Distribution channels: What are they? How do you choose the right ones?

What are the different types of distribution channels?

Today, businesses have multiple distribution channels from which to choose.

• Direct distribution channels: In this model, the company directly delivers products to consumers, with goods passing through intermediaries only after reaching their final destination, giving manufacturers full control over distribution. While catalog sales often use this approach, it's less suitable for high-volume customers, but it does enable lower pricing since no commissions are paid to intermediaries.
• Indirect distribution channels: Indirect distribution channels use intermediaries like wholesalers, retailers, distributors, or brokers to deliver products, reducing direct control for manufacturers. This approach allows for increased sales volumes and a wider customer reach, but it can result in higher product prices due to commissions paid to intermediaries.
• Hybrid distribution channels: Hybrid distribution channels blend direct and indirect methods, where manufacturers partner with intermediaries while maintaining control over customer interactions. Brands often market products on the internet and delegate the actual management of delivery directly to authorized distributors.

What are the different kinds of distribution? 

The three primary kinds of distribution are exclusive, selective, and intensive.

• Exclusive distribution: This strategy involves limiting the distribution of a product to a select number of authorized retailers or outlets, typically within a specific geographic area. It's commonly used for high-end or luxury goods, giving the manufacturer more control over brand image and sales practices.
• Selective distribution: This type is widely used in the luxury world. It's favored for items targeting a specific clientele, looking for a certain experience. Most of the time, selective distribution target audiences are very demanding. They're prepared to go to certain exclusive outlets for specific advice and support.
• Intensive distribution: With this method, the goal is to flood the market with your product. The aim is to sell in as many outlets and with as many retailers as possible. This means having a strong presence in different markets to attract as many potential customers as possible. On the other hand, this only applies to a certain category of products, which do not attract the loyalty of a private label.

What are the different distribution channel levels?

Distribution channels can function at various levels. These levels indicate the number of intermediaries between the manufacturer and the end consumer.

Level 0

At this level, the product goes straight from the manufacturer to the consumer without any intermediaries. This direct approach is the shortest distribution channel that exists and is common in ecommerce and direct sales.

Level 1

This level involves one intermediary between the manufacturer and the consumer. Usually, this intermediary is a retailer who buys products from the manufacturer and sells them to consumers.

Level 2

In this setup, two intermediaries are involved. Typically, a manufacturer sells to wholesalers, who then distribute the products to retailers, from whom consumers can purchase.

Level 3

At this level, three intermediaries separate the manufacturer from the consumer. This structure is often seen in global markets, where manufacturers sell to a central distributor or wholesaler, then to smaller regional distributors, and finally to retailers, before reaching the end consumer.

What are examples of distribution channel intermediaries?

Manufacturers can distribute their products via a number of channels. Traditional physical channels are now complemented by digital ones.

Direct sales

With direct sales, there are few intermediaries, and manufacturers manage the marketing of products themselves. There are no retailers or distributors between producer and consumer. As a result, the manufacturer doesn't need to share revenue with other partners. They also set their prices more freely and remain closer to their customers.

In-store retailing

Retail is frequently used to distribute products of all kinds. Traditionally, this involves offering products via third-party outlets, whether retailers, supermarkets, or department stores. These outlets act as intermediaries between the product manufacturer and the end-user.

Online retailing

A more recent development, internet retailing works on exactly the same principle, with one difference: everything is done online. The manufacturer uses a website to promote their products and sell them to the widest possible audience. This could be the case, for example, of a craftsperson using an online marketplace (Amazon, Etsy, etc.) to sell their products.

Wholesaler

Wholesalers are intermediaries who buy products from manufacturers and then resell them at a higher price. What's special about them is that they buy in large quantities in order to obtain preferential prices, which in turn enables them to enjoy higher margins. This distribution channel has the particularity of displaying several prices according to the quantity purchased. This allows you to take advantage of preferential pricing, provided you buy in batches.

Sales agent

A sales agent, also known as a commercial agent, is an independent agent who concludes purchase, rental, or service contracts on behalf of another company. Unlike a sales representative, who is an employee of a brand, a sales agent has complete freedom and works independently.

Franchise

Franchises are outlets that all belong to the same network, and all carry the same brand image. As a result, all franchisees sell products bearing the franchisor's brand name. The products distributed in franchises are selected by the parent company, which then sends them to each of its retailers.

Resellers

Resellers purchase products from manufacturers or distributors to sell them to end consumers or other businesses. They typically add a markup to cover costs and earn a profit. Resellers play a crucial role in expanding market reach, providing localized customer service, and offering additional product support.

Ecommerce

Increasingly popular, online sales have become incredibly popular over the past decade. More and more manufacturers are turning to ecommerce to sell off their product inventories. Through this distribution channel and the creation of a high-quality ecommerce website, they can also target a much wider customer base than with a traditional physical sales outlet.

Mail-order sales

Last but not least, mail order is the ecommerce's predecessor. The idea is to supply a physical catalog of products, so that customers can order without having to visit a store. The item is then shipped directly to the customer's home or to a relay point.

What should you consider when choosing your distribution channels?

To ensure the success of your business, you need to choose the right distribution channels. Depending on the route taken, your products and/or services will not be managed or delivered in the same way, nor with the same speed. Here are a few crucial points to help you make the right choice.

Your product features and model

Not all products can be distributed in the same way. In fact, it's important to maintain a certain consistency between the price of your products, their communication, and their packaging. Luxury products, for instance, are not distributed in the same stores as tech gadgets. Likewise, your product's packaging will need to be adapted to your distribution channel. To choose the right channel, you'll need to consider how it fits in with your marketing mix.

