DISTRIBUTION CHANNELS

TYPES OF
DISTRIBUTION
CHANNELS
Choosing the right distribution
channels for your business can be a
difficult and confusing process.
Whether your business is a small
scale custom t-shirt design company
or a giant producer of goods, you
will need a distribution strategy.
Determining the right channel will
impact your company’s marketing
strategy, business model, and more.
Will it solely be an e-commerce
 business or will it have a brick-and-
mortar storefront? That is just one of
the questions a distribution strategy
will answer. 
The different types of distribution channels are:
• Direct
• Indirect (Intermediary)
• Dual Distribution
• Reverse

Which distribution channel(s) a business uses will be based

on overall business goals and structure. Both B2B and B2C
companies alike need to weigh the pros and cons of each
channel before choosing which one to utilize.
DISTRIBUTION CHANNELS
A distribution channel is the method that producers use to get their products to
consumers. The idea is to bridge the gap in the most efficient and effective manner.
Distribution channels function whether the gap is a few miles or a few thousand
miles. Groups that utilize distribution channels are manufacturers of products. 

There are four types of distribution channels that exist: direct selling, selling
through intermediaries, dual distribution, and reverse logistics channels. Each of
these channels consist of institutions whose goal is to manage the transaction and
physical exchange of products. Those institutions are the manufacturers,
consumers, and middlemen. 

The consumer can be an individual, household, government, or business.

Additionally, middlemen function at the retail or wholesale level. The goal of a
channel is to perform specific functions. There are transactional functions which
consist of buying, selling, and assuming risk. Logistical functions consist of
assembly, storage, and transportation. Finally, facilitating functions are recalls and
maintenance, financing, promotion, and leadership. 
• depending on the type of channel you utilize you can eliminate the
institution that performs a function, but you can not eliminate the function
itself.
• For example, if a producer decides to set up an online storefront they are
removing the retailer from the distribution channel. However, the
producer takes on the function and responsibility of storage, sorting, and
risk functions that the retailer normally would perform. 

• Essentially, there are several factors you should consider when determining your
distribution channel. 

• How long is my products shelf life? 

• How large is the market for my product? 
• How large is the company and what is its product mix? 
• Is the economy in a depression or is it a healthy economy with lots of choices? 
• What is the cost of a specific channel of distribution?
Direct Selling

The first of the four types of distribution channels is direct selling.

In a direct selling model, a company distributes products directly
to customers without using any intermediaries.

For example, Amazon utilizes direct distribution when it sells

Kindle products on it’s own website. Apple uses this method as
well when it sells Iphones out of its own retail stores.

Direct selling can be any method that doesn’t utilize

intermediaries. These approaches can include brick and mortar
locations, online storefronts, door-to-door sales, telemarketing, and
more.  

According to the United States Direct Selling Association (DSA),

direct selling represented $35.4 billion in retail sales in 2018.
 Additionally, there were 6.2 million direct salespeople and 36.6
million customers in that same year. 
Direct selling is a good way to manage costs, especially when you own a small
business. It allows you to sell your product without having to pay for other
individuals to handle marketing, sales, or shipping needs. It also means that those
responsibilities belong to the producer.

A business that uses direct distribution may set up an online storefront and
promote their products through social media. They are fully in charge of all the
marketing, packaging, and shipping of their goods. The same business might set
up at an artisan market, fair, or even at local public spaces such as a coffee shop
to sell their product. 

There are many avenues for direct selling and it gives owners much more control
over their company and products. However, as the business grows so will
distribution needs. Business owners may need to implement other means of
distribution to reach a larger consumer base so as not to remain stagnant.

It is difficult to sell large quantities of your own product when you don’t have an
extensive distribution strategy. Similarly, tackling the global marketplace is
easier when you have intermediaries to help. 
Selling Through Intermediaries

Selling through intermediaries is the second type of distribution channel. It is

also known as an indirect channel of distribution. This is where a manufacturer
utilizes wholesalers and retailers to make their product available on the market.
The wholesalers and retailers purchase the product from the producer and take
on the risk if the product sells poorly. 

One important thing to note about wholesalers is that they will buy your
product in bulk at a lower rate than the retail price. Wholesalers do not usually
sell the product to the end customer.

Normally, a wholesale buyer will store and warehouse large quantities of your
product to then sell them to other middlemen in small quantities for a profit. 
Retailers, on the other hand, are store owners. The main difference between
wholesalers and retailers is their size, retailers operate on a much smaller level.

