this. Usually, consumers find information about returns on the site for the product.

How Do Distribution Channels Impact Your Marketing?

The distribution process you choose can have a significant impact on your marketing. For example, if there are shipping delays or supply chain disruptions, it affects product availability. This can result in a significant impact on sales and marketing activities. Even if the marketing campaign is well-executed, if the product is unavailable to consumers, the campaign may not be as successful as intended.

The impact of events like COVID-19 is the most recent example of how distribution channels and marketing depend on easy over.

The pandemic led to a significant impact on both distribution and marketing channels. For instance, goods were restricted across borders, meaning shipping delays. This meant many businesses had to take a second look at their distribution channels and look at new ways of marketing their products.

However, brands found ways to overcome such challenges.

For example, during COVID, athleisure brand Lululemon transformed its online marketing channels into an engagement platform providing free workouts to build a global community and highlight their brand via its YouTube channel :

Lululemon also increased the price of its best-selling lines and introduced flexible payments.

The cost of distribution channels also impacts your marketing. Methods like indirect or direct can cost a significant amount upfront and may mean you must sell your products at a higher price tag. This can reduce product demand, making it challenging to impact new channels and drive growth.

Alternatively, you could use multi-channel marketing . Combining multiple distribution channels with multi-channel marketing allows companies to appeal to a broader range of customers and cater to their unique needs.

For example, a company may sell products through its website, in-store, and social media. Multi-channel marketing tactics like targeted advertisements and personalized messaging can drive customers to these various distribution channels based on their preferences and behaviors.

To narrow down your brand’s best marketing/distribution channels, ask yourself two questions.

1. Who are your customers?

2. Where do they hang out?

If you’re new to business and want help answering this, draw up your ideal customer persona like this :

That’s how your marketing channels tie in with your distribution channels. Now let’s move on to selecting distribution methods.

How to Select Distribution Channels for Your Product

In this section, we’ll take a closer look at the steps involved in selecting distribution channels for your product.

1. Benchmarking

First, you must look at your competitors to find the best practices they’ve adopted.

This kind of mapping is known as benchmarking . This process involves comparing your organization’s products, services, or processes to those of your competitors or other relevant organizations in your industry.

The idea is to figure out the distribution strategies your competitors use and the areas they excel and do the same. By analyzing competitors, you can also identify any room for improvement in your business and enhance your company’s performance

2. Project Review

You’ve mapped out best practices in the market and identified solutions that could work for your business.

The next step is to review the project/channel you created.

Check if there are errors and how you can optimize the processes you’ve adopted and adapt the project to the needs and characteristics of the type of sales you make.

One way to analyze a distribution channel is to examine customer behavior data, sales volume, and feedback from sales teams. For example, understanding which channels have the highest conversion rates can help you discover areas for improvement in the distribution process.

3. Costs and Benefits

When we talk about distribution channels, one crucial factor is their cost.

Always look for the best cost-benefit ratio .

Cost-benefit analysis is a way of evaluating the pros and cons of a decision by comparing the costs involved with the potential benefits. To calculate cost-benefit, you subtract a project’s or decision’s total cost from the total benefits or expected returns.

There needs to be more than a vague idea of the costs to do this. You must record all costs and analyze if the benefits of the channel you selected are worth it.

For example, imagine a business is considering implementing a new software system to increase productivity. First, they would need to estimate the cost of the software and any associated costs, such as training and IT support.

Let’s say the total cost is $50,000. Next, it would need to calculate the potential benefits. For example, if the new software increases productivity by 10 percent and the average employee earns $50,000 per year, the potential benefit would be an additional $5000 per employee yearly.

If the business has 50 employees, the total annual benefit would be $250,000. That would make the software a worthwhile investment.

4. Company’s Daily Routine

Another relevant factor is the business routine.

What are the projects, processes, and activities in your business?

You must ensure your chosen distribution channel aligns with the day-to-day working of your company.

Otherwise, logistics problems might result in product delays and potentially damage your customer relationship. For instance, if your chosen distribution channel relies on a fast turnaround time for order fulfillment, ensure that your teams and processes are set up to accommodate this schedule.

Overall, aligning your chosen distribution channel with your daily routine and ensuring that any logistical challenges are anticipated and addressed can help your business meet its goals and maintain positive customer relationships.

5. Market Potential

Before selecting a channel, you should also consider the market potential of intermediaries .

After all, unless you choose to use direct channels, they will also be responsible for sales results.

Market participation, reputation, and performance are the three most important elements to consider.

First, look at market participation. This refers to intermediaries who are active and engaged in the market. For example, suppose you are considering a distribution channel through a retail partner. In that case, it is necessary to assess their presence in the market, including factors such as the number of stores they have and their geographic reach.

Then consider the potential intermediary’s reputation. By selecting intermediaries with a good reputation and strong brand recognition, you can more easily build trust with your target audience. Additionally, a reputable intermediary may promote your brand and products more effectively, which can help drive sales.

Finally, look at performance. This can include factors such as track record of success, marketing capabilities, and sales expertise. Find intermediaries with a proven track record of success who can demonstrate their ability to market and sell products effectively.

6. Logistics

When considering distribution channels for your business, think about how it’ll work logistically.

Logistics refers to the process of managing the movement of goods from the point of origin to the point of consumption, and it encompasses a wide range of activities, including transportation, storage, and delivery.

Consider logistical questions like:

• How will the distributors/my company transport the products?
• Is there security for when the products are in transit and/or where they are stored?
• Where will my business store the goods? This may involve leasing or purchasing a warehouse or working with a partner with storage capabilities.
• What is the average delivery time? Can the distribution channels you’re looking at deliver efficiently and cost-effectively?

Analyzing all stages of logistics is crucial to avoid problems taking goods to sales outlets and keeping the end customer satisfied.

7. Location

Finally, consider the location of intermediaries, whether they are resellers, retailers, wholesalers, or distributors.

After all, your product must be sold in the region where your target audience is , especially if you supply a specific market niche.

By finding intermediaries tailored to your product niche and with an established regional presence, you are in a better position to reach your target market and achieve your sales goals.

Managing Distribution Channels

How should you manage your company’s distribution channels? This is usually the responsibility of marketing departments.

It’s essential to monitor key performance indicators ( KPIs ) to do it.

Carry out regular assessments of reports with metrics and indicators related to distribution processes.

Monitor sales indicators, for example, analyzing the performance of each channel the company uses.

Also, conduct satisfaction surveys with consumers, especially when customers express dissatisfaction with the selection and availability of goods or when sales volume is below expectations.

Examples of Distribution Channels

Before concluding this piece, let’s get to know two examples from great companies.

Coca-Cola’s Distribution Channels

The world-famous drinks company boasts the ‘world’s largest beverage distribution system”. It looks like this :

The Coca-Cola Company sells products in over 200 countries and territories. It works with independent bottling partners and consolidated bottling and distribution operations.

The products then get packaged and merchandised, and finished branded products get distributed to customers (grocery stores, street vendors, movie theaters, amusement parks, etc.). Vending partners sell Coca-Cola products to regular consumers globally. This process enables the sale of an incredible 2.2 billion servings of Coca-Cola daily.

Natura’s Distribution Channels

Cosmetics brand Natura markets its products under various brands, including The Body Shop and Avon. Publishing catalogs used to be its primary distribution method, but it’s since expanded its distribution channels considerably.

It uses a combination of distribution channels, including business-to-business, e-commerce, and franchises.

Natura operates in over 100 countries, with almost 8 million consultants and reps, and has products in 3,700 stores and franchises.

Natura also has 45 company-owned stores and products in nearly 4,000 pharmacies.

Distribution Channel FAQs

The more effective and efficient the distribution channels, the more likely customers are to make a purchase. Additionally, choosing the right distribution channels can help a company target specific types of customers and create a more personalized marketing approach. For example, if a company wants to reach younger audiences, it can focus on social media and other digital channels. On the other hand, to appeal to an older demographic, traditional marketing channels like print and broadcast media might work better.

Yes, there are different types of distribution channels. When it comes to getting products or services to customers, companies can use a variety of channels such as wholesalers, retail stores, online marketplaces, direct sales, partnerships with other businesses, and more.  The channel choice depends on various factors, including the type of product or service, target audience, and company resources.

Are you ready to define and manage distribution channels for your company?

Follow the steps I mentioned in this article, from benchmarking to sales outlet analysis.

Consider the cost-benefit ratio of each channel, and regardless of your choice, always monitor indicators and metrics .

This analysis makes it possible to check the efficiency of the distribution channel so you can optimize it constantly.

