A distribution channel is the route through which goods or services move from the company to the customer or the transfer of payment happens from the customer to the company.
Distribution channels can mean selling of products directly or selling through wholesalers, retailers etc. The same applies for payment transfer from customers to company; it can move through a path or can be sent directly to the company.
Distribution channels basically function to deliver goods from the manufacturer to the customer.
The following are the functions of distribution channels −
Facilitate selling by being physically close to customers
Gather information about potential and current customer competitions, other factors and forces of the environment
Provide distributional efficiency by bridging the gap between the manufacturer and the user efficiently and economically
Assemble products into assortments to meet buyers’ needs
Match segments of supply with segments of demand
Assist in sales promotion
Assist in introducing new products
Assist in implementing the price mechanism
Assist in developing sales forecast
Provide market intelligence and feedback
Take care of liaison requirements
Objectives of a distribution channel are planned as per the target of the enterprise and executed respectively. The following are the various objectives behind the planning of distribution channels −
To ensure availability of products at the point of sale
To build channel member’s loyalty
To stimulate channel members to put greater selling efforts
To develop management efficiency in channel organization
To identify the organization at the level
To have an efficient and effective distribution system for making the products and services available readily, regularly, equitably and fresh.
Here is a list of some of the major channels of distribution −
Manufacturer → Consumer
Manufacturer → Retailer → Customer
Manufacturer → Wholesaler → Customer
Manufacturer → Wholesaler → Retailer → Customer
Manufacturer → Agent → Retailer → Customer
Manufacturer → Agent → Wholesaler → Customer
Manufacturer → Agent → Wholesaler → Retailer → Customer
Profit distribution decreases as the channel length increases.
We have seen what a distribution channel is. Let us now see the designing process of a distribution channel.
The following steps are involved in the designing of a channel system −
Formulating the channel objectives
Identifying the functions to be performed by the channel
Analyzing the product and linking the channel design to the product characteristics
Evaluating the distribution environment, including legal aspects
Evaluating competitor’s channel designs
Evaluating company resources and matching the channel design to the resources
Generating alternative designs, evaluating them and selecting the one that suits the firm best
A wholesaler purchases from the manufacturer and further distributes the product to customers or retailers. Wholesalers can be classified into the following categories as per area of functioning −
Agents and brokers
Manufacturer’s sales branches and offices