For example, your local grocery store is a retailer. They buy the products from 
wholesalers or other distributors to then sell to the end customer at a profit
margin. 
As a manufacturer, if you decide to use this type of distribution
channel, you should try and maintain good relationships with your
wholesalers and retailers.

Make sure you create a large base of wholesalers and retailers because
they can drop you at any time if your product doesn’t sell well.

Know how your resellers business is doing and discuss the connection
between their success and your products. Make sure they understand
the profitability of your products.

Give them information about your product so they feel connected to

the brand and always gather feedback. Feedback will teach you how to
better market your product and develop brand perception.
Dual Distribution

If you have ever seen a Coach purse

concession counter within a larger department
store, such as Dillards, you have seen an
example of dual distribution.

Dual distribution is where a manufacturer sells

its product directly to customers and indirectly
through third-party distributors and retailers.

They use more than one distribution channel

to reach the end customer and it allows the
product to reach a larger market. 

In the case of Coach, they sell their luxury

handbags through the “shop-in-shops”
method, online, specialty stores, factory
outlets, and regular retail stores. 
With a direct distribution strategy, the manufacturer can interact
directly with customers. When using the indirect distribution strategy,
manufacturers will choose to work with distributors or brokers.

In this method, they are delegating some of their tasks directly to

intermediaries. These intermediaries are an extension of the
manufacturer and most of the time represent the product before the end
customer.

Brokers tend to handle the sales of the product to retailers while

distributors deal with the transportation of the goods.

Distributors buy products from a manufacturer to then sell on a profit

margin to retailers. 
Using the direct distribution strategy can be expensive so most
companies will choose to use dual distribution and vary their
types of distribution strategies. 

Apple uses direct distribution when they sell their product out of
their Apple stores, but they also use indirect distribution when
they sell their phones out of stores like Sprint.

While the direct approach gives the manufacturer more control

over the customer's experience and with the product, it is pricey. 

Dual distribution is the alternative to this and is generally a good

decision when starting out as a manufacturing company. There
are several advantages when working with either a broker or a
distributor. 
When working with a broker, a producer will sign a contract with them, the broker will
then be responsible for selling the product to retailers. Brokers usually do not handle the
actual shipping of the product, only the selling of it. A broker’s goal is to close the sale.

Additionally, experienced brokers will have a portfolio of manufacturers they work with as
well as retailers they sell to. When looking for a broker, look for one that has strong
relationships with retailers and a portfolio of products from the same industry as yours.

This will ensure they have quick access to retailers and a higher likelihood of successfully
selling your product. Brokers usually offer other services such as invoicing and inventory
control as well. 

Similarly, when working with a distributor, the manufacturer has the advantage of
assuming less risk. A distributor will directly buy the product and then resell it to retailers
using the direct distribution strategy at a profit margin.

The distributor does everything, from purchasing, shipping, and invoicing the products.
Distributors are more likely to introduce new products to retailers because they are
incentivized to sell their good
The disadvantage of working with brokers or distributors is that
they can drop your products at any moment.

Brokers are expensive to contract and if the sale of one of their

manufacturer’s products goes down, they will likely be dropped
from the broker's portfolio.

Likewise, a distributor runs the risk of underselling and if a

product ends up doing poorly, the distributor is less likely to buy
from that manufacturer again. 
Reverse Channels

The first three types of distribution channels discuss how the

manufacturer gets their product to the end customer. But, in the 
reverse channel of distribution the direction changes. The direction of
the product runs from consumer to another consumer or another
company in a reverse flow channel. A traditional distribution channel
will look like this:

Company → Warehouse → Distributors → Dealers →

Consumers 
But, a reverse channel will look like this: 
Consumer → Intermediary → Company 
So, who engages in the reverse channel of distribution? People who
sell waste to companies so that they can be recycled use a reverse
channel or people in the second hand sale business.

For example, Goodwill utilizes the reverse channel of distribution

when it resales goods that have been donated. Technology can also be
sold back to the original company that manufactured it. Here are four
ways in which the reverse channel of distribution is used. 
 
•Reuse Products - industrial storage containers, metallic equipment, technology
•Refurbish Products - furniture, computers
•Recycle Products - paper, plastic, aluminum
•Disposing - garbage of an organic nature

Additionally, one other important difference between the

traditional distribution methods and the reverse channel is that
there is no producer.