Most importantly, though, ensure you understand your ideal customer so you know where they hang out and where they’re most likely to buy. That’s where distribution channels and marketing channels work together to get the best results.

Which distribution channels do you use? And what are their pros and cons?

Leave a comment with your opinion or any questions you have.

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Distribution Channel

The flow followed by a good or service from production or manufacturing to the final consumer/buyer

What is a Distribution Channel?

A distribution channel, in simple terms, is the flow that a good or service follows from production or manufacturing to the final consumer/buyer. Distribution channels vary but typically include a producer, a wholesaler, a retailer, and the end buyer/consumer. A distribution channel can also provide a sense of how money flows back from the buyers to the producer or original point of sale.

For manufacturers, it is very important to create a mix of distribution channels that allow for ease of availability for the consumer, i.e., a good marketing mix . Based on the diversity and scope of a manufacturing business or any other business that can be found in the distribution process, the respective business needs to settle on a channel or channels that allow for good sales generation and ease of access for consumers.

• A distribution channel, in simple terms, is the flow that a good or service follows from production or manufacturing to the final consumer/buyer.
• The link between producers and the end consumer is normally intermediaries, such as wholesalers, retailers, or brokers. The intermediaries can be natural persons or businesses.
• Distribution channels can be either direct or indirect. The indirect channels can be divided up into different levels – one-channel, two-channel, and three-channel.

Role of Distribution Channels in Business

The target for any business is to bring their product or service to the market and make it available for consumers by creating a distribution path or channel. The link between producers and the end consumer is normally intermediaries, such as wholesalers, retailers, or brokers. The intermediaries can be natural persons or businesses. Distribution channels affect the prices of goods and their positioning in their respective markets.

Distributions, ideally, should be set up in a way that limits the number of stops for the product or service before it reaches the end consumer. A distribution channel must be efficient and effective. It means that transportation and other logistical requirements need to be used at maximum capacity and at the lowest rates possible.

Types of Distribution Channels

Distribution channels can either be direct or indirect. The indirect channels can be divided up into different levels.

1. Direct distribution channels

The direct distribution channel does not make use of any intermediaries. The manufacturer or producer sells directly to the end consumer. The direct form of distribution is typically used by producers or manufacturers of niche and expensive goods and items that are perishable. An example is a baker.

2. Indirect distribution channels

The indirect distribution channel makes use of intermediaries in order to bring a product to market. The three types of indirect channels are:

One-level channel

The one-level channel entails a product coming from a producer to a retailer and then to the end buyer. The retailers buy the product from the manufacturer and sell it to the end buyers. The one-level channel is ideal for manufacturers of furniture, clothing items, toys, etc.

Two-level channel

The two-level channel follows the following process:

Wholesalers generally make bulk purchases, buy from the producer, and divide the goods into smaller packages to sell to retailers. The retailers then sell the goods to the end buyers. The two-level channel is suitable for more affordable and long-lasting goods with a larger target market.

Three-level channel

The three-level channel is similar to the two-level channel, except the goods flow from the producer to an agent and then to a wholesaler. Agents assist with selling the goods and getting the goods delivered to the market promptly.

The agents normally receive a commission and are allocated the task of product distribution in a particular area. The three-level channel is suitable for goods that are in high demand and with a target market that stretches across a country.

The Internet as the Modern-Day Distribution Channel

With e-commerce growing tremendously over the past couple of decades, manufacturers and producers are now able to use online marketplaces to sell their goods. The internet is also ideal for service providers. Examples of online market places are Amazon , AliExpress, eBay, and Alibaba. Other internet intermediaries can be delivery services, such as Uber.

Making the Right Choice

Distribution channels may vary depending on a particular manufacturer’s product type and their sales targets. It is why it is pivotal to choose the right distribution channel.

The following factors must be looked at into detail by a company in order to determine which distribution method would be ideal for it to maximize profit generation via sales, value addition, and consumer reach:

• Market characteristics
• Product characteristics
• Competitor characteristics
• Company characteristics

Related Readings

Thank you for reading CFI’s guide to Distribution Channel. To keep learning and advancing your career, the following resources will be helpful:

• Forward Integration
• Omni-Channel
• Marketing Strategy
• See all valuation resources

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Distribution Channels: A Guide for Small Businesses

Launching a new business? You’ll have to choose a distribution channel for your company. Learn how to select the most suitable distribution chain here.

As a business owner, there are many things you have to consider. For example, it's important to know how to price and market your products and how your goods will reach your customers.

How you source products, store them, and ship them to your customers depends on your distribution channels. There are several distribution channels, and the types you choose will depend on your business model. In addition, some kinds of distribution channels are better than others, depending on your specific niche.

Luckily, you have options for deciding how your products make it to your customers. Whether you're an e-commerce company or a manufacturer, selecting the right distribution chain is crucial to saving your business time and money while satisfying your clients. It can also improve your cause marketing and product growth strategies by helping you deliver to customers faster.

What is a distribution channel?

A distribution channel, also known as a distribution chain, is the path products take from manufacturing to the customer. For example, a company manufactures products and has to get them to its clients. The main goal of distribution channels in marketing is to provide customer satisfaction, and you can choose from several types of channels. Of course, whichever you select will impact your sales somehow, so efficiency is critical.

Several parties are often involved in a distribution chain, including the manufacturer, wholesalers, retailers, distributors, and online marketplaces. If you have not defined your distribution channel, you may feel confused about the best choice for your business and its bottom line.

What is the purpose of distribution channels in business?

Distribution channels aim to get products to customers as fast as possible by following a set path. Distribution channels may also illustrate how payments go back up the chain, so everyone (except the customer who gets a product) earns a profit. What channels you select depends on your type of business and what will make the most profit, so they can either be short or long, depending on how many intermediaries you have between you and the final customer.

Major types of distribution channels

How do products and services get delivered to customers? There are several types of distribution channels.

A direct channel is also known as zero-level. With these channels, manufacturers deliver products directly to consumers. Direct channels increase online sales , which is why many online stores use them. Instead of working with a distributor, you simply sell your products online and have them delivered to the customers. With this model, manufacturers have complete control over their distribution channels, which also makes them responsible for ensuring the products make it to clients on time.

Selling directly to consumers is ideal for e-commerce businesses. It can help you improve the user experience by creating a successful promotional strategy surrounding your faster shipping times since there are no intermediaries involved. In addition, businesses with direct distribution channels can also offer lower prices since they don't have to pay intermediaries.

An indirect channel occurs between an intermediary and a customer. The intermediary could be consultants, wholesalers, and retailers.

For example, if you sell your products to a third-party, you may sell your inventory to the retailer, which sells the products directly to consumers. There may also be distributors involved in the process. The distributors purchase your products, sell them to stores, and the stores sell your products to customers.

There are 3 levels of indirect channels.

• One-level: Involves the company, retailer, and customer.
• Two-level: The company sells to a wholesaler or distributor who sells to the retailer and then to the customer.
• Three-level: Company sells to an agent, and the product goes through the rest of the distribution channel to the wholesaler, retailer, and then the customer.

An indirect distribution channel relies on intermediaries. While these offer many benefits, such as not having to worry about marketing products, manufacturers don't have control over their distribution chains. However, this channel is best suited for large businesses that sell products in bulk to a range of customers. These products will have a higher sticker price attached to them because they go through so many people and companies.

Companies may also choose a hybrid distribution channel that mixes both direct and indirect. For example, a manufacturer may choose to sell products directly to customers on its website while also working with intermediaries to get their products into retail stores.

Reverse distribution channels are when the consumer sells products back to the company. These distribution channels allow customers to return items that are defective or they no longer want. For example, if you buy shoes online that don't fit, you need to return them to the company where you purchased them.

With a reverse distribution channel, the customer is responsible for initiating the return and ensuring it makes it back to the company. However, even though the client initiates the return, companies should still aim to make this process as easy as possible. Doing so can help boost customer satisfaction .

How to choose a distribution channel

Choosing the right distribution channel is key to customer fulfillment and can reduce costs. However, depending on your business structure, picking one distribution method over another may be more beneficial.

