What is a distribution channel?
Distribution, also known as
‘place’ in marketing, forms one of the four elements of a
marketing mix.
A distribution channel involves an organization,
or a group thereof, making a product or service available to the
general public for use or consumption.
The product or service is
passed down each of the organizations that form a distribution
channel before reaching the end-user – usually the consumer.
A distribution channel can be
made up of several organizations, which are generally defined as
levels (or tiers in the IT sector), each performing a specific
role within the distribution channel.
The most basic of distribution
channels, a ‘zero-level’ channel, involves direct contact with
the end-user with no intermediaries. A ‘one-level’ channel
involves one intermediary, usually a retailer or a distributor,
depending on the market sector. A ‘one-level’ channel is most
often found in small markets where the whole market can be
reached using a single intermediary.
In larger markets, multi-level
channels are used to extend distribution, using a wholesaler as
one of the links in the distribution chain, to a large number of
small, independent retailers and/or dealers.
A few examples of different
distribution channels and chain links which are commonly found
in various markets are:
-
Direct selling channels – no intermediaries used and sales are
generated through various means like internet, telephone, mail
order, etc.
-
Agent channels – an agent who acts on the behalf of a producer
and sells directly to the end-user.
-
Distributor/wholesaler – responsible for selling to retailers.
-
Retailer – final selling point to end consumers.
Different suppliers choose to be
involved in the management of their distribution channel in
varying degrees, some being satisfied with simply selling their
products/services to an intermediary and letting everything else
take care of itself, whereas others are heavily involved in all
aspects of their distribution channel. Some of these aspects
are:
Channel membership – where
suppliers choose either an intensive, selective or exclusive
methods of distribution. Intensive distribution means that any
reseller is allowed to stock the supplier’s products. Selective
distribution involves resellers having to meet certain criteria
set forth by the supplier before they can stock their products.
And the last option of exclusive distribution involves the
supplier handpicking their resellers or dealers for their
products.
Another aspect that suppliers
often choose to manage in their distribution channel is called
channel motivation. The supplier creates various incentives and
benefits for the different organizations in their distribution
chain in order to motivate them to attain higher sales and
better promote their product and/or service in light of the
competition.
The key argument for producers
and providers of goods and services respectively to use a
distribution channel is that it is much cheaper to achieve wider
distribution, thus market reach, using intermediaries rather
than attempting to sell to end-users directly.
European Distribution Channel
Wholesale distributors -
wholesalers.
Retail distributors -
retailers.
International distributors.
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Subjects keywords:
Distribution channel,
Selling channels, Sales agents,
Distributors, Retailers, Suppliers. All
information about
distribution channels.
