What are Distribution Channels?

Distribution channels can be considered the set of interconnected companies and individuals that guarantee that a merchandise will reach the final consumer. This concept can also be called a marketing channel or a commercial channel.

Distribution has a logistical function, which relates more to the physical circulation of the product, and a marketing function, which corresponds to the contacts and services that involve it.

In other words, the functions of the distribution channels are not limited to guaranteeing the physical flow of goods, and the members of the channel are also responsible for a series of other activities, such as stimulating purchases and raising information about consumers.

A company can sell its product directly to the consumer, as is the case with some e-commerce. When this is not possible, the company usually distributes its goods or services through intermediaries. Intermediaries can be agents, representatives, brokers, distributors, wholesalers and retailers, among others.

The organizations that form a distribution channel are interdependent. This definition indicates that they need each other to make the product or service available for use or consumption.

How important is the distribution channel?

The good choice of the product or service distribution channel is fundamental to the success of the business and, therefore, it is an essential part of the marketing strategy.

Choosing the right channel means getting the product to the right customer at the right time. In addition, the form of distribution has an impact on the cost of the product.

The distribution channel can, therefore, either make a company more competitive or create a bottleneck that prevents its growth.

Types of distribution channels

Direct

The company distributes its product directly to the final consumer. An example is the cosmetics brands that have their own networks of resellers who work from door to door.

Indirect

To make its product reach the consumer, the company uses the service of intermediaries.

Hybrid

A hybrid distribution channel is one in which the company uses intermediaries, but takes part in the process of contacting its customers.

It occurs, for example, when the company makes the direct disclosure of its products (on the internet, for example), but indicates the authorized distributors to make the physical sale.

Distribution channel levels

The number of intermediaries involved in the process is what defines the levels of the distribution channel.

Level 0 channel

It is when the manufacturer has a direct relationship with its final consumer.

Level 1 channel

In this channel, the manufacturer sells its product to a large distributor that operates in both wholesale and retail, where it reaches the final consumer directly.

Level 2 channel

The industry passes the product on to a distributor who, in turn, will sell it exclusively to retailers. The retailer makes the sale to the final consumer.

Level 3 channel

It is the most traditional channel, involving distributor, representative, retail and customer.

Types of distribution

There are three main types of distribution. The choice between forms of product distribution depends on the characteristics of the business.

Exclusive distribution

Exclusive distribution systems are used by companies that need loyal distribution channels, over which they have greater control.

In this system, the company and the intermediary have an exclusive pact on the sale of the product, guaranteeing specialized sales and assistance services, with appropriate exposure.

Exclusive distribution is characteristic, for example, of car dealerships and franchise chains.

Selective distribution

Selective distribution is one in which, due to the nature of the business, the company selects a restricted number of distribution channels.

The purpose of the strategy is to value the product. In this model, only intermediaries are chosen that offer the desired characteristics, which are the most suitable to reach the target audience of the brand.

An example of a product with selective distribution are items such as designer clothes and expensive watches, which are only sold in luxury stores.

Intensive distribution

In intensive distribution, the company’s strategy aims to reach as many consumers as possible. For this, your product is sold through a wide number of distribution channels.

Intensive distribution is used, above all, in products that have a high consumption, but low added value. The sale of these products can be made either by sales representatives, the manufacturers themselves, or by wholesalers and distributors.

Among the products that have this type of distribution we can mention foodstuffs, beverages and hygiene items.

What is reverse distribution channel?

Instead of taking products to customers, the reverse distribution channels do the opposite: they return the marketed products or part of them to the manufacturer.

They can be used, for example, in cases of manufacturing defects or for the reuse of packaging.