A chain of intermediaries which is responsible for transmitting the product from one place to another to reach the end user is known as a distribution channel.
Various channels of distribution are often broken into two forms i.e. direct and indirect.
Direct form: It helps the customers to purchase the product or service directly from the manufacturer or service provider.
Indirect form: In this form, the customers purchase the product either from a wholesaler or a retailer.
A distribution channel also describes the trail, payments are made to the original vendor from the customer.
The channel can be long or short. It depends on the type and number of intermediaries which are involved in the process of transferring the goods and services to the intended consumer.
In addition, a manufacturer is tending to get less profit if the channel of distribution is long. The reason being every intermediary charge an amount for its services.
Traditional channel marketing
As we know that many intermediaries are involved to deliver the product to the end consumer. The number of mediators depends upon the market and the nature of the product. Generally, the channel involves:
This sequence is known as a traditional distribution channel but it may subject to some alterations.
In the case of large retailers who possess few stores, the consumers can get the delivery of the product directly:
Manufacturer-Retailer – Consumer
Is someone produces a good on a small scale that too from their home then the distribution channel is the simplest and the shortest:
Manufacturer – Consumer
The above distribution channel comes under the category of B2C (Business to consumer) market.
Another category B2B (Business to Business) provides products for the organizations as consumers.
For example, in the production of chocolate bars, sugar is required which can be purchased directly from the producer of sugar. In case of a bulk order, the channel may look like:
Manufacturer of sugar – Manufacturer of chocolate – Wholesaler – Retailer – Customer.
Broadly, there are three types of distribution channels. Every channel includes a mixture of producer, retailer, wholesaler and the end customer.
- Talking about the first channel, it is the longest of all. Why?
Because it includes all four i.e. producer, wholesaler, retailer and the customer. This channel is known as retail distribution. In this channel, the manufacturer delivers the product through an intermediary like a wholesaler or distributor so that the product can reach the retailer, then to the intended consumer.
Delivery of the product to the customers gets delayed and leads to an increase in consumer cost because every intermediary is bound to take the possession of the product and charge an amount to transfer it further. If the manufacturer wants to decrease the delivery time or customer cost, he may eliminate the wholesalers.
The perfect example of this channel of distribution is the wine and beverage industry. Due to some prohibition laws, a winery is not allowed to sell the wine straight to the retailer. According to law, the winery is required to sell the wine first to a wholesaler who can further sell it to the retailer and at last to the customer.
- The second channel includes the producer, retailer, and the consumer. The producer sells the product directly to the retailer i.e. elimination of wholesalers. Only one intermediary is involved in this distribution channel.
For example, Dell sells its products directly to the retailers like Best Buy.
- Last but not the least, the third channel of distribution includes the delivery of the product directly to the end consumer. Manufacturers use the direct sales force. One main feature of this channel is that the products that are delivered to the consumers are often high priced due to the absence of any intermediary. Also, the volume of sales is lower. Removal of intermediaries helps the manufacturers to command higher profits. The responsibility of marketing and communicating with the consumer is solely on the manufacturer.
For example, Amazon is a platform which sells its products directly to the customers.
This distribution channel is the shortest of all.
Factors affecting the designing of a distribution channel
Size of order
If the intended customer wants to purchase a single product, then the most convenient channel is to buy directly from the retailer.
Type of service the customers are looking for
In case of intensive services and backup, these are to be delivered in the channel. The dealer who is providing the services needs to be present in the location where their targeted customer base is.
Dealers of Ferrari give supply to a very limited market. Consumers buying luxury goods must be aware that the Ferrari dealership is not there in every corner. On the other hand, McDonald’s stores have a wide network which makes it easier for the customers to purchase fast food.
The organizations which are financially sound and have huge funds can go for direct distribution of their products to the end user. If they don’t have enough funds then longer channels is a better option.
In case of the small market where the number of consumers is less, short distribution channels can be used whereas, in case of a large number of consumers as in case of convenience goods, long channels are preferred.
Factors like economic conditions of a place, laws and other legal regulations, and types of promotional marketing strategies to be used should also be given importance while selecting the channel of distribution. In the case of the depressed economy, short channels should be used.