What are the distribution channels?
These are the points (individuals and businesses), through which goods must pass before they reach the consumer.
Some distribution channels are long, consisting of many intermediaries, while others are shorter and have few or no middlemen.
Forms of Distribution Channels
Distribution channels are broadly divided into direct and indirect channels.
- Direct Distribution Channel
In this form of channel, the consumer purchases desired goods directly from the producer. It is a short channel without intermediaries. Buying through this form of channel typically means the consumer gets the goods at a cheaper price since profit is not added to the cost price by intermediaries.
- Indirect Distribution Channel
In the indirect channel, there are intermediaries such as distributors, wholesalers, and retailers. The consumer typically purchases goods from a wholesaler or retailer. The price of goods purchased may increase as every step of the channel adds profit to the selling price.
Types of Distribution Channel
The main types of distribution channels are determined based on the absence or presence of one of the intermediaries of the indirect channel of distribution. The types include all or some of the list: producer, distributor, wholesaler, retailer, and consumer.
- Third Level Distribution Channel
This type of channel is the longest as it contains all the components listed earlier. There are 3 intermediaries between producer and consumer. The chain involves producer, distributor, wholesaler, retailer, and consumer.
- Second Level Distribution Channel
This Channel runs from the producer to wholesaler to retailer and finally the consumer. There are 2 intermediaries in the channel. Many products and industries operate this type of channel.
- First Level Distribution Channel
This channel type does not include the wholesaler. The only intermediary present between producer and consumer is the retailer. Some large companies adopt this channel type.
- Zero level Distribution Channel
This is the shortest possible type because there is no intermediary between the producer and consumer. An example of a company that employs this channel type is Amazon.
It is the same as the direct type of distribution.
How to Choose a Distribution Channel
These are the factors to consider when choosing which type of channel to run your business through.
- Product: Certain types of channels are best suited for certain kinds of products. For instance, perishable goods should not be taken through long channels. Meanwhile, goods that are resistant to damage or spoilage can be passed between intermediaries without any quality depreciation.
- Customer: Consumers have different desires. Some want to buy in smaller qualities or interact with a salesperson before purchase. Others seek for comfort and do not need to see products physically before purchase. The indirect channel is suitable for the former, while the direct channel is suitable for the latter. So, consider the preferences of your customers.
- Desired Speed of Delivery
Considering how quickly you need to get the goods to a consumer is another way to determine what channel is best. For express delivery, the shorter the channel, the better.