Distribution Strategy and Distribution Channels: What They Are, Types, & Examples

No business can survive without a distribution strategy and corresponding distribution channel. A company's chosen distribution strategy and channels must be aligned with its overall business objectives to be successful. Every business has different ambitions and goals, so it is important to tailor the distribution strategy and channels to fit the company's specific needs.

What is a Distribution Strategy?

A distribution strategy is a plan for getting a product or service to market. It includes decisions about how the product will be delivered to customers and how the company will reach potential buyers. A distribution strategy can be tailored to meet the needs of a particular business or product. They may also vary depending on the target market, the competition, and the company's resources. There are a variety of distribution strategies that companies can use. Some standard methods include direct sales, wholesaling, retailing, and franchising.

Choosing the right distribution strategy is a crucial decision for any business. The wrong approach can lead to low sales and missed opportunities. It is important to carefully consider all options and select a strategy that will best aid in fulfilling the company's goals and satisfy its customers.

When selecting a distribution strategy, consider the following:

• The needs of the product
• The target market
• The preferences of the target market
• The ease of distribution
• The cost of distribution
• Company goals and objectives

What Is Product Distribution?

Product distribution is a method by which companies deliver their goods or services to the intended end-user or customer. Getting the product distribution strategy right is crucial. Depending on the customers or the product, companies generally use these standard distribution methods to increase their revenue:

Direct Sales

Direct sales include selling products or services to customers by using the company's own sales force.

Wholesale

Wholesaling consists in selling products to retailers or other wholesalers, who then sell them to consumers.

Retail

Retailing is the sale of products or services to consumers through stores or online outlets.

Franchising

Franchising is a type of distribution where a company licences its trademarks and business model to another party, who then operates the franchise under the terms of the agreement.

Importance of Distribution Strategy

A well-planned distribution strategy is important because it can help you reach more consumers and sell more products. If you can get your products into the hands of more people, you're likely to see a boost in sales. Distribution is the key to building a successful brand. A good distribution strategy can also help you ward off competition from rivals.

3 Types of Distribution Strategy

Distribution strategies can be classified into three broad categories:

1. Direct Distribution Strategy

A direct distribution strategy is a type of distribution strategy in which a company sells its products or services directly to consumers or business customers. This type of distribution strategy can be used for both consumer and business products and services.

With a direct distribution strategy, the company bypasses intermediaries, such as retailers or wholesalers and sells its products or services directly to consumers or business customers.

There are several advantages to using a direct distribution strategy. First, the company has more control over how its products or services are sold and can ensure that they are sold in a way that is consistent with the company's marketing strategy.

Second, the company can save money by avoiding the need to pay commissions or other fees to intermediaries. Finally, a direct distribution strategy can allow the company to build stronger relationships with its customers.

However, this strategy is not suitable for every type of business. First of all, it can be more expensive for the company since it needs to bear all of the costs of selling its products or services itself.

Second, it can be more difficult for the company to reach its target market if it is selling directly to consumers since there are many more consumers than businesses. Finally, a direct distribution strategy can require the company to invest more in customer service and support since it will be dealing directly with customers.

Overall, a direct distribution strategy can be a good option for companies that want to have more control over how their products or services are sold and that are willing to invest in customer service and support.

Example

A direct distribution strategy would involve selling products or services to customers through the company's own sales force or website. This can be an expensive and time-consuming strategy but can also yield high profits if done correctly.

2. Indirect Distribution Strategy

An indirect distribution strategy is a type of distribution strategy in which a company sells its products or services through intermediaries, such as retailers or wholesalers. This type of distribution strategy can be used for both consumer and business products and services. With an indirect distribution strategy, the company relies on intermediaries to reach its target market.

There are several advantages to using an indirect distribution strategy. First, it can be less expensive for the company since it does not need to bear all of the costs of selling its products or services itself. Second, it can be easier for the company to reach its target market if it is selling through intermediaries since there are many more intermediaries than there are consumers or businesses.