The target customer and their expectations

You won't choose the same distribution channel depending on the profile of the consumers you're hoping to reach. In order to choose the right partners, you need to understand the needs and the consumer behavior for the people in your target market. For example, in the B2B sector, customers are used to working with wholesalers. Prospects expect real advice and support. In B2C, customers are more autonomous and are very keen to buy over the internet, with or without an intermediary.

Competitors and their strategy

When choosing your distribution channel, you also need to consider the competition and their distribution strategies. You then have two options:

• go where your main rivals are and do everything to stand out from the crowd or
• avoid confrontation by using another distribution channel.

Distribution costs and channel types

Of course, the more you use intermediaries, the lower your margins are going to be. On the other hand, it can save you time and energy, particularly in terms of logistics. So before making your choice, you need to estimate the costs of each type of circuit and the benefits it can bring you. You'll need to draw up a provisional budget.

Your company's online presence

Next, it's up to you to determine your market coverage. This determines how widely your product is available and to whom. Adequate market coverage ensures you reach your target customers, meet demand, and avoid over-saturating or under-serving specific areas. Choosing the right distribution channels and strategies helps balance broad market presence with brand control and profitability.

How to choose the right distribution channels for your business

Here are a few tips to help you define your distribution strategy.

Evaluate the advantages and disadvantages of each channel

First, take the time to list the advantages and disadvantages of each distribution channel. For example, if you opt for direct sales, your sales margin will be higher. You'll also be in direct contact with your customers. However, you'll also be responsible for all returns, which means you'll need to plan your budget as well as your logistics.

On the other hand, if you choose indirect distribution, your margin will be lower and you'll be dependent on your partners. However, you don't have to manage everything yourself... In the commercial world, everything is never black and white. The idea is to find the model that suits you best.

Test channels before committing yourself

In the business world, partnership management is crucial for stores and brands. Working with the best partners on the market is one of the top growth levers a retailer or entrepreneur can use to achieve new levels of success.

Before committing to a long-term relationship, though, it's often a good idea to carry out a trial period. Although this initial phase may involve less advantageous benefits than those negotiated in a long-term partnership, it's essential to take the time to compare and test different options.

This strategic approach enables stores and brands to assess the compatibility and added value of a potential partnership. Careful study of each candidate can provide concrete examples of the advantages and disadvantages of each option.

The main function of this trial period is to enable the parties concerned to familiarize themselves with the working mechanisms, to assess the quality of the service or products proposed, and to measure the impact on the image of the store or brand. This is a crucial stage in the partnership management process, as it provides an opportunity to experiment and validate commercial synergies.

For example, a cosmetics brand may consider a trial period with a packaging supplier before making a long-term commitment. By using the packaging supplied during this evaluation phase, the cosmetics business can assess its functionality, aesthetics, and compatibility with its marketing mix. This ensures that the packaging to protect the goods the brand sells is going to meet quality requirements and contribute to the company's image.

Adapt to market trends

Just as it's important to keep an eye on the competition, or track changes in consumer expectations, it's just as important to monitor market trends in terms of distribution. In recent years, new online sales channels have emerged with the rise of digital technology. What's more, this transformation is far from over. If you don't want to be left behind, be vigilant and flexible. You're bound to have to adapt to new trends from time to time, according to each new product in vogue.

Partner with key distributors

Associating your brand with certain distributor names can also be a great opportunity, provided you turn to the right companies. Indeed, the right collaborations can really boost brand awareness. But be careful: just because your distributor is well known doesn't mean he should abuse his reputation... So remember to set the rules as equals, right from the start!

Regularly evaluate the results of each channel

Finally, just as when you carry out test marketing to see if a new campaign works, it's also very important to analyze the impact of each distribution channel. It may be that the hoped-for benefits are not always forthcoming. You may also find that the cost of certain channels is excessive in relation to the benefits they deliver. On the other hand, and this is all we hope for, some of the results of your analyses may exceed your expectations. Whatever the case, regular evaluation is essential!

Let's take the example of a major clothing brand which, after investing heavily in an online advertising campaign, sees disappointing results in terms of sales of its good. An in-depth study of its distribution channels reveals that its physical stores have generated a significant increase in sales, in contrast to its online policy. Taking these results into account, the retail brand adjusts its strategy by refocusing its efforts on its physical stores and reducing its online advertising investments.

The process of analyzing distribution channels can also yield some pleasant surprises. For example, an online store specializing in handcrafted products sees a spectacular increase in sales after launching an advertising campaign on social networks. A study of the results shows that this retailer has succeeded in reaching an audience passionate about unique and personalized products, creating a loyal community. By understanding how this channel works and capitalizing on this specific niche, the store optimizes its marketing efforts and consolidates its market position, providing a solid foundation for creating a profitable future product.

One thing is clear: regular evaluation of distribution channels is a vital process for businesses seeking to maximize their return on investment. Based on in-depth research and analysis, they can determine which channels perform best and are best suited to their business objectives and sales goals.

Digital technology has dramatically changed the concept of retailing towards u-commerce. Customers can now access an unlimited range of products in a matter of seconds. Retailers, for their part, can reach a much wider target market than ever before. This has the advantage of multiplying opportunities. However, it also means greater risk. In this context of immense choice, it's vital to take the time to study all the options. Don't rush headlong into anything! Be reactive, but always thoughtful!