Here are a few tips to help you select the most suitable distribution chain for your business:

• Consider your product: Is your product something consumers would be happy to buy directly from you? If so, you can sell directly to consumers on your website. If you select this route, you'll need an e-commerce website that allows you to accept payments and a way to ship products to consumers. Of course, some products work great for direct and indirect channels, so you may have to consider your sales objectives and other business goals, such as pricing and simplicity of the distribution chain.
• Know your sales objectives: If you want to reduce the cost of products to help you earn more money, the direct distribution channel can offer the most significant profits. However, it ultimately depends on the types of products you sell. If you want your products in front of thousands of people in stores, you'll need to work with an intermediary, but this method can get you more sales.
• Understand your target customers: Where do your customers typically shop for products like yours? Do they prefer to buy them in stores or online? Some industries have crossover, with customers purchasing products in-store and online. If this is the case for you, you might benefit from a hybrid distribution channel that helps you to get your products in stores while still being available online. This enables you to reach more shoppers.
• Consider distribution speed: The distribution channel you select can impact how fast your customers get your products. Direct distribution is faster because there are no intermediaries. Still, you may earn a larger profit from hybrid distribution chains because you'll be able to reach more customers.

Of course, not all distribution channels are suitable for every business. For example, if your customers prefer to touch your products before purchasing, you may benefit from working with a retailer. However, if your customers want the speed of online ordering and shipping, you can use a direct distribution chain to satisfy their needs.

You'll have many choices when planning your distribution strategy, but your intermediaries may also determine which is best for you. Your distribution channel partners should be included in your overall marketing strategy to support your marketing efforts.

For example, if you sell your products in a big box retailer, it's a good idea to create a successful promotional strategy to inform your customers where to purchase your products. However, if you choose a direct distribution channel, you only have to worry about marketing your own business.

Market and sell your products online

If you're starting a business and want to sell products, one of the easiest ways to get your business up and running is by selling your products online to consumers using direct distribution channels. Of course, you'll need a website that can highlight your products and convert website visitors into paying customers.

Mailchimp makes it easy to market and sell your products online with a suite of products designed for e-commerce companies. Mailchimp can even help you craft engaging sales and marketing emails to convince intermediaries to work with you if you want to use direct or indirect distribution channels.

Create a website, add product photos, write descriptions, and use templates to help you design the best product pages. Then, when you're ready, you can begin marketing your products using email marketing, digital ads, and other strategies to increase brand awareness and sell directly to your target audience.

Types of Distribution Channels: Direct, Indirect, & More

Choosing the right types of distribution channels for your business can be difficult and confusing. Whether your business is a small scale custom t-shirt design company or a giant producer of goods, you will need a distribution strategy. Determining the right distribution channel will impact your company’s marketing strategy, business model, and more. 

The Council of Supply Chain Management Professionals (CSCMP) states that distribution can be categorized into direct, indirect, and hybrid channels. Direct channels sell straight to the consumer, while indirect channels use go-betweens like wholesalers or retailers. Hybrid channels combine both approaches, offering flexibility.

Join us as we review the different distribution channel types.

Table of Contents

Types of distribution channels.

A distribution channel is the method that manufacturers use to get their products to consumers. The idea is to bridge the gap between producer and consumer in the most efficient and effective manner. Distribution channels function whether the gap is a few miles or a few thousand miles. 

Groups that use distribution channels are manufacturers of products. They can be any kind of person, from farmers to a creator of handmade embroidered hats. 

There are 4 types of distribution channels most businesses use: 

• Direct selling
• Selling through intermediaries
• Dual distribution
• Reverse logistics  

Each of these channels consist of institutions whose goal is to manage the transaction and physical exchange of products. Those institutions are the manufacturers, consumers, and middlemen. 

The consumer can be an individual, household, government, or business. Additionally, middlemen function at the retail or wholesale level. The goal of a channel is to perform specific functions. 

There are transactional functions, which consist of buying, selling, and assuming risk. Logistical functions consist of assembly, storage, and transportation. Finally, facilitating functions are recalls and maintenance, financing, promotion, and leadership. 

Depending on the type of channel you use, you can eliminate the institution that performs a function, but you can not eliminate the function itself. 

For example, if a producer decides to set up an online storefront, they are removing the retailer from the distribution channel. However, the producer takes on the function and responsibility of storage, sorting, and risk functions that the retailer normally would perform. 

There are several factors you should consider when determining your distribution channel. 

• How long is my product’s shelf life? 
• How large is the market for my product? 
• How large is the company, and what is its product mix? 
• What is the cost of a specific channel of distribution?

Direct Selling

The first of the four types of distribution channels is direct selling. In a direct selling model, a company distributes products directly to customers without using any intermediaries . For example, Amazon utilizes direct distribution when it sells Kindle products on its own website. 

Apple uses this method as well when it sells iPhones out of its own retail stores. Direct selling can be any method that doesn’t utilize intermediaries. These approaches can include brick and mortar locations, online storefronts, door-to-door sales, telemarketing, and more.  

According to the United States Direct Selling Association (DSA), direct selling produced the following results in 2018.

2018 Direct Sales Statistics

Source: usda.org

Direct selling is a good way to manage costs, especially when you own a small business. It allows you to sell your product without having to pay for other individuals to handle marketing, sales, or shipping needs. It also means that those responsibilities belong to the producer. 

A business that uses direct distribution may set up an online storefront and promote its products through social media. They are fully in charge of all the marketing, packaging, and shipping of their goods. The same business might set up at an artisan market, fair, or even at local public spaces such as a coffee shop to sell their product. 

There are many avenues for direct selling, and it gives owners much more control over their company and products. However, as the business grows, so will distribution needs. Business owners may need to use other means of distribution to reach a larger consumer base to stay competitive. 

It is difficult to sell large quantities of your own product when you don’t have an extensive distribution strategy. Similarly, tackling the global marketplace is easier when you have intermediaries to help. 

Selling Through Intermediaries

Selling through intermediaries is the second type of distribution channel. It is also known as an indirect channel of distribution. This is where a manufacturer uses wholesalers and retailers to make its products available on the market . The wholesalers and retailers purchase the product from the producer and take on the risk if the product sells poorly. 

Wholesalers buy products in bulk at a lower rate than the retail price. They do not usually sell the product to the end customer. Normally, a wholesale buyer will store and warehouse large quantities of product to then sell them to other middlemen in small quantities for a profit. 

Retailers, on the other hand, are store owners. The main difference between wholesalers and retailers is their size. Retailers tend to be smaller, catering directly to end users. For example, your local grocery store is a retailer. They buy the products from wholesalers or other distributors to then sell to the end customer for a profit. 

As a manufacturer, if you decide to use this type of distribution channel, you should maintain good relationships with your wholesalers and retailers. Create a large base of wholesalers and retailers because they can drop you at any time if your product doesn’t sell well. Know how your reseller’s business is doing and discuss the connection between their success and your products. 

Make sure they understand the profitability of your products. Give them information about your product so they feel connected to the brand and always gather feedback. Feedback will teach you how to better market your product and develop brand perception.

Dual Distribution

If you have ever seen a COACH® purse concession counter within a larger department store, you have seen an example of dual distribution. 

Dual distribution is where a manufacturer sells its product directly to customers and indirectly through third-party distributors and retailers. They use more than one distribution channel to reach the end customer, and it allows the product to reach a larger market.

COACH sells its luxury handbags through the “shop-in-shops” method, which includes:

• Ecommerce (online) 
• Specialty stores 
• Factory outlets
• Regular retail stores

With a direct distribution strategy, the manufacturer can interact directly with customers. When using the indirect distribution strategy, manufacturers will choose to work with distributors or brokers. In this method, they are delegating some of their tasks directly to intermediaries. 

These intermediaries are an extension of the manufacturer and most of the time represent the product before the end customer. Brokers tend to handle the sales of the product to retailers, while distributors deal with the transportation of the goods. Distributors buy products from a manufacturer to then sell on a profit margin to retailers. 

Using the direct distribution strategy can be expensive, so most companies will choose to use dual distribution and vary their types of distribution strategies.  

For instance, Apple uses direct distribution when selling products out of its own stores, but the company also uses indirect distribution when selling phones through service providers such as Verizon. While the direct approach gives the manufacturer more control over the customer’s experience, it is pricey. 

Dual distribution is the alternative to this, and is generally a good decision when starting out as a manufacturing company. There are several advantages when working with either a broker or a distributor. 

When working with a broker, a producer will sign a contract with them, the broker will then be responsible for selling the product to retailers. Brokers usually do not handle the actual shipping of the product, only the selling of it. A broker’s goal is to close the sale. 

Additionally, experienced brokers will have a portfolio of manufacturers they work with as well as retailers they sell to. When looking for a broker, try to find one that has strong relationships with retailers and a portfolio of products from the same industry as yours. This will ensure they have quick access to retailers and a higher likelihood of successfully selling your product. Brokers usually offer other services such as invoicing and inventory control as well. 

