Distribution Channels: 3 Types of Distribution Channels

Whether you are a business-to-business (B2B) or business-to-consumer (B2C) business, your products go through different phases before reaching the end user. You may manufacture and ship your products yourself or source them from other areas before selling.

Distribution channels are a crucial part of your marketing and sales strategy. By understanding your current channels and finding the best option for your business, you can maximize your revenue and customer benefits.

Keep reading to learn the basics about distribution channels and discover how you can select the right channel for your business.

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What is a distribution channel?

A distribution channel is a path that a good or service takes from production to consumer. The distribution channel answers how your business can get your product to the user.

There are many different intermediaries in a distribution channel, including the following:

• Manufacturers
• Wholesalers
• Merchants
• Distributors/ retailers
• The Internet

Knowing your distribution channel — and the moving parts within it — can help you track stock, check orders, estimate costs, and predict shipping times. You can use your distribution channel to create a smooth flow from the manufacturer to the customer.

Indirect vs. direct distribution channels

There are many ways to get your product to customers, but channels typically fall within the direct or indirect categories.

Direct channels

Direct channels are when the manufacturer sells directly to the customer. There is no intermediary between production and distribution. One example would be a company that manufactures and sells clothing to customers in its retail store.

Indirect channels

Indirect channels have an extra step — sometimes multiple steps — between the manufacturer and the consumer. A classic indirect channel example is a supermarket chain. The supermarket buys stock from different manufacturers and sells it to their customers.

Distribution channels can become increasingly complex, and some businesses have more than one channel. Your channels may vary and can evolve depending on your needs and growth.

Types of indirect distribution channels

Within the indirect channels category, there are a few different channel types.

One-channel

In the one-level channel, a retailer will buy the product from the producer and sell it to the customer. This channel is common for producers who create toys, shoes, clothing, etc.

Two-channel

In a two-channel system, the manufacturer sells to a wholesaler who then supplies products to the retailer that reaches the end customer. The products must be durable to go through multiple rounds of shipping before they reach the client.

Three-channel

Three-channel systems are the most complex. Producers sell to an agent, who then sells to a wholesaler, followed by the retailer, and then the customer. Agents can come in handy when selling products to a specific area or when you work with multiple wholesalers.

The Internet and distribution channels

The Internet and ecommerce sites have impacted distribution channels significantly. Manufacturers can use sites like Amazon to sell directly to customers. You can also use tools like Uber or Instacart to deliver goods to customers, which goes outside of the indirect and direct channels.

With the increase in ecommerce, there are also different marketing channel strategies. Many businesses use an online channel along with their standard retail channels.

What factors influence distribution channels?

There are a few considerations that impact what channel you should use. Consider the following factors when choosing a channel:

• Product type: Your channel should keep your product in excellent condition until it reaches your customer. If you have a perishable product, you wouldn’t want to use a three-channel system since many stops exist between production and the user.
• Market characteristics: Pay attention to what other businesses in your industry are doing. If most of your competitors use one channel, you can analyze whether that is the best option or if there is a new channel distribution that gives you a unique advantage.
• Middleman: Depending on your budget and order quantities, an intermediary can help distribute your orders. If you typically sell in bulk, you might skip this step. However, if you handle multiple small orders, a mediator can help organize them.

Determining the right channel for your business

When you market your products, you want to consider the customer’s point of view as they shop. The end goal of moving products is to reach the customer as smoothly as possible.

Each business will have a different target audience — finding yours can help you select your channel. Ask yourself the following questions:

• Would your audience benefit from talking to a salesperson?
• Will they need to handle the product before purchase?
• Can they use an online shopping service?

You can decide how you should change your channel to meet their needs. Your audience might not need a complete walkthrough to use your product, so you could eliminate some of the sales representative steps when they make their purchase. On the other hand, if you sell something highly personalized, having a test-run option might be best.

Make sure your channels do not conflict. Having an online store and an in-person retailer, for example, is a great way to reach more people. However, both options should be convenient and not detract from each other.

Streamline your distribution channels with WebFX

If you want help driving revenue to your business and simplifying your market channels, WebFX can help. We have a team of over 500 subject matter experts to boost your campaigns. We can help you find the best channel for your business or industry.

Our team of marketing specialists provides data-backed results for businesses across the nation. We have managed more than 14.9 million transactions for our clients in the last five years.

Ready to get started on improving your business marketing strategy? Contact us online or call us today at 888-601-5359 to speak with a strategist about our digital marketing services!