Choosing the Right Distribution Channel

What are direct distribution channels? A distribution channel is simply a chain of intermediaries or companies through which an item or a service passes from start to finish before it reaches its intended customer. Direct distribution channels can consist of retailers, wholesalers, distributors, and the postal service. The key benefit of a direct distribution channel is that you don’t have to hold inventory and handle return shipping. For businesses this is often very beneficial as they do not have to allocate additional staff to deal with these tasks. For the consumer this can often result in considerable savings, as the retailer can offer the item directly to the customer and avoid the cost associated with storing and returning the order.

Common Distribution Channels

Some of the most common direct distribution channels include wholesalers and manufacturers. Wholesalers often obtain products in bulk from a manufacturer who then distributes them to retailers at an agreed upon price. For example, if you wanted to buy a Ford Focus 2.0 GDi, you probably aren’t going to contact the manufacturer or the wholesaler, but the retailer at a showroom. This is typically the manufacturer producing the item in question, or sometimes it is an importer from another country. The advantage of wholesalers is that they often offer lower prices than retailers, which means they are able to pass on some of the savings to their customers.

Manufacturers often form an intermediary distribution channel. An intermediary is a company that acts as a go between for the wholesaler and the retailer. Often they will act as a third party and take on the role of accepting the order, arranging the shipment, and handling returns. They are also responsible for handling customs duties.

Benefits And Drawbacks

There are advantages and disadvantages associated with both types of distribution channels. For example, when a wholesaler ships products directly to the end consumer, there is no physical contact between the wholesaler and the retailer. This means there is no opportunity for the retailer to evaluate the quality of the product. This can lead to unhappy end consumers, who have to spend additional money to get replacement items. On the other hand, when a retailer forms an intermediary distribution channel, the retailer is typically involved in the initial purchase and sale of the product as well as in any returns or exchange sales.

Macro Distribution

In addition to direct and indirect channels, there exist at the macro level, macro distribution. This occurs when one business purchases goods in bulk from another business. For instance, a manufacturer might purchase widgets in bulk from a distributor. This is known as a “bundle” arrangement. A similar situation occurs between wholesalers and retailers when they sell widgets to each other, referred to as a “wholesale channel.”

Direct and indirect channels have two distinct purposes. At the macro level, they provide businesses with a way to increase their sales performance. At the micro level, they allow a business owner to take advantage of price discounts and waived freight charges to reduce expenses. When combining the direct and indirect channels, it is possible to provide more products to customers for a lower cost. However, this technique does not eliminate the need for warehouse space, storage, returns, or insurance.

Marketing Plans

If a manufacturer decides to use direct selling, it is important that he also formulates a marketing plan. The marketing plan will guide the manufacturer in deciding the pricing of the products. It will also determine the distribution channels, which include warehouses, retail stores, Web sites, call centers, and other strategies to market the goods of the manufacturer. The key to success is in finding a distribution channel that allows the manufacturer to offer the lowest prices to the consumer while still generating quality sales leads.

Summary

In conclusion, when purchasing goods, it is important to choose the right one at the right time. Manufacturers should evaluate both the macro level distribution channels and the micro level distribution channels. It is important to establish a clear strategy at the beginning to ensure success. The strategies should be developed according to the nature of the goods and the company’s marketing strategies.

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