In theory, retail is simple. You manufacture, assemble, or buy goods and then sell them to customers. We all know, however, that the reality is much more complicated. The world of commerce - both online and off - has many nuances.
In order to succeed in retail, you must grasp the complexities and make informed decisions. For that reason, knowledge is power. That’s why we’ve put together this concise guide to distribution channels.
Read on, and you’ll learn what a distribution channel is and what types exist. You’ll also bet the lowdown on how to choose the right channel for you. In short, you’ll find out all you need to make better decisions for your business.
A distribution channel is the route a product takes from its creation to the end user. They are vital, then, to retail brands but not so to service-based firms like a SaaS marketing agency. Distribution channels can be long or short, simple or complicated.
A manufacturer, for instance, might sell directly to consumers. That channel, then, has just two steps. The product’s maker, however, may sell to a large wholesaler. The wholesaler could then move the products on to distributors. It would be those firms that sell to retailers. It’s only at that fourth step that the goods reach their consumers.
As we touched upon above, distribution channels differ vastly from one firm to the next. In general, though, they fall into two categories.
Direct distribution channels are those where a company sells straight to consumers. That could be - as in our earlier example - if a manufacturer retails the wares they make directly. Digital products, such as computer telephony integration software, also typically use direct channels. End users purchase the products straight from their creator’s websites. The principal advantage of these channels is to your bottom line. That's as you don’t split the revenue from consumers with any partners.
Things get a little more complicated with indirect distributions channels. These are where a product passes through more sets of hands before reaching a consumer. The number of steps in an indirect pathway differs. A manufacturer might sell to a retailer that serves customers. Alternatively, the channel could be more extended, as in our earlier example. A benefit of this type of distribution is that firms at each step can specialize in their part of the supply chain. There are more businesses, though, looking for a slice of the profit pie.
How do you know, then, which distribution channel is right for you? There’s no hard and fast answer, but there are a few essential factors to consider.
First, you should examine the products you’re selling. Do they need to get to consumers swiftly? If you retail perishable goods that need FIFO warehousing, a multi-step channel won’t suit you. It will simply take too long for consumers to receive the products.
Your company goals also play a part in choosing a distribution channel. Say, for instance, you’re a manufacturer looking to break into a new market. Established distributors have relationships with retailers. They, in turn, have concrete links to consumers. Choosing such a channel, then, is a smart choice.
Things change if you have strong name recognition and want to sell to a broader audience. In that case, direct distribution online could work best.
Everything you do in business should be customer-centric. As such, you need to think about consumer demands and expectations. For example, perhaps you make complicated software solutions. End users, as a result, might have in-depth questions that need an answer after purchase. They’d expect to call local phone numbers for the firm from which they bought the product to get their answers. A non-specialist retailer wouldn’t be able to help. The creator of the software would.
As with all business decisions, you must also consider your margins when you choose a channel. With indirect distribution, more firms need to turn a profit. There's at least one at each step of the product’s journey.
There’s only so much an ultimate consumer will pay, though. As such, margins can be more slender with those types of channels. That’s not always the case, however. It often costs more to sell direct to consumers, after all, as you cover all distribution expenses.
A distribution channel is the journey a product takes from creation to consumption. That can be a simple, direct journey straight from its maker to the end user. It can be a more complicated, multi-tiered avenue.
There are pros and cons to each type of channel. What you need to do is to work out what’s right for your business. Considering your products, goals, customers, and margins will help you with that. What’s important to remember, too, is that you don’t have to rely solely on one channel. Many successful brands utilize multiple avenues to get their wares to consumers.