Distribution channels involve intermediaries such as wholesalers, resellers, and online networks to sell products to end consumers. Companies use different strategies, including hybrid channels, to reach consumers through zero, one, two, or three-tier channels. In corporate marketing channels, manufacturers sell directly to industrial customers or use industrial distributors and internal sales representatives.
Distribution channels consist of distributors, wholesalers, resellers, direct sales agents and online networks. A manufacturer of a product or service uses distribution channels to sell or deliver to the final consumer. There are marketing channels for both consumers and businesses, with several commonly used structures involving a variety of levels.
Most companies that produce goods and services do not sell directly to their end consumers. Typically, companies rely on other companies and organizations to get the product or service to the intended user. For example, a food manufacturer uses several retailers to display and sell its products. The reseller is considered an intermediary within the manufacturer’s distribution channel.
The type of intermediaries that exist in the distribution channels include wholesalers and retailers, brokers, manufacturers’ representatives, sales agents, transport companies, independent warehouses, banks and advertising agencies. When middlemen buy and take responsibility for the manufacturer’s goods, they are considered traders. Agents are touchpoints in the pipeline who look for customers and can negotiate sales for the manufacturer.
A company’s management makes decisions about the specific distribution channels that will be used for the company’s products. In the early stages of company development, a single strategy can be used, which will later branch out into a hybrid channel. When a number of distribution strategies are combined, such as using an Internet platform to ship products directly to consumers, as well as retail stores, the manufacturer is using a hybrid channel strategy. For example, computer maker Dell adopted this kind of strategy when it began distributing select models through discount warehouse retailer Walmart, continuing to fulfill the majority of its product orders directly.
In distribution channels aimed at reaching the consumer market, there are four popular structures that companies use to shape their strategies. The former is considered a zero-level channel, with the company selling directly to the final consumer. Many mail order and telemarketing companies are considered direct sellers.
A one-tier channel is where the business uses a reseller to distribute its product. The manufacturer does not use any other intermediaries to transfer the product from the company’s facilities. Rather, the product is sold directly to the retailer. Most Direct Store Delivery (DSD) manufacturers use this strategy.
Two-tier and three-tier distribution channels both involve the use of a wholesaler. The wholesaler purchases the product from the manufacturer and then in turn sells it to a reseller. In a three tier channel, there is an additional intermediary between the wholesaler and the retailer. A jobber purchases the manufacturer’s product from a larger wholesaler and distributes it to smaller retail customers.
In corporate marketing channels, the manufacturer either sells directly to an industrial customer or uses a combination of industrial distributors and internal sales representatives. Sometimes the manufacturer will use the sales side of the business to funnel the product directly to the commercial customer. In another arrangement, a company sales representative will sell the product directly to a distributor, who in turn sells the product to the actual customer.
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