The reverse channel introduces a beneficiary or user of a

product. However, there is no producer of it as the product or
good already exists. 
 SELECTING A
DISTRIBUTION
CHANNEL
When selecting a distribution channel you
should keep in mind your organization’s brand,
profitability, and the scale of operations for
your product.

Choosing the right distribution channel is

paramount to your company’s success and
should be carefully considered.

You should first understand that a distribution

channel represents the relationship between the
manufacturer and the user. A strategic alliance
with a retailer will influence that relationship. 
Additionally, you need to understand your target audience and what their preferences
are. Will you be selling to an audience that is technologically savvy and thus open up
a digital storefront? Or maybe your target audience is older and more traditional?

Again, think of the cost of the different types of distribution channels. Consider your
profit margin and desired volume when choosing a channel. 

Another important aspect of selecting a distribution channel is the brand of your

organization. Don’t forget to think about the audience's perception of your product
and if it needs to be sold in high-end designer stores or if department stores will do.

Finally, opening strategic channels of distribution in local markets may or may not
enhance the profitability of your products and should be duly considered. 
Before choosing a distribution channel, know that there are three things a
distribution strategy influences: 
•Pricing strategy
•Product branding, policies, and willingness to stock
•Buyer and producer relationship

When an optimal distribution strategy is chosen a strategic alliance between a

manufacturer and a retailer is struck and both entities profit from the
relationship. It will also impact how your target audience will interact with your
product.

For that reason, there are several things you should consider when choosing
that distribution channel. 
Consumer Preferences

One thing to consider in-depth when selecting a distribution channel

is the consumer’s preferences. As mentioned earlier, a distribution
channel will influence product branding and the buyer and producer
relationship.

As you move your product from the manufacturing stage and into
the distribution stage consider your audience. Who is the product for
and why will they buy it? 

Research your consumers' habits and behavior to help you choose

the correct distribution channel. For example, if your consumer
regularly buys products from department stores like Sears or Macy’s
you should consider stocking those stores with your product.

On the other hand, if your products are rare antique rugs you might
want to consider selling them at specialty stores.
Cost
Not all costs of distribution channels are equal. Some channels are more expensive
than others. For example, a product that doesn’t cost very much to manufacture and
sells for a lower price will do better at a low-cost retail store. Additionally, If you are
just starting out and are still a small business you may want to consider the direct
distribution model.

Directly selling eliminates many intermediary costs between the producer and the
user, however, you do have to deal with other aspects of distribution yourself that
may be costly.

For example, you’ll have to deal with logistics, packaging, and shipping. 

Another option if you are just starting out or if you are trying to establish your
product is to sell to wholesalers. They are willing to buy outright large quantities of
your product, although it will be at a significant discount. Your profit margin may
not be as high when selling to a wholesaler.

However, they have a larger incentive to sell your product so it will certainly enter
the market. Selling to a wholesaler can be beneficial when you are trying to get your
product established.

When considering costs make sure you know your financial situation and know that
if you start with low distribution you can always increase it as your product
succeeds. 
BRAND
Overall branding of your product relies heavily on the
channel of distribution that you choose. Organizations
work together to create strategic alliances that appeal to
consumers and result in an overall profit for both entities
involved.

For example, if an online retailer stocks vintage handmade

goods the consumer will associate that retailer with those
products. Etsy is a great example of this. This then has an
impact on how the consumer views both of those
companies. 

Similarly, a high-end makeup company will not want to

stock their goods at a drugstore retailer as that will reduce
the quality of the makeup in the eyes of the consumer.

The consumer will not want to spend money on a good

that doesn’t match the quality of the requested price.
Branding has a huge effect on the profitability of products.
Producers should consider how they want to brand their
products and how choosing a distribution channel can
impact that brand. 
Localization
Finally, another avenue to consider when selecting a distribution
channel is localization. In today’s global economy producers have
many options of markets to choose from. Through effective 
marketing distribution, a company can enter new markets
successfully. To do this, however, companies need to know how to 
localize and choose retailers in the new market that will appeal to
their consumers. 
As a producer, it is necessary to learn how to make your brand
recognizable and understood when entering new foreign markets.
Localizing through strategic channel alliances is one way that
producers can achieve this. 
B2B OR B2C
DISTRIBUTION
Distribution strategies and the distribution channel chosen will
change based on the target audience. There are two types of
markets that use distribution strategies and for each market
needs are different. 
For a B2C, or business-to-consumer market, the sale of goods
transfer from the business to the end-user. The business will
either produce its own product or buy it at a wholesale price,
they will then sell it to the consumer at a retail price.
In B2C markets the producer must identify the needs of a target audience,
position and price the product to align with that audience, and communicate and
sell it in a way that shows its value to the audience. There are two main methods 
that a B2C business sells products: 
•Brick-and-mortar - These are physical buildings that the consumer visits to buy a
product. They offer the consumer a chance to touch, see, and handle the product
before purchase.