Similarly, when working with a distributor, the manufacturer has the advantage of assuming less risk. A distributor will directly buy the product and then resell it to retailers using the direct distribution strategy at a profit margin. The distributor does everything, from purchasing to shipping and invoicing the products. Distributors are more likely to introduce new products to retailers because they are incentivized to sell their goods. 

The disadvantage of working with brokers or distributors is that they can drop your products at any moment. Brokers are expensive to contract, and if the sale of one of their manufacturer’s products goes down, they will likely stop carrying that product. Likewise, a distributor runs the risk of underselling and if a product ends up doing poorly, the distributor is less likely to buy from that manufacturer again.

Reverse Channels

The first three types of distribution channels discuss how the manufacturer gets their product to the end customer. But, in the reverse channel of distribution , the direction changes. The direction of the product runs from consumer to another consumer or another company in a reverse flow channel . 

A traditional distribution channel will look like this:

Company → Warehouse → Distributors → Dealers → Consumers 

A reverse channel will look like this: 

Consumer → Intermediary → Company 

You might wonder who would use reverse channels. People who sell waste to companies so that they can be recycled do so, as do people in the second hand sale business. For example, Goodwill uses the reverse channel system when it sells donated goods. Technology can also be sold back to the original company that manufactured it. 

Here are four ways in which the reverse channel of distribution is used. 

• Reuse Products:  industrial storage containers, metallic equipment, technology
• Refurbish Products:  furniture, computers
• Recycle Products:  paper, plastic, aluminum
• Disposing:  garbage of an organic nature

One other important difference between the traditional distribution methods and the reverse channel is that there is no producer. The reverse channel introduces a beneficiary or user of an existing product.

Selecting a Distribution Channel

When selecting a distribution channel, you should keep in mind your organization’s brand, profitability, and the scale of operations for your product. You should first understand that a distribution channel represents the relationship between the manufacturer and the user. A strategic alliance with a retailer will influence that relationship. 

You’ll also need to understand your target audience and what their preferences are. Will you be selling to technologically savvy consumers and thus open up a digital storefront? Or maybe your target audience is older and more traditional? Again, think of the cost of the different types of distribution channels. Consider your profit margin and desired volume when choosing a channel. 

Another important aspect of selecting a distribution channel is the brand of your organization. Don’t forget to think about the audience’s perception of your product and if it needs to be sold in high-end designer stores or if department stores will do. Finally, opening strategic channels of distribution in local markets may or may not enhance the profitability of your products and should be duly considered. 

Before choosing a distribution channel, know that there are three things a distribution strategy influences: 

• Pricing strategy
• Product branding, policies, and willingness to stock
• Buyer and producer relationship

When an optimal distribution strategy is chosen, a strategic alliance between a manufacturer and a retailer is struck and both entities profit from the relationship. It will also impact how your target audience interacts with your product. For these reasons, there are several things you should consider when choosing that distribution channel.

Consumer Preferences

One thing to consider in-depth when selecting a distribution channel is the consumer’s preferences. As mentioned earlier, a distribution channel will influence product branding and the buyer and producer relationship. As you move your product from the manufacturing stage to distribution, consider your audience. Who is the product for and why will they buy it? 

Research your consumers’ habits and behavior to help you select the correct distribution channel. For example, if your consumer regularly buys products from department stores, you should consider stocking those stores with your product. On the other hand, if your products are rare antique rugs, you might want to consider selling them at specialty stores.

Not all costs of distribution channels are equal. Some channels are more expensive than others. For example, a product that doesn’t cost very much to manufacture and sells for a lower price will do better at a low-cost retail store. Additionally, If you are just starting out as a small business, you may want to use direct distribution. 

Directly selling eliminates many intermediary costs between the producer and the user. However, you do have to deal with other aspects of distribution that may be costly. For example, you’ll have to deal with logistics, packaging, and shipping. 

Another option if you are just starting out or if you are trying to establish your product is to sell to wholesalers. They are willing to buy outright large quantities of your product, although it will be at a significant discount. Your profit margin may not be as high when selling to a wholesaler. However, they have a larger incentive to sell your product, so it will certainly enter the market. 

Selling to a wholesaler can be beneficial when you are trying to get your product established. When considering costs, make sure you know your financial situation and know that if you start with low distribution, you can always increase it as your product succeeds.

Overall branding of your product relies heavily on the channel of distribution that you choose. Organizations work together to create strategic alliances that appeal to consumers and result in an overall profit for both entities involved. For example, if an online retailer stocks vintage handmade goods the consumer will associate that retailer with those products. Etsy is a great example of this. This then has an impact on how the consumer views both of those companies. 

Similarly, a high-end makeup company will not want to stock their goods at a drugstore retailer as that will reduce the quality of the makeup in the eyes of the consumer. The consumer will not want to spend money on a good that doesn’t match the quality of the requested price. Branding has a huge effect on the profitability of products. Producers should consider how they want to brand their products and how choosing a distribution channel can impact that brand. 

Localization

Finally, another avenue to consider when selecting a distribution channel is localization. In today’s global economy, producers have many options of markets to pick from. Through effective marketing distribution, a company can enter new markets successfully. To do this, however, companies need to know how to localize and choose retailers in the new market that will appeal to their consumers. 

As a producer, it is necessary to learn how to make your brand recognizable and understood when entering new foreign markets. Localizing through strategic channel alliances is one way that producers can achieve this.

B2B or B2C Distribution

Distribution strategies and preferred channels will change based on the target audience. There are two types of markets that use distribution strategies and for each market needs are different. 

For a B2C, or business-to-consumer market, the sale of goods transfers from the business to the end-user. The business will either produce its own product or buy it at a wholesale price for resale at a profit.

In B2C markets, the manufacturer must identify the needs of a target audience, then position and price the product to align with that audience, and communicate and sell it in a way that shows its value to the audience. 

There are two main methods that a B2C business uses to sell products: 

• Brick-and-mortar :  These are physical buildings that the consumer visits to buy a product. They offer the consumer a chance to touch, see, and handle the product before purchase. It also allows businesses to provide face-to-face customer service. 
• E-Commerce:  Consumers use the internet to purchase goods from online storefronts. They have the ability to find more information and compare prices through a simple web search. 

On the other hand, B2B markets place a greater emphasis on personal interaction. B2B means business-to-business sales or commerce interactions between businesses . It refers to the sale of goods between manufacturers and wholesalers or wholesalers and retailers . 

B2B sales use some of the same methods as B2C markets. However, they use additional channels not found in the B2C supply chain. For example, many businesses will retain a representative from a selling company to nurture relationships that will lead to sales. 

Many B2B sales occur at trade shows. Trade shows are less common in B2C sales and allow businesses to show off their products, learn about rivals, and monitor industry trends. They are usually industry-specific. 

The main difference between B2B and B2C sales is that in B2B, the purchaser expects an ongoing relationship with the seller. Meanwhile, in B2C, the purchase is considered the end of the transaction.

Distribution Channel vs. Supply Chain

You may have reached the conclusion on your own by now that distribution channels sound similar to a supply chain . The confusion is understandable, but there are some differences. 

A distribution channel focuses on getting products in front of customers, particularly those that are ready and willing to buy that product. 

Meanwhile, the supply chain is concerned with all the details surrounding planning, manufacturing, and logistics. It focuses on the process of purchasing raw materials and transforming them into an end product that a customer will buy. 

Sometimes, the supply chain will also become part of the distribution strategy. For example, when the manufacturer needs to control the full customer experience, right down to choosing the location of the retail stores. 

The main difference between the distribution channel and supply chain management is that distribution channels specifically involve the demand chain. Meanwhile, the supply chain is concerned with supply and demand.

How Does Ecommerce Change Distribution?

Ecommerce has essentially “leveled-up” distribution for several reasons. It has evolved from what it was many years ago through data influences and a fluidity companies now have through e-commerce. A company that utilizes e-commerce may consider itself the manufacturer, wholesaler, or even retailer. In fact, the United States is of one of the top ten largest ecommerce markets. 

Companies also don’t have to go through as many intermediaries. Storage location needs are reduced and products are available to a larger customer base. Companies who might have paid for research into their target audience can now research it themselves through predictive and prescriptive data analysis. 

It is by far the most efficient distribution strategy for a business. There is no longer a need for multiple distributors and brokers to sell your product to a retail store because you can own your own digital storefront. There aren’t as many employees which means the payroll is reduced saving the company even more money. It even gives the producer the opportunity to cross expose products by selling the printer with the ink or the computer with the computer case. 

However, all forms of trade become digital. This means integrated databases, online marketing, and user-generated feedback are all things you will have to learn how to manage. If you don’t have the necessary training it may be difficult to set up an e-commerce distribution channel, but it is well worth looking into. 

