CWR-Types of Distribution Channels

Objectives:

To understand the different types of distributorships and retailers

To learn the distinctions between the types.

The Two Types of Distribution Channels

A direct distribution channel allows consumers to buy and receive goods directly from the manufacturer.
An indirect channel moves products from the manufacturer through various intermediaries for delivery
to the consumer.

Types of Distributorships

Online resellers

These are companies that exist to serve as Internet-based distribution points for a number of
manufacturers and dealers. Shopee and Lazada are two examples of this type of distribution. The
advantages of these are that it can take care of the marketing, has a large base of users, and would likely
have well-tested online payment options that would be difficult for smaller enterprises to set up on their
own. The downside? Online resellers may demand quite a bit of margin from the suppliers.

Wholesalers

These buy your products in bulk, typically taking ownership and therefore transferring the risks involved
with ownership into their hands. In exchange, wholesalers ask for territorial exclusivity and long credit
terms(-Credit terms are terms that indicate when payment is due for sales that are made on credit,
possible discounts, and any applicable interest or late payment fees), allowing them to practically make
money without having to have an initial outlay.

Company sales force.

All the employees of a company whose job is persuading customers to buy their company's products or
services. In-house sales teams may be manageable when lean, such as when a firm is just starting up.
But complexity can escalate quickly as the team grows in number. There should be clear roles and
mission orders for everyone along with its corresponding incentives and penalties that is stated clearly.
Otherwise, it is easy for the team to devolve into idle individuals with no motivation to pursue their
targets.

Value-added Resellers (VARs).

These are firms that put together products from different suppliers in order to come up with systems or
solutions that appeal to markets with specific needs. Vars are very common in the technology industries
where solutions to complex problems often require mix-and-match methodologies. However, it can still
cost the business if not calculated correctly.
Professional sales agencies.

Professional sales organizations take on the selling of products in exchange for commission schemes.
These organizations ask for at least 20% of SRP as their revenue share. The advantage of these agencies
is that their sales organizations are already in place, so it is just nearly a matter of plug-and-play for the
firm.

Specialty dealers.

These are distributors that specialize in either particular product categories or in the specialized needs
of very distinct target markets. The more specialized the store, the higher the margins that it can charge.
But it is also expected to have highly trained and highly educated staff who can easily answer customer
queries.

Distribution Systems

Intensive distribution means that the supplier will push its products to as many different points of
distribution as possible. There are no promises of exclusivity as the supplier seeks to sign up as many
distributors as it can. This approach is useful for firms that are trying to aggressively saturate the market.

Selective distribution is a mix of exclusive and intensive distribution systems, often involving the
assignment of exclusivity to distributors in limited areas. For example, a firm can assign a company to be
the exclusive master distributor for the Luzon regions while another company is appointed for the
Visayas regions and another for Mindanao. These companies then set about developing intensive
systems within their respective domains

Exclusive distribution means giving exclusivity to appointed distributors. If the distributors are given
master distribution rights, then they become responsible for developing the network and effectively
becoming multi-level distribution systems as they directly deal with dealers and retailers.

Types of Retailers

• Specialty stores.

These stores have very narrow width in terms of product mix but each of the product lines that they do
offer have extensive length and depth. These stores appeal to shoppers who like seeing a wide variety of
goods when they are shopping for something in particular. For instance, shops that specialize in mobile
phones will offer a wide range of brands and even specific models will come in different colors and
options.

• Department stores

These stores are typically large because they offer a broad width of product categories, such as shoes,
clothes, fashion accessories, home furnishings, snacks, etc. Each product line will be showcased under
its own department, hence the need for the store to have a lot of floor area.
• Supermarkets.

These stores have an extensive variety of low margin, high volume goods that mostly consist of food
staples. Typical margins hover at just around 15 percent but it is through volume that supermarkets
earn.

• Convenience stores.

These stores offer a very shallow depth in their product mix mainly because shelf space is limited, so
there is no room for offering variety. These can be sari-sari stores or store chains such as 7-Eleven and
Ministop. These stores stock only the essentials and it is not unusual for these to stock just one brand
for each item.

• Discount stores.

Shops that offer big discounts for everyday items. Some stores offer “false discounts,” relying on
psychological pricing techniques to make it appear as if their items are cheap (even if they are actually
not). But the more serious discounters manage to provide steeply discounted prices through creative
deals with manufacturers, such as by offering to buy nonmoving inventory straight from manufacturers
for cash in exchange for steep discounts that are then passed on to shoppers. This arrangement benefits
manufacturers too since they get to convert non-moving goods back into usable working capital.

• Superstores.

These stores, such as S&R, are characterized by gigantic selling spaces as well as bulk selling. The idea is
for the store to get deep discounts from manufacturers by buying and selling in bulk, with part of the
discounts being offered to consumers.

• Showrooms.

For high-markup durable goods, such as automobiles or even condominium units, that command
premium prices due to prestige factors. These products require highly controlled selling environments in
order to preserve their premium feel. This is what showrooms provide.