Know Your Product Distribution Channels
A distribution channel refers to the flow of business that occurs between a manufacturer and a consumer. It is the path that a transaction follows. Distributors are the intermediaries that deliver and house products for producers to sell to retailers. These channels can be relatively simple or increasingly complex.
There are direct and indirect channels. In a direct channel, the producer works directly with the consumer. An indirect channel, on the other hand, incorporates intermediaries into the sales flow. There are four levels that break down the flow between manufacturers and consumers.
Level Zero: A level zero distribution channel is the simplest. It involves a direct sale from manufacturers to consumers with no intermediary.
Level One: A level one channel has one intermediary as the middleman between the producer and consumer. An example is a retailer between manufacturer and consumer.
Level Two: When thinking about levels, associate the number to the number of intermediaries. In this case, a level two channel involves two intermediaries between producer and consumer. An example here would be a wholesaler selling to a retailer who then sells to the consumer.
Level Three: Here’s where an agent or broker comes in. Agents work on behalf of companies and deal primarily with wholesalers. From here, the wholesalers sell to retailers who then sell to consumers.
The Three Types of Distribution
Distribution strategies depend on the type of product being sold. As a distributor, the trick is knowing what type of distribution you will be doing depending on the companies you are working with. There are three methods of distribution that outline how manufacturers choose how they want their goods to be dispersed in the market.
Intensive Distribution: As many outlets as possible. The goal of intensive distribution is to penetrate as much of the market as possible.
Selective Distribution: Select outlets in specific locations. This is often based on a particular good and its fit within a store. Doing this allows manufacturers to pick a price point that targets a specific market of consumer, therefore providing a more customized shopping experience. Selective distribution caps the number of locations in a particular area.
Exclusive Distribution: Limited outlets. This can mean anything from luxury brands that are exclusive to special collections available only in particular locations or stores. This method helps maintain a brand’s image and product exclusivity. Some examples of companies that enact exclusive distribution would be high-end designers like Chanel or even an automotive company like Ferrari.
The chain of distribution can get confusing as more people are added into the mix. Distributors, wholesalers, retailers, and agents all work as intermediaries in the sales process. It is important to know the key differences of the individuals who play a role in the distribution process.
Distributors: A distributor is a wholesaler who assumes extra responsibility. In addition to fulfilling retailer orders, they actively sell products on behalf of the producers. From managing orders and returns to acting as a sales representative, they go beyond being the middleman between retailers and producers. They perform market analysis and are constantly searching for new opportunities. A distributor focuses on a particular area and market which allows them to cultivate strong relationships with manufacturers. Unlike a wholesaler, they most likely have a stronger affiliation with particular companies.
For example, one distributor may work out an agreement with a popular beverage company who works with them regularly, whereas wholesalers are used on a need-by-need basis. They have the option to sell to retailers and other sellers, or directly to consumers and businesses.
Wholesalers: A wholesaler fulfills orders of retailers, by reselling goods, often in large quantities for manufacturers. Wholesalers purchase in bulk, typically, which lowers the price, from either distributors or manufacturers. This allows wholesalers to make a profit because they are able to sell the to retailers in smaller packages that yield higher prices. Unlike distributors, wholesalers only deal with the storage and delivery of goods. But, in certain cases, you have to go through a wholesaler to get to a distributor.
Retailers: Retailers are the outlets where consumers can purchase products. This is your local grocery store or Walmart down the street. They can sell through storefront locations or through online channels. Retailers purchase products from distributors or wholesalers.
Brokers and Agents: Make way for agents. They handle the logistics of the sales. Agents handle contracts, marketing, and pulling together specialized shipments. A part of their job is customer relationship management. On behalf of manufacturers, they take ownership of products through the distribution process. They represent the producer in the sales process.