Distribution Channel Consulting With Product Distribution and Strategy

Whatever stage your business plan is in, if you need guidance determining the types of distribution channels that will work best with your company, Product Distribution and Strategy can help. Our experienced professionals will give you advice on how to approach distribution . We will identify the different types of distribution strategies and determine the most effective and profitable one for you. 

Learning the best practices for evaluating the economic impact of your distribution channel and how to measure distribution performance are just a few of the things you will learn through our consulting services. 

Call our team of experts at (855) 863-7672 or contact us online today to receive a quote or to learn more about how we can support your distribution channel needs.

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Distribution channels: types, role, and impact.

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Distribution Channels Explained

Distribution channels define the path that goods and services take from the manufacturer to the end consumer.

Their structure, efficiency, and cost-effectiveness can have substantial effects on a company's financial performance, affecting revenue, margins, and ultimately market value.

Types of Distribution Channels

Direct Distribution Channel

In a direct distribution channel, companies sell their products or services directly to the consumer, without intermediaries . For instance, Apple selling iPhones directly through its online store is an example of a direct distribution channel.

Benefits : Greater control over pricing, customer experience, and branding.

Limitations : Increased operational responsibilities, higher costs, and potential scalability issues.

Indirect Distribution Channel

In contrast, indirect distribution involves third parties, such as wholesalers, distributors, or retailers . Coca-Cola , for instance, employs this method, distributing its beverages through supermarkets, convenience stores, and vending machines.

Benefits: Extended reach, reduced operational burden, and potential for higher sales volume.

Limitations: Decreased control over pricing and customer experience, and potential for conflict with channel partners.

Dual Distribution Channel

Dual distribution channels occur when a company uses both direct and indirect channels . For example, Dell sells its computers directly through its website and indirectly via retail partners like Best Buy.

Benefits: Increased market penetration and potential for higher sales.

Limitations: Potential channel conflict and increased management complexity.

Reverse Distribution Channel

In a reverse distribution channel, goods move from the end consumer back to the manufacturer or distributor , as seen in recycling programs or returns management.

Benefits: Increased customer satisfaction and potential for reusing or reselling returned goods.

Limitations: Added costs and potential for operational complexities.

Role of Distribution Channels in Different Sectors

In the retail sector, efficient distribution channels are essential to ensure products are readily available for customers , thus impacting sales and customer satisfaction . For instance, Amazon's sophisticated distribution network is a key factor in its rapid delivery times and customer loyalty.

Manufacturing

In manufacturing, distribution channels influence the speed and cost of getting products to the market . Tesla's direct-to-consumer model, for example, allows for quicker adaptation to market changes and more control over the customer experience.

Service Sector

In the service sector, distribution channels often involve digital or human networks that connect service providers to consumers . For example, Uber’s app-based distribution connects drivers (service providers) directly with riders (consumers).

Impact of Distribution Channels on Financial Performance

A well-designed distribution strategy can significantly affect a company's financial performance:

Effect on Revenue

Efficient channels can enhance market penetration and revenue . For example, Starbucks' presence in grocery stores alongside its cafes (dual distribution) helps increase its market reach.

Effect on Cost of Sales

Companies can control costs by optimizing their distribution. Costco's direct sourcing and limited product range keep its cost of sales low.

Effect on Gross and Net Margins

The balance between revenue growth and cost control through channel optimization can improve profit margins. High-end brands like Louis Vuitton utilize direct distribution to maintain premium pricing and high margins.

How Private Equity and Investment Bankers Use Distribution Channel Analysis

Private equity professionals and investment bankers use distribution channel analysis as a critical tool in their strategic decision-making processes . In the realm of Mergers and Acquisitions (M&A) , understanding a target company's distribution channels can shed light on potential synergies, market expansion possibilities, and operational efficiencies or bottlenecks.

This understanding can significantly affect the perceived value of the deal and negotiation strategies.

Company Valuation

distribution channel analysis provides insight into the company's revenue potential and cost structure . An efficient and broad-reaching channel can justify a higher valuation due to the potential for greater market penetration and profitability.

In conducting due diligence, scrutinizing a company's distribution channels can expose potential risks, such as over-dependence on a single distributor or potential regulatory issues in the case of international channels.

Competitive Advantage

It can also highlight a company's competitive advantage , like exclusive contracts with key retailers or a proprietary e-commerce platform.

Portfolio Management

Ongoing analysis of portfolio companies' distribution channels can guide decisions about additional investment, divestment, or strategic advice to the company's management, all with the aim of maximizing portfolio return.

Emerging Trends in Distribution Channels

Digital channels, multi-channel retailing, Direct-to-Consumer models , and the rise of e-commerce have revolutionized traditional distribution , with companies like Netflix , Amazon, and Warby Parker being noteworthy examples.

How to Analyze Distribution Channels

Key aspects to consider when analyzing distribution channels include:

Key Metrics and KPIs: Look at the cost of sales, gross margins, and delivery speed.

Channel Members : Evaluate the efficiency and reliability of channel partners.

Market Research Methods: Conduct surveys or use industry reports to assess channel performance.

Competitive Analysis: Understand how competitors' channels function to identify opportunities and threats.

As we've seen, understanding distribution channels is crucial for financial professionals to assess a company's performance and market potential. Stay informed on distribution channel trends and continue to learn and apply this knowledge to your financial decisions.

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Distribution channels.

Distribution channels  in marketing are one of the classic “4 Ps” (product, promotion, price, placement a.k.a. “distribution”). They’re a key element in your entire marketing strategy — they help you expand your reach and grow revenue.

B2B and B2C companies can sell through a single distribution channel or through multiple channels that may include:

• Wholesaler/Distributor
• Direct/Internet
• Direct/Catalog
• Direct/Sales Team
• Value-Added Reseller (VAR)
• Sales Agent/Manufacturer’s Rep

Here are three examples of distribution channels in marketing:

To create a good distribution program, focus on the needs of your end-users.

• If users need personalized service, you can utilize a local dealer network or reseller program to provide that service.
• If your users prefer to buy online, you can create an e-commerce website and fulfillment system and sell direct; you can also sell to another online retailer or distributor that can offer your product on their own sites.
• You can build your own specialized sales team to prospect and close deals directly with customers.

Wholesalers, resellers, retailers, consultants and agents already have resources and relationships to quickly bring your product to market. If you sell through these groups instead of (or in addition to) selling direct, treat the entire channel as a group of customers – and they are, since they’re buying your product and reselling it. Understand their needs and deliver strong marketing programs; you’ll maximize everyone’s revenue in the process.

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Distribution Channels Concepts & Steps

Before you begin.

You can evaluate a new distribution channel or improve your channel marketing / management at any time. It’s especially important to think about distribution when you’re going after a new customer segment, releasing a new product, or looking for ways to aggressively grow your business.

Evaluate how your end-users need to buy

Your distribution strategy should deliver the information and service your prospects need. For each customer segment, consider:

• How and where they prefer to buy
• Whether they need personalized education and training
• Whether they need additional products or services to be used along with yours
• Whether your product needs to be customized or installed
• Whether your product needs to be serviced

Match end-user needs to a distribution strategy

• If your end-users need a great deal of information and service, your company can deliver it directly through a sales force. You can also build a channel of qualified resellers or consultants. The size of the market and your price will probably dictate which scenario is best.
• If the buying process is fairly straightforward, you can sell direct via a website/catalog or perhaps through a wholesale/retail structure. You may also use an inbound telemarketing group or a field sales team.
• If you need complete control over your product’s delivery and service, adding a channel probably isn’t right for you.

Identify natural partners

If you want to grow beyond the direct model, look for companies that have relationships with your end-users. If consultants, wholesalers or retailers already reach your customer base, they’re natural partners.

Build your distribution channel

If you’re setting up a distribution channel with one or more partners, treat it as a sales process:

• Approach the potential channel partner and “sell” the value of the partnership.
• Establish goals, service requirements and reporting requirements.
• Deliver inventory (if necessary) and sales/support materials.
• Train the partner.
• Run promotions and programs to support the partner and help them increase sales.

Minimize pricing conflicts

If you use multiple channels, carefully map out the price for each step in your channel and include a fair profit for each type of partner. Then compare the price that the end-user will pay; if a customer can buy from one channel at a lower price than from another, your partners will rightfully have concerns. Pricing conflict is common, and it can jeopardize your entire strategy, so do your best to map out the price at each step and develop the best solution possible.