Finally, an indirect distribution strategy can allow the company to focus on its core competencies since it will not be responsible for selling its products or services directly.

However, there are also some disadvantages to using an indirect distribution strategy. First, the company has less control over how its products or services are sold and may find that they are sold in a way that is inconsistent with the company's marketing strategy.

Second, the company may need to pay commissions or other fees to intermediaries. Finally, an indirect distribution strategy can require the company to invest more in marketing since it will need to reach its target market through intermediaries.

Overall, an indirect distribution strategy can be a good option for companies that want to save money and that are willing to focus on their core competencies.

Example

One example of an indirect distribution strategy is to use a middleman or wholesaler to get your product or service to market. This could help your product reach a larger audience and can also help you to save money on marketing and advertising costs.

Other Classifications

• Exclusive
  An exclusive distribution strategy is when a company chooses to only sell its product to a certain group of retailers. This puts a limit on who can buy the product, but it also ensures that those who do get to buy it are more likely to be interested in it.
  
  This can be a good strategy for companies that are just starting and don't have a lot of money to spend on marketing. It also allows them to build strong relationships with their retail partners.

• Intensive
  An intensive distribution strategy is a technique used by businesses to reach a large number of consumers in a short time.
  
  This type of strategy relies on heavy advertising and promotional activities, such as television commercials, print ads, and online marketing. Intensive distribution strategies are often used to launch new products or services or to increase awareness of existing offerings.

• Selective
  The selective distribution strategy focuses on delivering the product to a few chosen retailers instead of distributing it to many. This strategy is typically used for products that are unique or have a high price tag, as it allows the business to maintain more control over how the product is presented and sold.
  
  The selective distribution also allows businesses to better manage their inventory and allocate products to the retailers that are most likely to sell them.

• Dual
  A dual distribution strategy is one in which a company uses two or more channels to distribute its products. There are several different types of dual distribution strategies, and each has its advantages and disadvantages.
  
  One common type of dual distribution strategy is called the push-pull strategy. In this approach, the company uses both push and pull channels to market its products. Push channels are those that promote products to potential customers, while pull channels allow customers to directly purchase products from the company.
  
  Using both push and pull channels can be very effective, as it allows the company to reach more potential customers and also make it easier for customers to buy products.
  
  Another common type of dual distribution strategy is the direct-indirect strategy. In this approach, the company uses both direct and indirect channels to market its products. Direct channels are those that allow customers to buy products directly from the company, while indirect channels are those that promote products to potential customers.
  
  Using both direct and indirect channels can be very effective, as it allows the company to reach more potential customers and also provides a way for customers who cannot buy products directly from the company to still purchase them.
  
  Finally, a company can use a dual distribution strategy that combines both exclusive and nonexclusive channels. Exclusive channels are those that allow only the company's products to be sold, while nonexclusive channels allow other companies' products to be sold as well.
  
  Combining exclusive and nonexclusive channels can be very effective, as it allows the company to reach more potential customers and also allows other companies' products to be sold alongside its own.

• Reverse
  A reverse distribution strategy is a way of selling products to consumers through a distribution network that is not the manufacturer's original intended route. For example, a company might sell its products to retailers, who then sell the products to consumers.
  
  The company could also sell its products to wholesalers, who then sell the products to retailers. The company might also sell its products to distributors, who then sell the products to wholesalers or retailers.
  
  Reverse distribution strategies can be used by companies to target new markets or to enter into new distribution channels. For example, a company that manufactures televisions might typically sell its products to retailers.
  
  However, the company might decide to use a reverse distribution strategy to target consumers who live in rural areas. The company could sell its products to distributors, who then sell the products to retailers in rural areas.
  
  Reverse distribution strategies can also be used by companies to clear inventory. For example, a company might have excess inventory of a product that is not selling well. The company could sell the excess inventory to a retailer, who then sells the products to consumers at a discount.

