The distribution of a business’ products is a key marketing activity which links to the ‘Place’ P
of the extended marketing mix. How the product gets from the producer
to the end consumer is a critical factor which can impact not just how many sales a business makes,
but how profitable those sales are. Therefore, it’s essential that products are
available for consumers to purchase in locations which are convenient to them, in other words,
products are available in the right place, at the right time, and in the right quantities.
Typically, businesses have several options when deciding where customers can buy their
products from, these are known as ‘distribution channels’ and include:
Direct selling Retailing
and wholesaling This video will explore each one
of these distribution channels with examples of businesses which use them along the way.
So first up, it’s direct selling, which is also known as direct-to-consumer distribution.
There are no intermediaries or additional levels to the direct selling distribution channel.
In other words, it just involves the manufacturer and the consumer.
The business simply produces the product and supplies it directly to the consumer
without the involvement of a third party. Through the direct selling approach,
a business has full control and flexibility over the distribution of its products
and services, reaching consumers through a variety of methods such as the internet,
direct mail, or even door-to-door selling. Direct selling is a very popular choice of
distribution channel for service businesses such as dentists, hairdressers, and solicitors.
But is also used by many businesses which produce products, for example Gymshark,
Boohoo and Moonpig all utilise the direct selling distribution channel through their websites.
Because no third parties such as retailers and wholesalers are involved, the manufacturer
doesn’t have to share a cut of the revenue or agree any terms and conditions with them.
This provides the manufacturer with greater control and flexibility in the distribution
of their products and services, meaning they can employ strategies such as having a sale
to become more competitive in the market whilst still retaining a good level of profit per sale.
However, as consumers don’t typically purchase in big quantities like wholesalers and retailers do,
using the direct selling distribution channel typically leads to lower total sales volumes,
whilst the manufacturer is often hit with increased distribution costs per sale and
would usually need to invest heavily in marketing to attract consumers.
The second distribution channel is retailing. When using the retailing distribution channel,
a manufacturer would produce products and sell them onto a retailer in bulk with the aim of
consumers being able to purchase them from a wider range of locations which may be more convenient to
them in comparison to the direct selling method. This helps the manufacturer to sell more of its
products as retailers typically have a wider reach and higher footfall across multiple locations,
meaning more consumers are seeing the brand and the business doesn’t have to
invest as heavily in marketing. Selling through retailers also
reduces the distribution costs for the manufacturer in comparison to direct selling.
This is because the number of deliveries required reduces
as the product is delivered in bulk to each retailer instead of individually to each consumer.
It’s also important to acknowledge that retailers will only stock a business’ products if they
believe they can make a profit, therefore they will pay less than a consumer would,
meaning it’s typically not as profitable per unit for the business.
Retailing is a very popular choice of distribution channel and can really help
a manufacturer to reach a wider range of consumers that they might find impossible
to reach via the direct selling method alone. Examples of famous manufacturers who sell their
products through the retailing distribution channel include Nike, Heinz, and Samsung.
Alongside retailers, some businesses use agents or brokers to link buyers and sellers together, which
has become a very popular form of distribution channel in the travel and tourism industry.
The third and final distribution channel, is wholesaling.
Wholesaling as a distribution channel involves wholesalers buying products from a manufacturer
in very large quantities with the aim of selling them on to various retailers,
many of which will be independents, who will then sell the products onto consumers.
This is the most complex of the three distribution channels as another layer is added
and there’s now two intermediaries involved, a wholesaler and potentially multiple retailers.
Selling to wholesalers, allows a manufacturer to guarantee high sales volumes due to the amount of
product a typical wholesaler would purchase. Which also leads to reduced distribution
costs in comparison to the manufacturer selling and shipping their products to
multiple retailers or individual consumers. Whilst at the same time, the manufacturer
still benefits from the exposure and reach it gains from retailers once their products
appear in their stores, meaning they again don’t need to invest as heavily in marketing.
However, as two intermediaries are now involved, profit margins are squeezed even tighter,
as both the wholesaler and the retailer look to make a profit.
By selling to wholesalers, the manufacturer typically loses control over which retailers
will then be able to purchase and sell their products onto consumers,
which could result in the brand’s image being damaged if the wrong retailer is involved.
Mars, Kellogg’s and Persil are all famous examples of manufacturers
which successfully utilise the wholesaling distribution channel for their products.
So, now that we’ve looked at the three different types of distribution channel,
it’s important to acknowledge that manufacturers can infact,
utilise a range of distribution channels and don’t have to just use one exclusively,
this is known as multi-channel distribution. But knowing which distribution channels to use
will depend on a variety of factors such as: The nature of the product
The costs involved and impact on overall profitability
The type of market that the manufacturer operates within
And the level of control that a manufacturer wishes to have
over the distribution of its products to consumers Apple are a great example of a business who
utilise multi-channel distribution successfully as their products can be purchased directly from
their website, via their retail stores and through various independent retail chains.
So that’s it, distribution channels explained. I hope that’s given you a good insight into
the different types of distribution channels a business which manufacturers products or provides
services can choose from, as well as some of the key benefits and drawbacks of each one.
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