Distribution Channels and Why They Matter in Marketing

Although it may seem like a concept more closely tied to traditional marketing, distribution channels are an extremely relevant topic today. As we’ll see here, this concept refers to the way a company gets its products or services to the consumer.

It can also be associated with all the elements that help us provide better service to our customers. And, in this sense, digital strategies carry a lot of weight.

But, so we don’t get ahead of ourselves, how about we dive into its definition? Let’s look at what a distribution channel is and what types exist today.

What is a distribution channel?

As the name suggests, a distribution channel is the means through which something is distributed. In this case, we’re talking about the distribution of products and services, although the concept is usually more closely tied to the former.

According to Stern and El-Ansary, distribution channels are all the functions and organizations that actively take part in making a product or service available to the end customer.

These channels are the ones that take products from the manufacturer’s facilities to the end consumer. However, they shouldn’t be confused with transport companies that, for example, deliver the orders placed in an ecommerce store. In fact, distribution channels are made up of:

● Producers – Agents that manufacture the product.

● Wholesalers – Those who distribute to stores.

● Retailers – Those who bring the product to the end consumer.

A company’s distribution channels have a positive influence on its sales. They allow a given product to reach a wider audience.

An effective distribution channel makes it possible for a given product or service to reach a larger number of customers.

Types of distribution channels of a company

As you can imagine, not all distribution channels are the same. There are several types and even several classifications. Below, we’ll look at the following:

1.- Direct and indirect distribution channels. A classification based on the type of agent that bears responsibility for distribution.

2.- Channels by line of business. A classification that offers several types of distribution channels depending on the line of business or industry.

3.- Distribution channels in digital marketing. The third one covers distribution channels applied specifically to digital marketing.

4.- Channels by technological level. And the last one refers to distribution channels according to the sales technology used.

1) Direct and indirect distribution channels

The first classification of this concept makes a clear distinction between a company’s own distribution channels and third-party ones. Here we find:

Direct channels

When a distribution channel is direct, it means that it belongs to the same company in charge of production. In other words, the manufacturers themselves deliver their products to consumers.

To do this, they need to have warehouses and a suitable transport service. Its main advantages are:

● Lower costs.

● Higher business profit margin.

● Greater control over the process.

● Easier problem resolution.

● Direct contact with the consumer.

Indirect channels

In this case, we’re talking about different companies. In other words, producers and distributors are not the same company. Depending on the number of agents involved, or the channel’s length, we find:

● Double channel. This is the longest one: it adds an exclusive agent between the producer and the wholesaler, such as an importer or a representative with exclusive rights in an area. The route is producer → exclusive agent → wholesaler → retailer → end consumer. It’s common in international trade.

● Long channel. Both the wholesaler and the retailer are involved: producer → wholesaler → retailer → end consumer. The product is sold three times before it reaches the customer. It’s the typical channel for food and household goods, where many small stores need to be reached.

● Short channel. It skips the wholesaler: the producer sells to the retailer, and the retailer to the end consumer (producer → retailer → consumer). With fewer intermediaries, the product arrives sooner and with fewer added margins.

We can say that the indirect distribution channel can boast:

● Wide coverage.

● Specialization.

● Good logistics support.

● Speed.

● Organized sales.

● The option to expand stock.

Both distribution channels have their pros and cons. Choosing one or the other will depend on the nature of the business and the resources available.

2) Distribution channels by line of business

On the other hand, if we look at business activity, we can also find different types of distribution channels. Two, to be precise: the first goes from the producer to the industrial customer, and the second goes from the producer to industrial distributors.

● Channel 1: from the producer to the industrial customer. This channel is specific to this activity and connects the producer with the industrial consumer.

● Channel 2: from the producer to industrial distributors. These are the ones we called wholesalers earlier. They take part in the process to buy a given product and then sell it.

3) Distribution channels in digital marketing

When it comes to digital marketing, these distribution channels are digital routes through which different services can be offered. They are the ones we can use to provide better service to our customers.

By better service we can mean: giving the consumer more information before the purchase, making customer service easier, offering interactive, faster and more accessible solutions, simplifying purchase processes…

In this sense, for Philip Kotler, a good marketing strategy is key to managing distribution channels.

Specifically, the following are considered digital marketing distribution channels:

● Valuable articles and content.

● Communication on social networks and other apps.

● Digital advertising on different platforms.

● Search engine optimization of web content (SEO).

