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What Are Distribution Channels?
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What Are Distribution Channels?

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Written by ATC Industrial

A distribution channel is the network of businesses and individuals involved in the process of delivering a product or service to the consumer. Whether it’s a tangible product or an intangible service, all businesses rely on buying and selling to make a profit. As such, distribution channels are an integral part of every business in the world. After all, creating the most innovative and amazing products is worthless if strategies are not in place to effectively distribute them to consumers.

The business world is full of companies that manufacture products for retailers to market, package, and sell. These companies are called OEMs (original equipment manufacturers). The manufacturers then rely on OEM distribution companies to sell these products to the consumer.

The term “intermediary” is used to distinguish those involved in the distribution channel.  Distribution channels are classified by the amount of intermediaries included in the process. If a product goes directly from the producer to a retailer, this would be referred to as a Level One channel, with "one" referring to a single intermediary involved. If the product goes from producer to a wholesaler, and then to a retailer, it would be categorized as a Level Two channel, and so on. Occasionally, products are distributed directly from the producer to the consumer. These scenarios are referred to as level zero channels, and are also known as direct marketing channels.

Distribution channels with more than three intermediaries in between producer and consumer typically consist of intermediaries fulfilling a more complex role, which could include value-added services like marketing and kitting. Determining the best plan for distributing a product is called a channel strategy. There are several factors to consider when developing a prudent channel strategy:

The Product

Different products warrant different distribution strategies. For instance, complex products often sell better when distributed by specialists with a unique technical understanding of the product. Products that are customized to a consumer’s specifications may be best suited for a direct to consumer strategy. Understanding your product is crucial to developing an effective strategy.

The Company

It is important to understand the strengths and weaknesses of the business that manufactures the product in question. Depending on the size of the business, it may be able to employ its own sales department. Understanding the sales goals of the business is important as well. Some companies will focus on volume of sales, while others may focus on margins and profitability.

Target Market

Before you can sell a product to a consumer, it is imperative to know which consumers are likely to purchase your product. Products can be sold to local markets or across the globe.  It is also critical to understand what the competition may be in any markets you intend to enter.

 

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