Factors affecting Distribution Strategy

• Location of Business: A business's location can have a significant impact on its distribution strategy. For example, a business that is located in a rural area may need to rely on shipping and delivery services to get its products to customers, while a business that is located in a city can rely on local stores and retailers to sell its products.
  
  Also, the location is key to saving costs. If the company is strategically located around decent means of transportation, the overall costs may reduce, and profits may go up. Based on this, their distribution strategy may change.

• Location of Target Market:  A company's target market will typically dictate its distribution strategy. For example, a company targeting a rural area may choose to use direct sales to reach its customers, while a company targeting an urban area may use a third-party distributor to reach its customers.

• Reaching the Target Market: The company's distribution strategy is affected by its aim of reaching its target market. If the company is looking to expand its customer base, it may choose to adopt a wider distribution strategy. Alternatively, if the company is targeting a specific region or demographic, it may adopt a more targeted distribution strategy.
  
  Also, the company's distribution strategy must ensure that their customers get their desired products timely by matching the supply with the demand.

• Warehousing:  Warehousing is an important part of the distribution strategy, as it allows companies to store and distribute products in a centralised location. This can help companies to save money on shipping costs, as they can consolidate orders and ship products from a single warehouse.
  
  Warehousing can also help companies to manage their inventory more efficiently, as they can track stock levels and ensure that they have enough products to meet demand.

• Transportation and Logistics: Transportation and logistics deeply affect a company's distribution strategy. For starters, the cost of transportation can be a major deciding factor in where a company chooses to distribute its products. Additionally, the time it takes to get products from the manufacturer to the retailer can also impact distribution strategy.
  
  If a company aims to move its products to market quickly, it may opt for a more centralised distribution strategy, while a company that is willing to wait for lower shipping costs may choose a more decentralised strategy.

What is a Distribution Channel?

A distribution channel is a specific route through which a product or service passes from the producer to the consumer. Distribution channels directly affect what a company's sales will look like, so choosing the right distribution channel strategy is vital. The most common channels are retail stores, direct sales, wholesalers, and catalogues.

The Three Types of Distribution Channels

To get a product or service from the producer or manufacturer to the consumer, there are multiple distribution channels you can try out:

• Direct Channels: A direct distributing channel is a type of distribution channel in which the producer and the consumer are in direct contact with each other. This type of channel is often used for selling products or services directly to consumers.
  
  There are several advantages to using a direct distribution channel. First, it allows producers to have more control over their products. They can ensure that the product is of high quality and that it meets the needs of their consumers. Second, this type of channel can be less expensive than other channels because there are no middlemen involved. Finally, it can be a more efficient way to distribute products because there is no need to ship the product to a middleman before it reaches the consumer.
  
  There are some disadvantages to using a direct distribution channel as well. First, it can be difficult to reach a large number of consumers. Second, it can be hard to build trust with consumers since they are not dealing with a middleman. Finally, there can be some logistical challenges associated with direct distribution, such as shipping and customer service.

• Indirect Channels: An indirect channel of distribution is a method of getting a product or service to consumers that does not involve the direct involvement of the company. This can be done through intermediaries such as retailers, wholesalers, or other types of middlemen.
  

There are many advantages to using an indirect distribution channel. It can reach a larger number of potential customers, it can be less expensive than a direct channel, and it can be less risky.

However, there are also some disadvantages. Indirect channels can be less controlled, and there is the potential for conflicts of interest between the company and the intermediary.

• Hybrid Channels: A hybrid distribution channel is a combination of two or more different types of channels. For example, a company might use a direct sales force to sell products to consumers but also use retailers to distribute products to stores. A company might use a combination of mass media advertising, personal selling, and Internet marketing to reach its target market.
  
  There are several positives to using a hybrid distribution channel. First, it allows a company to reach a wider audience. Second, it can help a company save money by using different channels for different purposes. For example, a company might use mass media advertising to reach a large audience but use personal selling to target specific customers.
  
  Third, a hybrid distribution channel can help a company build relationships with its customers. For example, a company might use personal selling to build relationships with key customers but use mass media advertising to reach a wider audience.
  
