Distribution Channel

What is a Distribution Channel?
A distribution channel, in simple terms, is the flow that a good or service follows from production or
manufacturing to the final consumer/buyer. Distribution channels vary but typically include a producer,
a wholesaler, a retailer, and the end buyer/consumer. A distribution channel can also provide a sense of
how money flows back from the buyers to the producer or original point of sale.
What is a Distribution Channel?
The distribution channel is the path that a product or service takes in order to be sent from the
manufacturer to the customer. If the customer bought the product or service straight from the
manufacturer the distribution channel is a short one. If it includes a supplier, distributor, and retailer the
distribution channel can be much longer. In general the longer the distribution channel from
manufacturer to customer, the less profit the manufacturer will make as each intermediary or vendor
charges for their services.
For manufacturers, it is very important to create a mix of distribution

channels that allow for ease of availability for the consumer, i.e., a
good marketing mix. Based on the diversity and scope of a manufacturing
business or any other business that can be found in the distribution
process, the respective business needs to settle on a channel or channels
that allow for good sales generation and ease of access for consumers.
 A distribution channel, in simple terms, is the flow that a good or

service follows from production or manufacturing to the final
consumer/buyer.
 The link between producers and the end consumer is normally
intermediaries, such as wholesalers, retailers, or brokers. The
intermediaries can be natural persons or businesses.
 Distribution channels can be either direct or indirect. The indirect
channels can be divided up into different levels – one-channel, two-
channel, and three-channel.
 Role of Distribution Channels in Business
 The target for any business is to bring their product or service to the
market and make it available for consumers by creating a
distribution path or channel. The link between producers and the
end consumer is normally intermediaries, such as wholesalers,
retailers, or brokers. The intermediaries can be natural persons or
businesses. Distribution channels affect the prices of goods and
their positioning in their respective markets.
 Distributions, ideally, should be set up in a way that limits the
number of stops for the product or service before it reaches the end
consumer. A distribution channel must be efficient and effective. It
means that transportation and other logistical requirements need to
be used at maximum capacity and at the lowest rates possible.
Functions of Distribution Channels
Distribution channels are important to businesses as they allow for the smooth delivery of goods or
services to a customer. If a business does not source the best collection of businesses for this purpose, it
can lead to unhappy customers and an inadequate provision of services. Creating an efficient process
from warehouse to customer can make a huge difference in how customers view your business.
For example, if a business sources goods from a subpar manufacturer customer will receive
unsatisfactory products. Or if a wholesaler is unreliable when delivering goods, customers will not
receive their products on time.
Shorter distribution channels have fewer businesses involved in the process of delivery of goods
meaning that there is more risk involved for the companies if products are not sold or delivered as
promised. Therefore some businesses choose a longer distribution channel where less profit is made so
that the risk and responsibility are lesser on each individual business.
Distribution Channel Strategy
A distribution channel strategy is normally designed by a retailer, or the business selling goods to a
customer. This is so that they can source the product they aim to sell, they can reduce costs while
making a nice profit themselves, and find the best way to deliver the product to the customer in the
shortest time frame possible. This process will take some time to research suppliers, etc, and collect all
the right information.
When a retailer is selling more than one type of product they may even require more than one
distribution channel strategy where each business is different for them all. For instance, a shoe retailer
may choose to start selling t-shirts online. As shoe manufacturers are different to t-shirt manufacturers
the retailer has to find a t-shirt manufacturer or wholesaler to buy from. The wholesaler might not
provide delivery but they are based in a different location to the shoe manufacturer so the retailer must
then find a delivery option that makes sense to them.
Having many distribution channel strategies can become confusing and inefficient. That is why it is
important to constantly improve relationships with businesses involved in this process and also to
identify ways to improve efficiencies in the process.
Types of Distribution Channels
Distribution channels can either be direct or indirect. The indirect

channels can be divided up into different levels.
1. Direct distribution channels
The direct distribution channel does not make use of any intermediaries.
The manufacturer or producer sells directly to the end consumer. The
direct form of distribution is typically used by producers or manufacturers
of niche and expensive goods and items that are perishable. An example
is a baker.
2. Indirect distribution channels
The indirect distribution channel makes use of intermediaries in order to

bring a product to market. The three types of indirect channels are:
One-level channel
The one-level channel entails a product coming from a producer to a

retailer and then to the end buyer. The retailers buy the product from the
manufacturer and sell it to the end buyers. The one-level channel is ideal
for manufacturers of furniture, clothing items, toys, etc.
Two-level channel
The two-level channel follows the following process:
Wholesalers generally make bulk purchases, buy from the producer, and
divide the goods into smaller packages to sell to retailers. The retailers
then sell the goods to the end buyers. The two-level channel is suitable for
more affordable and long-lasting goods with a larger target market.
Three-level channel
The three-level channel is similar to the two-level channel, except the
goods flow from the producer to an agent and then to a wholesaler.
Agents assist with selling the goods and getting the goods delivered to the
market promptly.
The agents normally receive a commission and are allocated the task of

product distribution in a particular area. The three-level channel is
suitable for goods that are in high demand and with a target market that
stretches across a country.
How Many Types of Distribution Channels Are There?
There are three main types of distribution models or channels that a business can fall into. It depends on
the number of vendors used to distribute goods which model a business falls into.
The first type of distribution channel is where the manufacturer sells straight to the customer. This
channel is the shortest, most direct one. The manufacturer makes the most profit from the sale in this
scenario as he does not have to share profits with other vendors.
The next channel is an indirect one, where an additional vendor is added between the manufacturer and
the customer, like perhaps a retailer. Now the retailer will buy stock off a manufacturer and that retailer
will sell the stock to the customer. A good example of this would be a supermarket which stocks many
different types of goods which they have bought from the manufacturer, ready for the customer to buy
and bring home.
The final channel or type of product distribution model is one where there is more than one vendor or
intermediary. This could include a wholesaler, a producer, or even another retailer. A great example
would be dropshipping, where manufacturers sell their products to a supplier who advertises their stock
on marketplaces like AliExpress where a merchant opts to put the product on their website to sell to the
customer. This distribution model can be a long one. The manufacturer makes less profit as more
vendors get involved.

Distribution Channel

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Distribution Channel

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What is a Distribution Channel?

What is a Distribution Channel?

For manufacturers, it is very important to create a mix of distribution

 A distribution channel, in simple terms, is the flow that a good or

Functions of Distribution Channels

Distribution Channel Strategy

Types of Distribution Channels

Distribution channels can either be direct or indirect. The indirect

2. Indirect distribution channels

The indirect distribution channel makes use of intermediaries in order to

The one-level channel entails a product coming from a producer to a

The two-level channel follows the following process:

The agents normally receive a commission and are allocated the task of

How Many Types of Distribution Channels Are There?

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