The flow followed by a good or service from production or manufacturing to the final consumer/buyer Show
What is a Distribution Channel?A distribution channel, in simple terms, is the flow that a good or service follows from production or manufacturing to the final consumer/buyer. Distribution channels vary but typically include a producer, a wholesaler, a retailer, and the end buyer/consumer. A distribution channel can also provide a sense of how money flows back from the buyers to the producer or original point of sale.  For manufacturers, it is very important to create a mix of distribution channels that allow for ease of availability for the consumer, i.e., a good marketing mix. Based on the diversity and scope of a manufacturing business or any other business that can be found in the distribution process, the respective business needs to settle on a channel or channels that allow for good sales generation and ease of access for consumers. Summary
Role of Distribution Channels in BusinessThe target for any business is to bring their product or service to the market and make it available for consumers by creating a distribution path or channel. The link between producers and the end consumer is normally intermediaries, such as wholesalers, retailers, or brokers. The intermediaries can be natural persons or businesses. Distribution channels affect the prices of goods and their positioning in their respective markets. Distributions, ideally, should be set up in a way that limits the number of stops for the product or service before it reaches the end consumer. A distribution channel must be efficient and effective. It means that transportation and other logistical requirements need to be used at maximum capacity and at the lowest rates possible. Types of Distribution Channels Distribution channels can either be direct or indirect. The indirect channels can be divided up into different levels. 1. Direct distribution channelsThe direct distribution channel does not make use of any intermediaries. The manufacturer or producer sells directly to the end consumer. The direct form of distribution is typically used by producers or manufacturers of niche and expensive goods and items that are perishable. An example is a baker. 2. Indirect distribution channelsThe indirect distribution channel makes use of intermediaries in order to bring a product to market. The three types of indirect channels are: One-level channel The one-level channel entails a product coming from a producer to a retailer and then to the end buyer. The retailers buy the product from the manufacturer and sell it to the end buyers. The one-level channel is ideal for manufacturers of furniture, clothing items, toys, etc. Two-level channel The two-level channel follows the following process: Wholesalers generally make bulk purchases, buy from the producer, and divide the goods into smaller packages to sell to retailers. The retailers then sell the goods to the end buyers. The two-level channel is suitable for more affordable and long-lasting goods with a larger target market. Three-level channel The three-level channel is similar to the two-level channel, except the goods flow from the producer to an agent and then to a wholesaler. Agents assist with selling the goods and getting the goods delivered to the market promptly. The agents normally receive a commission and are allocated the task of product distribution in a particular area. The three-level channel is suitable for goods that are in high demand and with a target market that stretches across a country. The Internet as the Modern-Day Distribution ChannelWith e-commerce growing tremendously over the past couple of decades, manufacturers and producers are now able to use online marketplaces to sell their goods. The internet is also ideal for service providers. Examples of online market places are Amazon, AliExpress, eBay, and Alibaba. Other internet intermediaries can be delivery services, such as Uber. Making the Right ChoiceDistribution channels may vary depending on a particular manufacturer’s product type and their sales targets. It is why it is pivotal to choose the right distribution channel. The following factors must be looked at into detail by a company in order to determine which distribution method would be ideal for it to maximize profit generation via sales, value addition, and consumer reach:
Related ReadingsThank you for reading CFI’s guide to Distribution Channel. To keep learning and advancing your career, the following resources will be helpful:
What are the 4 channels of distribution?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.
What are the 4 types of distribution strategies?What Are the Different Types of Distribution Strategies? As mentioned above, the two main types of distribution strategies are direct and indirect. There are also more nuanced types of distribution that fall into these categories — intensive, selective and exclusive distribution.
What is the channel distribution of a product?A distribution channel is a path that a product or service could take on its way to market. What's a direct distribution channel? A direct distribution channel is one where a company sells directly to the consumer, usually through their website or retail store.
What are the 3 distribution channels?The three types of distribution channels are wholesalers, retailers, and direct-to-consumer sales. Wholesalers are intermediary businesses that purchase bulk quantities of product from a manufacturer and then resell them to either retailers or—on some occasions—to the end consumers themselves.
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Which of the following parts of a products distribution channel interacts with consumers?
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