  There are also some disadvantages to using a hybrid distribution channel. First, it can be difficult to coordinate the different channels. Second, a company might not be able to control the message that is being communicated through the different channels. Third, a company might not be able to track the results of its marketing campaigns if it is using multiple channels.
  
  To improve your supply chain management and ensure timely delivery of your products to the retailers, wholesalers and final consumers, you can refer to our blog on strategic sourcing.

Methods for Distribution Channels

There are three main distribution channel methods:

• Exclusive Distribution: An exclusive distribution channel is a type of distribution channel in which a single distributor is responsible for selling a product or service to the end user. This type of distribution channel typically offers better terms to the manufacturer, such as deeper discounts, higher margins, and more promotional support.
  
  As a result, the manufacturer typically prefers to work with a single distributor rather than multiple distributors.
  
  An example of an exclusive distribution channel would be a car manufacturer that sells its cars through a single dealership in each city. The dealership would be the exclusive distributor of the car manufacturer's products in that city.
  
  Exclusive distribution channels can be beneficial to both the manufacturer and the distributor. For the manufacturer, it can help to ensure that its products are sold in a controlled environment where they can be properly supported. For the distributor, it can provide a higher level of margins and support from the manufacturer.
  
  However, exclusive distribution channels can also have some disadvantages. For example, if the distributor is not performing well, it can reflect poorly on the manufacturer. Additionally, if the distributor decides to stop carrying the manufacturer's products, it can be difficult for the manufacturer to find a new distributor.

• Selective Distribution: A selective distribution channel is a type of distribution channel that uses a limited number of intermediaries to reach consumers. Selective distribution is used for products that are premium or high-end products.
  
  The advantages of a selective distribution channel are that it allows a company to target its products to a specific group of retailers who it feels will best represent its brand. This can help to create a more efficient and cost-effective marketing strategy. It can also help form a stronger relationship between the company and its retail partners.
  
  The disadvantages of a selective distribution channel are that it can be more difficult and costly to manage, and it can limit the number of potential customers who may be exposed to the product. Additionally, if the chosen retailers do not represent the brand well, it can damage the company's reputation.

• Intensive Distribution: An intensive distribution channel is a type of distribution channel that uses a high level of sales and marketing effort to push products to consumers. Intensive distribution is used for products that are new to the market or for products that have a high margin. Intensive distribution channels can be expensive for companies, but they can also be very effective at getting products in front of consumers.
  
  The advantages of using an intensive distribution channel are that it can help a company reach a lot more customers in a comparatively shorter amount of time. Additionally, it can help create a more efficient distribution process.
  
  However, the disadvantages of using an intensive distribution channel are that it can be more expensive and it can also be more difficult to manage.

Levels of Distribution Channels

There are some specific levels on which a distribution channel operates. These distribution levels are meant to represent the distance between the producer and the final customer. Let's take a look at them:

• Level 0 Distribution Channel: The level 0 distribution channel is the first point of contact between the producer and the consumer. It can be a physical store, a website, or a telephone line.
• Level 1 Distribution Channel: The level 1 distribution channel is the second point of contact between the producer and the consumer. It can be a wholesaler, a retailer, or an online marketplace.
• Level 2 Distribution Channel: The level 2 distribution channel is the third point of contact between the producer and the consumer. It can be a distributor, an importer, or an exporter.
• Level 3 Distribution Channel: The level 3 distribution channel is the fourth point of contact between the producer and the consumer. It can be a manufacturer, a service provider, or a logistics company.

The Nine Main Intermediaries in Distribution Channels

The nine main intermediaries in distribution channels are:

• Retailers
  
  Retailers are important members of the distribution channel. They serve as intermediaries between manufacturers and consumers, and they play a crucial role in getting products to the right people promptly.
  
  Retailers must ensure that they carry the right inventory and that they offer a variety of products to help meet the requirements of their customers. They must also be able to quickly restock items that are sold out, and they must have a decent idea of what their customers want.
  
