Distribution Channels and Methods for Businesses
After the product, price, and promotion have been decided, the product or service has to be available to the consumer where and when they want to buy it. Consumers should be able to get to the product easily, and the product has to be in the right place (e.g., expensive chocolate shouldn’t be in a small grocery store) to sell well.
Channels of Distribution
Businesses need to know how to get the product to the consumer. They may use a variety of distribution channels:
- Channel 1: The manufacturer sells directly to the customer. E.g., agricultural goods are sold straight from the farm, businesses buy raw materials from another…
- Channel 2: Involves selling to retailers. Common when the retailer is large or the product is expensive.
- Channel 3: Involves the product going through wholesalers as well. Wholesalers break bulk so that retailers can buy them in smaller quantities. This is common for perishable items such as foods.
- Channel 4: Involves selling the product overseas through an agent, who sells them to wholesalers on behalf of the company. This may be because he/she has better knowledge of the local conditions.
Methods of Distribution
Methods of distribution for different channels can include:
- Department Stores: Usually in the center of town, they sell a wide range of goods from many producers.
- Chain Stores: Two or more stores which have the same name and characteristics.
- Discount Stores: Offer a wide range of products, including branded products, at discount prices. Often all the products are similar.
- Superstores: Very large out-of-town stores.
- Supermarkets: Very large retail stores with all kinds of goods (usually daily needs, foods).
- Direct Sales: Goods are sold directly to the consumer.
- Mail Order: Customers order via the post by looking at the catalog.
- Internet/E-commerce: Customers order via the internet by looking at the website.
E-commerce
The use of the internet to carry out business transactions. Businesses could communicate via email as well. Producers, as well as retailers, can use the internet to sell to customers.
Advantages and Disadvantages of a Wholesaler
Pros
- Breaks bulk.
- Reduces storage costs for retailers and producers.
- Fewer transactions are needed for the producers (only a few wholesalers). They no longer need to do as many deliveries.
- Gives credit to small retailers.
- May deliver to small retailers, reducing their transport costs.
- Promotion is carried out by the wholesaler instead of the producer.
- They give advice to retailers/producers on what is selling well.
Cons
- More expensive for small retailers.
- May not have the full range of products to sell.
- Takes longer for perishable products to reach the retailer.
- Wholesaler may be far from small shops.
Selecting the Right Distribution Channel
When selecting the channel of distribution to use, producers need to consider a few things:
- Type of product: Is it sold to other producers or customers?
- Is the product very technical? Will you need to explain how to use the product? If yes, Channel 1 should be selected (e.g., airplanes).
- How often is the product purchased? If it is bought every day, it should be available in many retail outlets; otherwise, people might not bother to buy it at all.
- How expensive is the product? If it is expensive and has an image of being expensive, then it will be sold in a limited number of retail outlets.
- How perishable is it? If it is very perishable, it should reach the customers quickly or be available in many outlets so it can be sold quickly.
- Location of customers: Channel 4 might be used for customers overseas. E-commerce would be viable anywhere apart from the countryside.
- Where do competitors sell their products? Usually, producers will sell their product in retail stores where their competitors sell too so that they can compete directly for consumers.