Drive revenue through the channel

Service your channel partners as you’d service your best customers and work with them to drive revenue. For example, provide them with marketing funds or materials to promote your products; run campaigns to generate leads and forward them to your partners.

After Designing Your Distribution Channels

As you’re creating a new channel you’ll need a pricing strategy and a sales process . When your channel is up and running, you can start launching marketing campaigns to channel partners and end-users.

However, it’s alway best to start with defining your brand strategy. Learn more about how to build yours with our brand strategy toolkit .

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Distribution Channels: Business Model Canvas Explained

The distribution channels component of the Business Model Canvas is a crucial aspect of any business model. It refers to the means by which a company delivers its products or services to its customers. These channels can be direct or indirect, and they can involve various intermediaries.

The choice of distribution channels significantly impacts the business model's effectiveness. It influences the customer experience, the company's reach, and the cost structure. Therefore, understanding the concept of distribution channels in the context of the Business Model Canvas is essential for any entrepreneur or business strategist.

Understanding Distribution Channels

Distribution channels are the pathways through which goods or services travel from the producer to the end consumer. They are an integral part of the marketing mix, impacting the place component. The choice of distribution channels affects how and where customers can access a company's offerings.

These channels can be direct, meaning the company sells directly to the customer, or indirect, involving intermediaries such as wholesalers, retailers, or distributors. The selection of the right distribution channel depends on various factors, including the nature of the product, the target market, and the overall business strategy.

Direct Distribution Channels

Direct distribution involves selling products or services directly to consumers without the use of intermediaries. This can be achieved through various means, such as a company's website, direct mail, or telemarketing. Direct distribution allows companies to have full control over their sales process, customer experience, and pricing.

However, direct distribution may require significant resources, as the company is responsible for all aspects of the sales process. It may also limit the company's reach if it lacks the resources to cover a large geographical area or diverse market segments.

Indirect Distribution Channels

Indirect distribution involves the use of intermediaries to deliver products or services to consumers. These intermediaries can include wholesalers, retailers, distributors, or brokers. Indirect distribution can expand a company's reach and allow it to benefit from the intermediaries' expertise and established customer base.

However, indirect distribution can also lead to reduced control over the sales process and customer experience. It may also result in lower profit margins, as intermediaries typically take a percentage of the sales price.

Role of Distribution Channels in the Business Model Canvas

In the Business Model Canvas, distribution channels are one of the nine building blocks that make up a business model. They are closely linked to the customer segments, value propositions, and customer relationships components. The choice of distribution channels can significantly impact these other components and the overall business model's effectiveness.

Distribution channels play a crucial role in delivering a company's value proposition to its customer segments. They determine how the company's products or services reach the customer and influence the customer's experience with the company. Therefore, the choice of distribution channels should align with the company's value proposition and target customer segments.

Impact on Customer Experience

Distribution channels directly impact the customer experience. They determine how and where customers can access a company's offerings, which can significantly influence their perception of the company and its products or services. For example, a company that sells luxury goods through high-end retail stores may create a different customer experience than a company that sells the same goods online.

Therefore, when choosing distribution channels, companies should consider how they can enhance the customer experience. This may involve selecting channels that are convenient for the customer, align with their shopping preferences, or add value through additional services.

Impact on Reach and Cost Structure

Distribution channels also impact a company's reach and cost structure. Direct distribution channels may allow a company to reach a large number of customers without the need for intermediaries. However, they may also require significant resources and result in higher costs. On the other hand, indirect distribution channels can expand a company's reach but may also lead to lower profit margins due to intermediary costs.

Therefore, when selecting distribution channels, companies should consider their impact on the cost structure and the company's ability to reach its target market. This involves balancing the potential benefits of increased reach and customer satisfaction against the potential costs and risks associated with each channel.

Choosing the Right Distribution Channels

Choosing the right distribution channels is a strategic decision that should align with the company's overall business model and strategy. It involves considering various factors, including the nature of the product, the target market, the competitive environment, and the company's resources and capabilities.

Companies should also consider the potential impact of their distribution channel choices on their customer relationships, value propositions, and revenue streams. For example, a company that chooses to sell its products online may need to invest in digital marketing and customer service capabilities to support this channel.

Product Considerations

The nature of the product is a crucial factor in choosing distribution channels. Some products, such as perishable goods or high-end luxury items, may require specific distribution channels to maintain their quality or brand image. For example, a company selling fresh produce may need to use a direct distribution channel to ensure the product's freshness, while a luxury brand may choose to sell through high-end retail stores to maintain its exclusive image.

Companies should also consider the product's complexity and the need for after-sales service. For example, complex products that require installation or ongoing maintenance may benefit from a direct distribution channel that allows the company to provide these services.

Market Considerations

The target market is another important factor in choosing distribution channels. Companies should consider the shopping preferences and behaviors of their target customers. For example, if the target market prefers shopping online, the company may need to prioritize e-commerce channels.

Companies should also consider the geographical location of their target market. If the target market is spread across a large geographical area, the company may need to use indirect distribution channels to reach all its potential customers. On the other hand, if the target market is concentrated in a specific area, direct distribution may be more effective.

Examples of Distribution Channels in Business Model Canvas

Many successful companies have used innovative distribution channels as part of their business model. These examples illustrate the strategic importance of distribution channels and their impact on a company's success.

Amazon, for example, has built its business model around a direct distribution channel. By selling products directly to consumers through its website, Amazon has been able to offer a wide range of products, competitive prices, and convenient delivery options. This has allowed Amazon to reach a large customer base and achieve significant revenue growth.

Apple's Distribution Channels

Apple provides an example of a company that uses a combination of direct and indirect distribution channels. Apple sells its products directly to consumers through its website and Apple Stores. This allows Apple to control the customer experience and offer additional services, such as product demonstrations and technical support.

At the same time, Apple also sells its products through indirect channels, such as third-party retailers and resellers. This expands Apple's reach and allows it to reach customers who may not have access to an Apple Store.

Tesla's Direct Distribution Model

Tesla Motors provides an example of a company that has disrupted traditional distribution channels in its industry. Instead of selling its electric cars through dealerships, as is common in the automotive industry, Tesla sells directly to consumers through its website and company-owned showrooms. This allows Tesla to control the sales process, provide a unique customer experience, and maintain higher profit margins.

However, Tesla's direct distribution model has also faced challenges, including legal battles with dealership associations and the need to build its own service network. This illustrates the potential risks and complexities associated with choosing non-traditional distribution channels.

In conclusion, distribution channels are a critical component of the Business Model Canvas. They play a crucial role in delivering a company's value proposition to its customer segments and significantly impact the customer experience, the company's reach, and the cost structure.

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One of the sections of your marketing plan should describe how your company intends to distribute the products to the final customers. The various distribution channels differ in costs, customer relationships, complexity and the resources required to operate the channel. You have to make sure the distribution channels you select match and reinforce the goals and objectives of your marketing plan, advises the Corporate Finance Institute .

Direct-Selling Channels

Many businesses choose the direct-sales channel, because you have access to the customer and keep all revenue under the control of the company. This distribution approach let you do your market research and choose your own customers while setting the selling price. The downside is that it takes a lot of time and focus away from your main preoccupation: the production of high-quality goods. Direct selling is a good match for a marketing plan that has identified, researched and segmented the final customers.

Using Wholesale Partners

When you have difficulties establishing who your retail customers will be and don't have time to go out and sell, your marketing plan can focus on wholesale distribution. This choice is especially valid if your potential customers are widely dispersed or located far from your facilities. Wholesale distribution leaves the selling to wholesalers and retailers specialized in retail sales. Because they have the sales costs, you may receive only a portion of the final sales price, but you can focus on manufacturing the best product at the lowest cost.

Mail Order Options

Mail order is a low-cost distribution channel that is convenient for the customer. You can use mail order by buying mailing lists or placing ads in a suitable publication. If you send out material to a mailing list, you need fliers and other materials. The mailing list has to target the demographic groups that you expect will buy your products, as described in your marketing plan. With time, you can create your own mailing lists complete with customer profiles and preferences.

Online Distribution Channels

Digital marketing has created a variety of distribution channels that are disruptive to the traditional ways of selling. For example, home food delivery services like Uber Eats and GrubHub and DoorDash opened new distribution channels for restaurants, making those that used them more competitive.

Online selling via e-commerce stores features disintermediation, or the removal of intermediaries, while still reaching large groups of potential customers. Cutting out the middle man while retaining the ability to sell to a broadly-based market makes online sales particularly attractive. In some cases, using intermediaries like Amazon can increase your sales so much, their fees are worth it.