  By providing a valuable service to both manufacturers and consumers, retailers help to ensure that products make it to the market efficiently and that consumers have access to the products they want.

• Wholesalers
  
  Wholesalers are an indispensable part of the distribution channel. They buy products from manufacturers and sell them to retailers, who then sell them to consumers. This helps to ensure that products reach consumers in a timely and efficient manner. Wholesalers also help to keep costs down for retailers, which allows them to offer lower prices to consumers.

• Distributors
  
  Distributors are important intermediaries in the distribution channel. They help to get products from the manufacturers to the retailers and consumers. Distributors may also provide other services, such as order taking, warehousing, and transportation.

• Agents
  
  Agents act as liaisons between the manufacturer and the retailer. They help to manage the flow of products and information, and they provide a link between the two parties that can help to ensure that orders are placed and fulfilled efficiently.
  
  Agents can also provide valuable insights into consumer demand and preferences, which can help to inform both the manufacturer and the retailer about what products to stock and how best to market them.

• Brokers
  
  Brokers act as intermediaries between manufacturers and retailers. They help to match up buyers and sellers and provide a valuable service by smoothing out the process of transactions. This is convenient for smaller businesses that may not have the resources to negotiate directly with manufacturers. Brokers can also help to manage inventory and keep track of sales trends.

• The Internet
  
  The role of the internet as an intermediary in the distribution channel is to provide a way for businesses to expand their reach and allow customers to easily find the products and services they are looking for.
  
  The internet provides several advantages for businesses when it comes to marketing and distribution.
  
  First, the internet allows businesses to reach a global market. This is especially beneficial for small businesses that may not have the resources to reach a larger audience through traditional means.
  
  Additionally, the internet provides customers with a way to easily compare prices and find the best deals on products and services. This allows them to compete on price with larger businesses.
  
  The internet has revolutionised the distribution channel for businesses and has created many new opportunities. Thanks to the internet, businesses can now reap the rewards of increased sales and customer loyalty.

• Sales Teams
  
  Sales teams play a critical role as intermediaries in the distribution channel. They work with customers to identify and assess their needs and then recommend products and services that meet those needs. They also help to close sales and ensure customer satisfaction.
  
  In addition, sales teams can provide valuable feedback to the company about customer preferences and needs, which can help inform product development and marketing efforts.

• Resellers
  
  A reseller is a type of middleman in the supply chain who buys products from original wholesalers or manufacturers and sells them to either retailers or other end users. Resellers can provide a valuable service by consolidating products from multiple manufacturers and providing a one-stop shopping experience for customers.
  
  Additionally, resellers may be able to offer lower prices than manufacturers or other wholesalers because they buy in bulk.

• Catalogues
  
  Catalogues play an important role as intermediaries in the distribution channel. They act as a bridge between manufacturers and retailers, providing a one-stop shopping destination for consumers. In addition, catalogues allow manufacturers to reach a large audience with their products, and they provide retailers with a way to merchandise products that may not be available in their stores.
  
  If you wish to update your distribution strategy to gain more sales, you can check out our blog related to upselling and cross-selling.

What is a Reverse Distribution Channel?

A reverse distribution channel is a process by which a company sells products to retailers, who in turn sell the products to consumers. The purpose of a reverse distribution channel is to get products back into the hands of consumers as quickly as possible. This can be done through special sales events, such as clearance sales, or by offering discounts to customers who purchase multiple items.

Reverse distribution channels are often used by companies who sell products that have a short shelf life, such as food or clothing. By selling items through a reverse distribution channel, businesses can ensure that their products will be used before they go bad. This helps to reduce waste and keep prices low for consumers.

How to Define Distribution Channels for Your Product

• Benchmarking
  
  Benchmarking is usually an essential tool for assessing the performance of a distribution channel. By comparing the performance of different channels, businesses can identify which one is most effective for them. This valuable information can help businesses make more informed decisions about where to allocate their resources and how to best reach their target markets.

