Distribution channels are the means by which manufacturers get their products to the end consumer. Each channel is made up of institutions whose objective is to manage the transaction and physical exchange of products. These intermediaries can be wholesalers, retailers, distributors, brokers, sales teams, sales representatives, and even the manufacturer themselves. They are responsible for distributing the products to the points of sale. In Level 1 distribution, the manufacturer sells the products to a distributor who then sells them to consumers through retailers or wholesalers.
The difference is that in this case, the distributor delivers products only to retailers who then sell them to consumers. Level 3 channels are a traditional distribution model where retailers are used as middlemen by companies. In general, product prices are higher at retailers. Wholesalers are middlemen who buy and resell products to retailers. They sell to those who are going to put the products in their own stores.
Distributors sell, store and provide technical support to retailers and wholesalers and their operations are focused on specific regions. Agents are legal entities contracted to sell a company's products to end consumers and they are paid a commission for their sales. Brokers are also hired to sell and receive a commission. The difference between agents and brokers is that brokers have short-term relationships with the company - this is the case with real estate agents and insurance brokers, for example. For those who sell technology and software, the Internet itself functions as an intermediary for the distribution channel. E-commerce companies also use the Internet as a distribution intermediary.
Resellers are companies or individuals that buy from manufacturers or retailers and then sell to consumers in retail. Finally, consider the location of the middlemen - whether resellers, retailers, wholesalers or distributors. The largest soft drink manufacturer in the world uses different sales channels with franchisors, distributors and retailers. For example, soft drinks reach different retailers thanks to distributors. Direct selling is a good distribution model for selling any type of product that is in the middle price range, that is not purchased every day and that has a long lifespan - stationery, air purifiers or jewelry, to name a few. E-commerce digitizes inventory management, warehousing and shipping, direct sales. While a company with classic distribution channels may have problems with the need to accumulate knowledge, connections and contacts, an e-commerce company can operate securely only with staff with training in IT. There are 3 main types of distribution channels:
- The first involves wholesalers and goes directly from the manufacturer to the retailer.
- The second excludes wholesalers and goes directly from the manufacturer to the retailer - car dealerships are a good example of this type of channel.
- The third and last type goes directly from the manufacturer to the paying customer - one of the best examples of this is Apple.
Direct distribution channels involve only the manufacturer and the customer. In this case, the producer sells the product directly to customers through a website or a physical store - a good example is that of a farmer who prefers to sell his products directly to his customers through a farm stand instead of selling his products in bulk at a market. A hybrid distribution channel is a combination of direct and indirect distribution channels. Manufacturers partner with intermediaries such as authorized retailers to sell products to consumers on hybrid channels. If a manufacturer sells products to consumers through one or more intermediaries, then it is called an indirect distribution channel. In indirect distribution channels, all buying, selling, transportation and storage functions are taken over by intermediaries.
When manufacturers supply goods directly to consumers it is called direct channel. The manufacturer at this stage of the distribution channels performs all marketing functions on its own. In direct distribution channels, manufacturers try to reach consumers through their indirect channels also called exclusive distribution channels. It can be defined as marketing goods firstly to retailers who then sell them on to consumers - this is known as an indirect distribution channel and it is most effective when used for promoting clothing, machines, cars furniture etc. Direct distribution is a strategy in which manufacturers sell and ship products directly to consumers. There are several ways to implement this method: some organizations may choose an e-commerce website where users can make an online purchase; another method could be catalogs or orders over the phone; an important factor when implementing direct distribution strategy is investment required - manufacturers will need warehouses, vehicles and delivery staff. The term “middleman” often gets a bad rap but in terms of distribution these organizations can be useful in getting products to consumers.
Indirect distribution strategies involve intermediaries who help in logistics and placement of products so they can reach end customers efficiently.