Harnessing social media accounts, online ad campaigns and message boards to spread the word, you can achieve substantial sales volumes quickly. Your marketing plan has to have an overall strategy, because online sales can suffer from instability and large variations unless there is a strategic direction to keep potential customers engaged.

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• Channel partner programs

distribution channel

• Ben Lutkevich, Site Editor
• Dennis Shiao
• John Moore, Industry Editor

What is a distribution channel?

A distribution channel is the network of individuals and organizations involved in getting a product or service from the producer to the customer. Distribution channels are also known as marketing channels or marketing distribution channels .

Types of distribution channels

There are three types of distribution channels: direct, indirect and hybrid.

• Direct . With the direct channel, the company sells directly to the customer. For example, a brewery that brews its own beer and sells it to customers at its own brick-and-mortar location employs a direct channel of distribution. The seller delivers the product or service directly to customers. The vendor might also maintain its own sales force or sell its products or services through an e-commerce The direct channel approach requires vendors to take on the expense of hiring and training a sales team or building and hosting an e-commerce operation.
• Indirect . Indirect channels use multiple distribution partners or intermediaries to distribute goods and services from the seller to customers. Indirect channels can be configured in the following ways:
• With the single-tier distribution model, vendors develop direct relationships with channel partners that sell to the customer.
• In the two-tier distribution model , the vendor sells to distributors that provide products to channel partners, which, in turn, package products for the end customer. Two-tier distribution helps smaller channel partners that would have difficulty establishing direct sales relationships with large vendors.
• Hybrid. Hybrid channels combine the characteristics of direct and indirect channels. The seller uses both direct and indirect methods. For example, a manufacturer might sell an item on its e-commerce website, but then an intermediary delivers the physical product to the customer. The customer still has a direct interaction with the seller, but an intermediary is also involved.

Examples of distribution channel intermediaries

Intermediaries are used in indirect channels to distribute, sell and promote goods and services. Intermediaries may more commonly be referred to as middlemen. Examples of intermediaries include the following:

• Wholesalers are intermediaries between manufacturers and retailers.
• Agents represent a person or entity and serve as an intermediary between buyers and sellers.
• Brokers are similar to agents but represent a person or entity on a limited, per-transaction basis.
• Catalogs are collections of products gathered in a publication and distributed at regular intervals.
• Consultants are individuals who connect distributors with intermediaries lower on the supply chain and give advice on how to distribute product effectively.
• Distributors are in direct contact with the manufacturer but sell to end users.
• Retailers either buy from the manufacturer or another intermediary and distribute to consumers through shops, grocery stores or websites.
• Independent software vendors are vendors that sell their software using a marketplace.
• Managed service providers ( MSPs ) offer managed software services.
• Online marketplaces are e-commerce sites that connect buyers and sellers.
• Original equipment manufacturers, or OEMs , are companies that sell a product and markets itself as the company that originally manufactured the product.
• Value-added resellers ( VARs ) are resellers that add value to a product or service before reselling it.

Each type of intermediary represents a channel with its own distinct characteristics. VARs, for example, are often local companies that sell horizontal products, such as office productivity apps or vertical IT products, such as healthcare services to businesses in their geographic region. VARs provide value beyond the original order fulfillment. They're distinct from the manufacturer and customer, and help the product get to the customer with added value.

Systems integrators might be large, national companies that work on highly complex, multivendor IT projects. Consultants might not resell products but rather influence sales through product recommendations to customers.

A vendor develops a marketing strategy called a channel strategy , also known as a distribution channel strategy, to determine what types of intermediaries to target and how to optimize partner relationships to increase sales and improve distribution.

Intensive vs. selective vs. exclusive distribution

There are three main levels of distribution that describe which type of intermediary sells the company's product and how involved the intermediaries are .

This applies to the indirect distribution method, because it involves intermediaries. Indirect product distribution strategies fall into three categories: intensive, selective and exclusive.

• Intensive distribution. This involves a large number of intermediaries. The vendor tries to place its product in as many sales outlets as possible. This method is used with products that have a high consumption frequency and a low cost of production . Examples include common grocery items, such as eggs, bread and potato chips; bathroom products, such as toilet paper; and tobacco products, including cigarettes.
• Selective distribution. This involves a smaller number of intermediaries, using criteria set by the vendor such as geographic region, service and support capabilities. The reputation of the intermediaries is important in this method because vendors need to have a stronger relationship with retailers in order to be selective. For example, a clothing manufacturer might select certain small shops to distribute clothes versus using a large chain.
• Exclusive distribution. This involves only a few intermediaries that agree to exclusively sell the vendor's products. Deals are exclusive and limited to just those intermediaries.

Distribution channel levels explained

Distribution channel levels describe how close an intermediary is to the producer or vendor of a product. With each intermediary added, another level is added between the producer and the customer. If a clothing producer gives products to a retailer to sell to customers, there's one level between the producer and customer. If the producer first gives the clothing to a wholesaler to then give to a retailer and then the customer, there are two levels between producer and consumer. Adding another level might involve placing an agent between producer and wholesaler, to help find the wholesaler.

The alcohol industry is a good example of a distribution channel with multiple levels. There are laws that require wineries to first sell their products to a wholesaler before selling to a retailer. Direct-to-consumer models like e-commerce are examples of low-level, short distribution channels. For example, customers can buy products directly from producers on Amazon.

Partner enablement

As vendors grow the size and scope of their distribution network, dedicated resources are often needed to ensure the success of the partner program. Reporting to the heads of sales or marketing, partner enablement managers are focused on the success of the partner program.

Partner enablement includes the creation of co-branded sales and marketing material and the training of partners' sales and marketing staff. The partner enablement manager facilitates communication and collaboration between the partners and assorted stakeholders and executives on the vendor side. The partner enablement manager also creates a partner certification program, which defines tiers of certification, along with the requirements to meet each tier.

The importance of distribution channels

The various channels of distribution play a critical role in a vendor's go-to-market strategy . If successfully executed, any distribution channel model -- whether focused entirely on one mode, such as direct sales, or embracing multiple outlets, such as multichannel distribution -- can open or expand markets, exceed sales goals and grow a vendor's bottom line.

Beyond boosting revenue, distribution channels can also broaden the portfolio of products and services available to customers. VAR, SI and MSP channel partners, for instance, often provide consulting, technology implementation services and post-sales support. They might also incorporate a vendor's product into an integrated IT product.

The final customer is focused on whether a product or service meets its needs. The customer is often unaware or unconcerned about the intricacies of distribution channels.

Having a working go-to-market strategy with trustworthy distribution partners is important in supply chain management. Learn about the risks that come with the supply chain , and what companies can do to avoid falling behind.

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Distribution Plan

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Do you ever wonder how your favorite products get from the factory to your doorstep? Or how do businesses decide which stores to sell their products in? 

Well, that’s where a distribution plan comes in! 

A distribution plan is like a roadmap that helps businesses get their products to the right customers, at the right time, and in the right place. Without a solid distribution plan, businesses can struggle to get their products in front of potential customers and can lose out on valuable sales. 

In this post, we’ll dive into the world of distribution planning and explore the key components and best practices for creating a successful plan.

Shall we start?

What is a distribution plan?

A distribution plan is a detailed strategy that outlines the steps required to move a product or service from production to the final customer. It includes logistics, channels of distribution, market research, budget, metrics, and review and adjustment. 

The distribution plan’s benefit is that it aids companies in effectively targeting their target market while maximizing resource allocation. The timely and affordable delivery of goods or services to customers boosts customer satisfaction and boosts corporate revenues thanks to a well-planned distribution plan.

Without a distribution plan, businesses can find it difficult to provide goods or services to clients, which could harm their reputation and reduce their profitability. Each business that wants to be successful and continue to be competitive and meet customer demand must have a distribution plan.

Creating a distribution plan

Now that you have a solid idea of what a distribution plan is, let’s go into the procedures and pointers for developing a distribution strategy that benefits your company.

• Understand your target audience needs: Identify and comprehend the target group’s particular requirements and preferences .
• Determine logistics: Find the most efficient and affordable way to transport the good or service from the point of production to the consumer or end-user.
• Choose distribution channels: Choose the finest distribution channels for reaching clients, including direct sales, online sales, retail stores, wholesalers, and distributors.
• Conduct market research: Identify the most efficient ways to reach potential customers by conducting market research to better understand consumer preferences and purchasing patterns.
• Develop a budget: Prepare a budget that accounts for all expenses related to the distribution plan, such as marketing, publicity, logistics, and transportation.
• Set performance metrics: Specify performance indicators, such as customer satisfaction, sales volume, and market share, to gauge how well the distribution plan is working.
• Evaluate and modify your plan: Assess the distribution plan on a regular basis and make revisions in response to shifting market conditions, client demands, and other elements that could affect the plan’s success.