• Project Review
  
  Product reviews can help shape a company's distribution channel by providing feedback on what products are popular and which ones are not. If a product is unpopular, the company may choose to discontinue it or alter its distribution strategy. Conversely, if a product is popular, the company may want to increase its production and/or distribution.

• Costs and Benefits
  
  A company's distribution channel can be shaped by its cost and benefits. For example, a company may choose to use a direct sales force if the cost of using a distributor is too high and the benefits of selling directly to customers are significant. Conversely, a company can also choose to use a distributor if the cost of using a direct sales force is too high and the benefits of using a distributor are significant.

• Company's Daily Routine
  
  A company's daily routine can play a significant role in shaping its distribution channel. For example, if the company is focused on meeting customer demand and fulfilling orders as quickly as possible, it may opt for a distribution channel that relies on third-party distributors to get its products to market.
  
  Alternatively, if the company is more interested in maintaining direct control over its products and customer interactions, it may choose a distribution model that involves shipping products to customers through its own internal logistics network. In either case, the company's day-to-day operations will have a major impact on the type of distribution channel it adopts.

• Market Potential
  
  A company's market potential can shape its distribution channel in a few ways. If the company is targeting a large market, it may need to use a more extensive distribution network to reach all of its potential customers. Alternatively, if the company is targeting a small market, it may be able to use a more limited distribution network.
  
  Additionally, the company's market potential may impact the type of distribution channel it uses. If the company is targeting a high-growth market, it may need to use a more direct distribution channel to keep up with demand.

• Logistics
  
  A company's logistics can shape its distribution channel in a few ways. The most direct way is through the type of transportation the company uses. For example, a company that relies on trucks to transport its products will have a different distribution channel than one that relies on ships. The company's location can also shape its distribution channel.
  
  The final way logistics can shape a distribution channel is through the type of products the company sells. For example, a company that sells heavy machinery will have a different distribution channel than one that sells clothes.

• Location
  
  A company's location can shape its distribution channel in a few ways. For example, if a company is based in a rural area, it might have to rely on mail or freight to get its products to customers. Alternatively, if a company is based in a major city, it might have more options for distributing its products, such as using trucking companies or distributing through retailers.

Examples of Distribution Channels

Walmart provides a valid example of a retailer that uses a direct distribution channel. This means that the company sells its products directly to consumers without using any intermediaries. This allows Walmart to keep costs down and pass those savings on to consumers.

Another example of a company that uses a direct distribution channel is Amazon. Amazon sells products directly to consumers via its website, and it also has a large network of warehouses and fulfilment centres that allow it to ship products quickly to customers all over the world.

Conclusion

When it comes to your business, having a distribution strategy and understanding the distribution channel is critical. In this blog, we've outlined what distribution strategies are as well as the different types of distribution channels. We've also included some examples of businesses that use each type of Distribution Channel.

While this information is helpful, it's important to remember that every business is unique and will have its own specific action-driven needs when it comes to distribution. If you're unsure about where to begin, read our blogs on inventory management and control, supply chain management, and strategic procurement so that you update your distribution strategy.

At Amazon Business, we have the solution for your every inventory need!

Explore our Buying Guides

• Best Printers for Home & Office use
• Best offfice chairs
• Networking Devices List 2021
• Best CCTV Cameras

Related Articles

• Purchase Order Process
• Procurement Solution
  
• Procurement Process for Educational Institutions
• HSN Code in GST
• Reshape Procurement
• Purchasing Approval Workflows
• Procurement Channel for Remote Working

Explore our Buying Guides

●        Best Printers for Home & Office use

●        Best Office Chairs

●        Networking Devices List 2021

●        Best CCTV Camera for Home & Office

Related Articles

●        Purchase Order Process

●        Procurement Solution

●        Procurement Process for Educational Institutions

●        HSN Code in GST

●        Reshape Procurement

●        Purchasing Approval Workflows

●        Procurement Channel for Remote Working