Regarding this last channel, working on SEO, or organic positioning, will make it easier to find information and access certain products or services.

All distribution channels in digital marketing make it easier to access specific products or services, and they do so by generating valuable content.

4) Distribution channels by technology

This classification of distribution channels looks at the technological means that the different agents use to bring the product to the end consumer. These are:

● Electronic media. These are channels based mainly on the internet. They also use the telephone and other computer tools.

● Audiovisual media. For example, teleshopping is one of the business models that use this distribution channel. On the one hand, certain information is broadcast on television; the telephone is used to stay in contact with the buyer and take orders; and a transport company delivers the purchase.

● Automated media. These are channels where the sale is made without staff, supported by technology: vending machines, ATMs, self-service stores or pickup lockers.

● Traditional media. To close this group, we mention the channels that are unconnected to new technologies or communication networks.

How do you know which distribution channel is best?

From the previous paragraphs, we can deduce that there are different types of distribution channels. Understanding them may be simple, but when it comes to choosing one, things get complicated.

To make the right choice, we need to take into account the criteria I’ve listed below.

Type of product

This matters because not all the channels we’ve described suit every product. It’s important that the chosen channel fits the company’s strategy, as well as its vision, mission and sales objectives.

Added value

In other words, the ideal is to choose a distribution channel that brings something positive to the consumer. To do this, you need to analyze customers’ expectations very carefully.

Some will want to talk to the company, others will want to see the product up close, and others will want to place their order in one click without any hassle. All of this must be taken into account to choose the right distribution channel.

Speed

This is one of the factors companies value most. But… what type of channel will respond best? Some products are unquestionably better offered through direct channels, while others see more advantages in indirect ones.

Compatibility

Nowadays it’s common to find companies with several distribution channels operating at the same time. Most often, this means one channel focused on online sales and another retail one.

In this case, they can coexist, but you have to prevent them from conflicting. The strategy you implement must respect each one’s place.

Whatever distribution channel you choose, it must be monitored and tracked to manage the supply chain properly.

Examples of distribution channels

As you can see, there are different types of distribution channels, although they all pursue the same goal. Let’s look at some examples to better understand the meaning of this concept. We’ll focus on direct and indirect channels.

If we think of direct distribution channels, we can give the following examples:

● Banking. Banks create financial or banking products that they make available to their customers directly. There are no other intermediaries.

● Farmers. Some professionals in this sector sell what they produce directly at food markets, organic markets or fairs. Again, we’re talking about businesses with a direct distribution channel.

● Textile companies. Companies like Zara are both manufacturers and sellers of their own products.

On the indirect distribution channels side, we can find cases like the following:

● Automotive companies. For example, Hyundai. This brand has a factory that sends its products to the retailer, who sells the cars to the end consumer. This would be a short distribution channel.

● Ecommerce. Amazon is another well-known example of an indirect distribution channel. It’s a marketplace that receives products from certain manufacturers and takes care of delivering them to the end customer.

● Small stores. We’re talking about grocery stores or neighborhood shops. In this case, they are examples of long indirect distribution channels, since they need a wholesaler to receive the products.

● HORECA. The same thing happens in this sector. Restaurants and bars need to buy their products from wholesalers to bring them to the end consumer. For example, the products they always buy are drinks or snacks.

● Franchises. In the case of food franchises, we’re talking about a double indirect distribution channel.

● Travel agencies. Again, the previous model is repeated. In both, a special agent is involved between the manufacturer and the wholesaler.

In short, one possible scenario is that the manufacturer decides to sell its products to the consumer without going through intermediaries. For example, if a company makes clothes and sells them directly to its customers from its ecommerce store, we’re talking about a direct distribution channel.

Another scenario would be that the same company used a network involving wholesalers and retailers. In that case, we’d be looking at an indirect channel.

In this sense, wholesalers are usually the intermediaries who buy a considerable volume of product to sell it to retailers, who then sell it to the end user (although the wholesaler may also sell directly to the end customer).

In the end, the decision will depend on the strategy each company wants to follow. That’s why knowing about distribution channels is so relevant to business marketing.

I hope these examples have helped you better understand what a distribution channel is. With that said, could you identify what types of distribution channels the businesses around you use?

If your distribution channel includes the digital environment, it will be useful to learn more about digital marketing and the role email marketing plays there as a direct channel with your customers.

Your choice of channel should also go hand in hand with a good pricing policy, since both are part of the same marketing mix.