Best practices for creating a successful distribution plan

Creating a successful distribution plan requires a combination of strategic thinking, market knowledge, and operational efficiency. Here are some best practices for creating a successful distribution plan:

• Focus on the customer: Make sure your distribution plan is centered around meeting the needs and preferences of your target customers.
• Be flexible and adaptable: Be prepared to adjust your plan based on changing market conditions, customer needs, and other factors that may impact your distribution strategy.
• Collaborate with partners: Work closely with suppliers, distributors, and other partners to ensure that all aspects of the distribution plan are aligned and optimized.
• Use technology to optimize logistics: Leverage technology solutions to streamline logistics, improve inventory management, and reduce costs.
• Continuously monitor and evaluate performance: Regularly review performance metrics and use data insights to optimize your distribution plan.
• Stay up to date on market trends and competition: Keep a close eye on industry trends and your competitors to stay ahead of the curve and remain competitive.

Final Thoughts

In order to get your goods or services into the hands of your clients, you need a distribution plan. By making the most of your resources to the fullest extent possible and routinely modifying your plans, you can boost your business sales and remain competitive.

It’s essential to spend the required time developing a solid distribution plan that meets the objectives of your business and delivers your products to your target market. Start today and see the results for yourself!

Frequently Asked Questions

A distribution plan outlines the steps required to move a product or service from production to the final customer, ensuring that the right product is delivered to the right place, at the right time, and in the right condition.

To design a distribution strategy, you must first identify your target audience and their demands, as well as the most effective logistics, distribution channels, and market research. You should also develop a budget, establish performance criteria, and periodically evaluate and tweak the plan.

Understanding consumer preferences and purchasing patterns can help firms make decisions regarding the distribution channels to use and the best ways to manage logistics.

The success of a distribution plan can be evaluated using performance indicators including customer satisfaction, sales volume, and market share.

It’s critical to periodically assess and modify your distribution plan in light of evolving market conditions, client demands, and other elements that could affect the plan’s effectiveness.

Businesses may optimize logistics, enhance inventory management, and cut expenses with the aid of technological solutions including inventory management systems, transportation management systems, and analytics tools.

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Channels of Distribution

What are channels of distribution.

A channel of distribution—also referred to as a distribution channel—is the method a company uses to get a product or service into the hands of a consumer as quickly and efficiently as possible. Distribution channels can include wholesalers, brick-and-mortar retailers, and online marketplaces, but they always include manufacturers and consumers. 

What Are the Different Types of Distribution Channels?

There are a variety of different types of distribution channels comprised of a combination of intermediaries. The specific network of manufacturers, wholesalers, retailers, and end consumers depends on the type of distribution channel used. 

Here are the three main types of distribution channels: 

• Intensive Distribution : This channel type targets a vast number of outlets to saturate as much of the market as possible (e.g., the adult beverage industry). 
• Selective Distribution : This channel selectively targets outlets in specific locations. It also excludes wholesalers and goes directly to a retailer (e.g., car dealerships purchase inventory from the manufacturer to then sell directly to end consumers).
• Exclusive Distribution : This direct-to-consumer channel has very limited outlets and skips both the wholesaler and retailer. It’s the only channel that has a direct connection between manufacturer and end consumer (e.g., Apple ).

Additionally, distribution channels can be either long or short. Longer channels can impact profitability for each intermediary in a channel. Generally, the more intermediaries involved, the higher the cost of the product or service. 

How Do You Choose the Right Channel?

Choosing the right channel is a critical step in ensuring the success of a product in the market. According to Umar Farooq, founder of MarketingTutor, “ creating a secure and high-functioning supply chain is one of the most crucial factors for any brand looking to succeed, and thus selecting the right distribution strategy is of immense necessity . ”

5 Key factors to consider before you commit to a channel:

• Type of product or service: Does it require speed or a controlled environment?
• Target market: Are you selling to businesses or end consumers? Are they more likely to go to a brick-and-mortar retailer or an online marketplace?
• Competition and industry standards: What methods do competitors use? Is the go-to industry method the best one?
• Costs and benefits
• Alignment with a company’s mission and vision 

Investopedia advises that “the method of distribution should add value to the consumer .” To clarify what this means, ask these questions: 

• Do consumers want to speak to a salesperson? 
• Will they want to handle the product before they make a purchase ? 
• Do they want to purchase it online? 
• How quickly do you want a product or service to reach the buyer? 

Keep in mind that for certain products and services, there might be deeply ingrained customer behaviors that direct the future actions of end consumers. Laws, too, can influence which distribution channel is used (e.g., adult beverage industry).

Also notable—some products or services may journey along more than one channel. If a company chooses more than one distribution channel, however, it’s important to make sure they don’t conflict with one another. 

Committing to a channel can be a costly endeavor, so fully consider all options before moving too far down the road.

See Also: Product Mission , Product Vision , Product , Product Development Cycle , Roadmap ,   Customer Experience , Product Differentiation .

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Distribution Channel

What is a distribution channel.

The distribution channel is the path that a product or service takes in order to be sent from the manufacturer to the customer. If the customer bought the product or service straight from the manufacturer the distribution channel is a short one. If it includes a supplier , distributor , and retailer the distribution channel can be much longer. In general the longer the distribution channel from manufacturer to customer, the less profit the manufacturer will make as each intermediary or vendor charges for their services.

Functions of Distribution Channels

Distribution channels are important to businesses as they allow for the smooth delivery of goods or services to a customer. If a business does not source the best collection of businesses for this purpose, it can lead to unhappy customers and an inadequate provision of services. Creating an efficient process from warehouse to customer can make a huge difference in how customers view your business.

For example, if a business sources goods from a subpar manufacturer customer will receive unsatisfactory products . Or if a wholesaler is unreliable when delivering goods, customers will not receive their products on time.

Shorter distribution channels have fewer businesses involved in the process of delivery of goods meaning that there is more risk involved for the companies if products are not sold or delivered as promised. Therefore some businesses choose a longer distribution channel where less profit is made so that the risk and responsibility are lesser on each individual business.

Distribution Channel Strategy

A distribution channel strategy is normally designed by a retailer, or the business selling goods to a customer. This is so that they can source the product they aim to sell, they can reduce costs while making a nice profit themselves, and find the best way to deliver the product to the customer in the shortest time frame possible. This process will take some time to research suppliers, etc, and collect all the right information.

When a retailer is selling more than one type of product they may even require more than one distribution channel strategy where each business is different for them all. For instance, a shoe retailer may choose to start selling t-shirts online. As shoe manufacturers are different to t-shirt manufacturers the retailer has to find a t-shirt manufacturer or wholesaler to buy from. The wholesaler might not provide delivery but they are based in a different location to the shoe manufacturer so the retailer must then find a delivery option that makes sense to them.

Having many distribution channel strategies can become confusing and inefficient. That is why it is important to constantly improve relationships with businesses involved in this process and also to identify ways to improve efficiencies in the process.

How Many Types of Distribution Channels Are There?

There are three main types of distribution models or channels that a business can fall into. It depends on the number of vendors used to distribute goods which model a business falls into.

• The first type of distribution channel is where the manufacturer sells straight to the customer. This channel is the shortest, most direct one. The manufacturer makes the most profit from the sale in this scenario as he does not have to share profits with other vendors.
• The next channel is an indirect one, where an additional vendor is added between the manufacturer and the customer, like perhaps a retailer. Now the retailer will buy stock off a manufacturer and that retailer will sell the stock to the customer. A good example of this would be a supermarket which stocks many different types of goods which they have bought from the manufacturer, ready for the customer to buy and bring home.
• The final channel or type of product distribution model is one where there is more than one vendor or intermediary. This could include a wholesaler, a producer, or even another retailer. A great example would be dropshipping, where manufacturers sell their products to a supplier who advertises their stock on marketplaces like AliExpress where a merchant opts to put the product on their website to sell to the customer. This distribution model can be a long one. The manufacturer makes less profit as more vendors get involved.

There are pros and cons to all three distribution models from the perspective of the different parties involved but the most important thing is to ensure that operations run smoothly and the customer is at the center of the whole scenario.

Want to Learn More?

• The Complete Guide To Marketing Channels
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Distribution Channels: What They Are and How to Use Them

July 12, 2024 • 5 min read

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. 

Looking to find the best eCommerce distribution channels for your business? Partner with Print Bind Ship, a leading 3PL and fulfillment solution provider.

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!

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.

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