Distribution Channel

Gaitri Kumari
Assistant Professor
Amity Business School

A distribution channel (also called a marketing channel) is the path or route decided by the company to
deliver its good or service to the customers. The route can be as short as a direct interaction between the
company and the customer or can include several interconnected intermediaries like wholesalers,
distributors, retailers, etc.

Hence, a distribution channel can also be referred to as a set of interdependent intermediaries that help
make a product available to the end customer.

Functions of Distribution Channels

In order to understand the importance of distribution channels, you need to understand that it doesn’t
just bridge the gap between the producer of a product and its user.

Distribution channels provide time, place, and ownership utility. They make the product available when,
where, and in which quantities the customer wants. But other than these transactional functions,
marketing channels are also responsible to carry out the following functions:

Logistics and Physical Distribution: Marketing channels are responsible for assembly, storage, sorting,
and transportation of goods from manufacturers to customers.

Facilitation: Channels of distribution even provide pre-sale and post-purchase services like financing,
maintenance, information dissemination and channel coordination.

Creating Efficiencies: This is done in two ways: bulk breaking and creating assortments. Wholesalers and
retailers purchase large quantities of goods from manufacturers but break the bulk by selling few at a time
to many other channels or customers. They also offer different types of products at a single place which
is a huge benefit to customers as they don’t have to visit different retailers for different products.

Sharing Risks: Since most of the channels buy the products beforehand, they also share the risk with the
manufacturers and do everything possible to sell it.

Marketing: Distribution channels are also called marketing channels because they are among the
core touch points where many marketing strategies are executed. They are in direct contact with the end
customers and help the manufacturers in propagating the brand message and product benefits and other
benefits to the customers.

Types of Distribution Channels

Direct Channel or Zero-level Channel (Manufacturer to Customer)

Direct selling is one of the oldest forms of selling products. It doesn’t involve the inclusion of an
intermediary and the manufacturer gets in direct contact with the customer at the point of sale. Some
examples of direct channels are peddling, brand retail stores, taking orders on the company’s website,
etc. Direct channels are usually used by manufacturers selling perishable goods, expensive goods, and
whose target audience is geographically concentrated. For example, bakers, jewellers, etc.

Indirect Channels (Selling Through Intermediaries)

When a manufacturer involves a middleman/intermediary to sell its product to the end customer, it is
said to be using an indirect channel. Indirect channels can be classified into three types:

One-level Channel (Manufacturer to Retailer to Customer): Retailers buy the product from the
manufacturer and then sell it to the customers. One level channel of distribution works best for
manufacturers dealing in shopping goods like clothes, shoes, furniture, toys, etc.

Two-Level Channel (Manufacturer to Wholesaler to Retailer to Customer): Wholesalers buy the bulk
from the manufacturers, breaks it down into small packages and sells them to retailers who eventually
sell it to the end customers. Goods which are durable, standardised and somewhat inexpensive and whose
target audience isn’t limited to a confined area use two-level channel of distribution.

Three-Level Channel (Manufacturer to Agent to Wholesaler to Retailer to Customer): Three level channel
of distribution involves an agent besides the wholesaler and retailer who assists in selling goods. These
agents come handy when goods need to move quickly into the market soon after the order is placed. They
are given the duty to handle the product distribution of a specified area or district in return of a certain
percentage commission. The agents can be categorised into super stockists and carrying and forwarding
agents. Both these agents keep the stock on behalf of the company. Super stockists buy the stock from
manufacturers and sell them to wholesalers and retailers of their area. Whereas, carrying and forwarding
agents work on a commission basis and provide their warehouses and shipment expertise for order
processing and last mile deliveries. Manufacturers opt for three-level marketing channel when the
userbase is spread all over the country and the demand of the product is very high.

Dual Distribution

When a manufacturer uses more than one marketing channel simultaneously to reach the end user, he is
said to be using the dual distribution strategy. They may open their own showrooms to sell the product
directly while at the same time use internet marketplaces and other retailers to attract more customers.

A perfect example of goods sold through dual distribution is smartphones.

Unlike tangible goods, services can’t be stored. But this doesn’t mean that all the services are always
delivered using the direct channels.

With the advent of the internet, online marketplaces, the aggregator business model, and the on-demand
business model, even services now use intermediaries to reach to the final customers.

The Internet as a Distribution Channel

The internet has revolutionised the way manufacturers deliver goods. Other than the traditional direct
and indirect channels, manufacturers now use marketplaces like Amazon (Amazon also provide
warehouse services for manufacturers’ products) and other intermediaries like aggregators
(uber, Instacart) to deliver the goods and services. The internet has also resulted in the removal of
unnecessary middlemen for products like software which are distributed directly over the internet.

Factors Determining the Choice of Distribution Channels

Selection of the perfect marketing channel is tough. It is among those few strategic decisions which either
make or break your company.

Even though direct selling eliminates the intermediary expenses and gives more control in the hands of
the manufacturer, it adds up to the internal workload and raises the fulfilment costs. Hence these four
factors should be considered before deciding whether to opt for the direct or indirect distribution channel.