Distribution Channels: A Guide for Small Businesses

What is a distribution channel?

A distribution channel, also known as a distribution chain, is the path products take from manufacturing to the customer. For example, a company manufactures products and has to get them to its clients. The main goal of distribution channels in marketing is to provide customer satisfaction, and you can choose from several types of channels. Of course, whichever you select will impact your sales somehow, so efficiency is critical.

Several parties are often involved in a distribution chain, including the manufacturer, wholesalers, retailers, distributors, and online marketplaces. If you have not defined your distribution channel, you may feel confused about the best choice for your business and its bottom line.

What is the purpose of distribution channels in business?

Distribution channels aim to get products to customers as fast as possible by following a set path. Distribution channels may also illustrate how payments go back up the chain, so everyone (except the customer who gets a product) earns a profit. What channels you select depends on your type of business and what will make the most profit, so they can either be short or long, depending on how many intermediaries you have between you and the final customer.

Major types of distribution channels

How do products and services get delivered to customers? There are several types of distribution channels.

Direct

A direct channel is also known as zero-level. With these channels, manufacturers deliver products directly to consumers. Direct channels increase online sales, which is why many online stores use them. Instead of working with a distributor, you simply sell your products online and have them delivered to the customers. With this model, manufacturers have complete control over their distribution channels, which also makes them responsible for ensuring the products make it to clients on time.

Selling directly to consumers is ideal for e-commerce businesses. It can help you improve the user experience by creating a successful promotional strategy surrounding your faster shipping times since there are no intermediaries involved. In addition, businesses with direct distribution channels can also offer lower prices since they don't have to pay intermediaries.

Indirect

An indirect channel occurs between an intermediary and a customer. The intermediary could be consultants, wholesalers, and retailers.

For example, if you sell your products to a third-party, you may sell your inventory to the retailer, which sells the products directly to consumers. There may also be distributors involved in the process. The distributors purchase your products, sell them to stores, and the stores sell your products to customers.

There are 3 levels of indirect channels.

• One-level: Involves the company, retailer, and customer.
• Two-level: The company sells to a wholesaler or distributor who sells to the retailer and then to the customer.
• Three-level: Company sells to an agent, and the product goes through the rest of the distribution channel to the wholesaler, retailer, and then the customer.

An indirect distribution channel relies on intermediaries. While these offer many benefits, such as not having to worry about marketing products, manufacturers don't have control over their distribution chains. However, this channel is best suited for large businesses that sell products in bulk to a range of customers. These products will have a higher sticker price attached to them because they go through so many people and companies.

Hybrid

Companies may also choose a hybrid distribution channel that mixes both direct and indirect. For example, a manufacturer may choose to sell products directly to customers on its website while also working with intermediaries to get their products into retail stores.

Reverse

Reverse distribution channels are when the consumer sells products back to the company. These distribution channels allow customers to return items that are defective or they no longer want. For example, if you buy shoes online that don't fit, you need to return them to the company where you purchased them.

With a reverse distribution channel, the customer is responsible for initiating the return and ensuring it makes it back to the company. However, even though the client initiates the return, companies should still aim to make this process as easy as possible. Doing so can help boost customer satisfaction.

How to choose a distribution channel

Choosing the right distribution channel is key to customer fulfillment and can reduce costs. However, depending on your business structure, picking one distribution method over another may be more beneficial.

Here are a few tips to help you select the most suitable distribution chain for your business:

• Consider your product: Is your product something consumers would be happy to buy directly from you? If so, you can sell directly to consumers on your website. If you select this route, you'll need an e-commerce website that allows you to accept payments and a way to ship products to consumers. Of course, some products work great for direct and indirect channels, so you may have to consider your sales objectives and other business goals, such as pricing and simplicity of the distribution chain.
• Know your sales objectives: If you want to reduce the cost of products to help you earn more money, the direct distribution channel can offer the most significant profits. However, it ultimately depends on the types of products you sell. If you want your products in front of thousands of people in stores, you'll need to work with an intermediary, but this method can get you more sales.
• Understand your target customers: Where do your customers typically shop for products like yours? Do they prefer to buy them in stores or online? Some industries have crossover, with customers purchasing products in-store and online. If this is the case for you, you might benefit from a hybrid distribution channel that helps you to get your products in stores while still being available online. This enables you to reach more shoppers.
• Consider distribution speed: The distribution channel you select can impact how fast your customers get your products. Direct distribution is faster because there are no intermediaries. Still, you may earn a larger profit from hybrid distribution chains because you'll be able to reach more customers.

Of course, not all distribution channels are suitable for every business. For example, if your customers prefer to touch your products before purchasing, you may benefit from working with a retailer. However, if your customers want the speed of online ordering and shipping, you can use a direct distribution chain to satisfy their needs.

You'll have many choices when planning your distribution strategy, but your intermediaries may also determine which is best for you. Your distribution channel partners should be included in your overall marketing strategy to support your marketing efforts.

For example, if you sell your products in a big box retailer, it's a good idea to create a successful promotional strategy to inform your customers where to purchase your products. However, if you choose a direct distribution channel, you only have to worry about marketing your own business.

Market and sell your products online

If you're starting a business and want to sell products, one of the easiest ways to get your business up and running is by selling your products online to consumers using direct distribution channels. Of course, you'll need a website that can highlight your products and convert website visitors into paying customers.

Mailchimp makes it easy to market and sell your products online with a suite of products designed for e-commerce companies. Mailchimp can even help you craft engaging sales and marketing emails to convince intermediaries to work with you if you want to use direct or indirect distribution channels.

Create a website, add product photos, write descriptions, and use templates to help you design the best product pages. Then, when you're ready, you can begin marketing your products using email marketing, digital ads, and other strategies to increase brand awareness and sell directly to your target audience.