Distribution channels are the paths that products and services take on their way from the manufacturer or service provider to the end consumer.
For instance, a manufacturer of light bulbs may produce the light bulbs, but the distribution channel that takes them from factory to customer is likely to include wholesalers and retailers. These links in the sales chain are the light bulbs’ channel of distribution.
Companies develop various distribution strategies or channel strategies for their products and services, based on a variety of factors and potential steps in the distribution process or intermediaries.
Is one where companies work with one or more distribution partners or intermediaries to bring products and services to customers.
There are numerous types of intermediaries:
A short distribution channel could be:
Company > VAR > Customer
A long distribution channel could be:
Company > Distributor > Wholesaler > Retailer > Customer
All of these intermediary partners serve as a connection between a company and its customers. Intermediaries often aren’t occupied with manufacturing, for example, so they can devote themselves to marketing and sales.
For example, a manufacturer of dog leashes would have to create a huge sales department in order to have the same geographical reach as Pets at Home, for instance, and would not have the ability to pair its products with a wide range of complementary products, such as dog beds and food, and services like dog grooming.
First of all, one size of distribution channel does not necessarily fit all of your products. You may have different approaches within your company. So, how do you know which distribution channel is the best for your product or service?
Look at the product itself.
Does it need to reach the customer quickly? Does it need to be bundled with other products in order to be useful or attractive? If you’re selling fresh vegetables from a small farm, your best distribution channel might be direct, selling at a local farmers’ market. If you’re selling a specific piece of computer hardware, you might be better off working with a VAR or major retailer of computer products that complement your product.
Consider your sales goals.
Are you trying to target a very specific, international population of enthusiasts, such as gamers? Then maybe a direct channel of distribution via the Internet geared towards connecting with influencers in the community focused on your type of video games may work better than using a wholesaler and their retail partners. But there might already be a retailer that has created a meaningful relationship with that community and has expertise in this area – in which case, an indirect distribution channel might be a better bet. Are you trying to achieve the widest possible audience for your product? Then, perhaps the bigger wholesalers and retailers are the perfect intermediaries within an indirect distribution channel.
Mastering distribution channels is about more than isolated choices – you need to develop a distribution strategy and monitor its effectiveness through analytics and KPIs (Key Performance Indicators) in order to make sound decisions.
Here are some tips for an effective distribution strategy:
- Think about the needs of your customers. How do they access your products and services? Are there customers you’re not reaching that you might be able to reach through a different distribution channel? Imagine the process of finding and purchasing your product from their perspective. Base your decisions on sound data and CRM!
- Beware of channel conflict if you choose to use multiple distribution channels for the same product. This occurs when your efforts, say, in direct selling via eCommerce, get in the way of the same customers purchasing your product or service through an intermediary like a retailer. Otherwise known as disintermediating, or kicking distribution partners out of the distribution channel, this can be avoided if you strategise about the customer groups you are likely to reach through different distribution channels, focusing on market segmentation.
- Include your distribution channel partners in your company’s marketing strategy. Channel marketing is a strategy that directs marketing efforts not just to end consumers, but also to distribution partners. After all, intermediaries aren’t just a means to an end: they’re B2B customers! Just as with end users, marketing to B2B buyers is also increasingly a social, content-based game.