•It also allows businesses to provide face-to-face customer service. Department,

retail, and grocery stores are all examples of the brick-and-mortar method.

•E-Commerce - This is also known as click-and-mortar, and it is quickly gaining

popularity. Consumers use the internet to purchase goods. They have the ability to
find more information and compare prices through a simple web search.

•It also reduces costs for companies when maintaining a brick-and-mortar

property is too expensive.
On the other hand, B2B markets place a greater emphasis on
personal interaction. B2B means business-to-business sales or 
commerce interactions between businesses. It refers to the sale of
goods between manufacturers and wholesalers or wholesalers and
retailers. 

Most of the time it occurs because the producer of a good needs to

buy the raw materials to make that good. B2B sales utilize the
same methods as B2C markets, however, they also use additional
channels. For example, many businesses will utilize a
representative from a selling company to nurture relationships that
will lead to sales. 
Additionally, many B2B sales occur at trade shows. Trade shows
are less common in B2C sales and allow businesses to show off
their products, learn about rivals, and monitor industry trends.
They are usually industry-specific. 

The main difference between B2B and B2C sales is that in B2B
the purchaser expects an ongoing relationship with the seller.
Meanwhile, in B2C after the consumer purchases the product,
the transaction is complete. 
 DISTRIBUTION
CHANNEL VS.
SUPPLY CHAIN
You have been learning all about distribution
channels, what they are and how to select the
right one. But, it all sounds disarmingly similar
to a supply chain.

The confusion is understandable, but a

distribution channel is not the same thing as a
supply chain. Their strategies may sometimes
appear similar, however, a distribution channel
is mainly concerned with bringing a product in
front of a customer. Especially customers that
are ready and willing to buy that product. 
Meanwhile, the supply chain is concerned with all the details surrounding
planning, manufacturing, and logistics. It focuses on the process of
purchasing raw materials and transforming them into an end product that
a customer will buy.

Sometimes, the supply chain will also become part of the distribution
strategy.

For example, when the manufacturer needs to control the full customer
experience right down to choosing the location of the retail stores. 

The main difference between the distribution channel and supply chain
management is that distribution channels specifically involve the demand
chain. Whereas, the supply chain is concerned with supply and demand. 
HOW DOES ECOMMERCE
CHANGE DISTRIBUTION?
Ecommerce has essentially “leveled-
up” distribution for several reasons. It
has evolved from what it was many
years ago through data influences and a
fluidity companies now have through e-
commerce.

A company that utilizes e-commerce

may consider itself the manufacturer,
wholesaler, or even retailer. In fact, the
United States is of one of the 
top ten largest ecommerce markets. 
Companies also don’t have to go through as many intermediaries. Storage location
needs are reduced and products are available to a larger customer base.

Companies who might have paid for research into their target audience can now
research it themselves through predictive and prescriptive data analysis. 

It is by far the most efficient distribution strategy for a business. There is no longer a
need for multiple distributors and brokers to sell your product to a retail store because
you can own your own digital storefront.

There aren’t as many employees which means the payroll is reduced saving the
company even more money. It even gives the producer the opportunity to cross expose
products by selling the printer with the ink or the computer with the computer case. 

However, all forms of trade become digital. This means integrated databases, online
marketing, and user-generated feedback are all things you will have to learn how to
manage.

If you don’t have the necessary training it may be difficult to set up an e-commerce
distribution channel, but it is well worth looking into. 
DISTRIBUTION CHANNEL CONSULTING WITH R+L GLOBAL
LOGISTICS
Whatever stage your business plan is in, if you need guidance determining the types of distribution
channels that will work best with your company, R+L Global Logistics can help.

Our experienced professionals will give you advice on how to approach distribution. We will identify
the different types of distribution strategies and determine the most effective and profitable one for
you. 

Learning the best practices for evaluating the economic impact of your distribution channel and how
to measure distribution performance are just a few of the things you will learn through our consulting
services. 

Contact us today to receive a quote or to learn more about how we can support your distribution
channel needs.