Reviewed by Aug 27, 2020| Updated on
Distribution channel refers to a network of intermediaries who enable distribution of a product from the manufacturer to the ultimate consumer. The various intermediaries include distributors, wholesalers, retailers and e-tailers/e-commerce intermediaries. The distribution channels are part of a downstream supply chain oriented towards reaching out to the ultimate consumer.
Understanding Distribution Channel
A distribution channel is a critical component of the downstream supply chain of any organisation. Distribution channels are part of a company’s overall marketing strategy for promoting, pricing and selling the product to the consumer. The supply chain also reflects the payments from the consumer through intermediaries to the company.
Distribution channels may be lengthy with more intermediaries or maybe short with fewer intermediaries. The length and breadth of the distribution may depend on the logistics and time required to reach to an end consumer.
A lengthy channel may take more time to reach the consumer, restrict margins and also take more time to realise the payments. An increase in the variety of intermediaries helps a consumer find the goods and also increases the market penetration for a company’s products.
Distribution channels are broadly categorised of two different forms: (a) direct (b) indirect.
A consumer can make direct purchases from the manufacturer through a direct channel. In an indirect channel, a consumer obtains the goods from an intermediary such as a wholesaler or a retailer.
Goods sold under the traditional brick and mortar stores are part of the indirect channel. The price of goods tends to increase in a case where more intermediaries are involved.
The key distribution channels, singly or in a combination are manufacturer, wholesaler and retailer, reaching out to an end consumer. A channel that involves all intermediaries from the manufacturer to consumer is the longest.
For example, most consumer goods, such as cold drinks or packaged products, are sold in the lengthy distribution channel. A channel which involves sale from the manufacturer to the retailer includes, for example, sale of established products such as laptops. Third, where goods are sold from manufacturer to consumer include heavy machinery or industrial use goods which are directly sold by the manufacturer upon orders.
The various intermediaries constituted in a distribution channel are themselves a chain of intermediaries running a business of providing goods and services to the ultimate consumers.
A manufacturer should determine the distribution channel or method of distribution suited to the product and accordingly choose the channel. The choice should be based on the type of product, target market, sales targets, among others.