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.