What are Distribution Channels
Distribution channel simply refers to the path or route through which product moves from producer to ultimate customer. It is through distribution channels that businesses are able to deliver their products to customers. The place of production & consumption of products is not the same therefore the distribution channel has an efficient role in overcoming this problem.
Distribution channel overcomes the place barrier in delivering the products. If customers are not able to get their products at the right time & in proper condition from businesses, they will definitely look for other options in the market. Businesses should therefore carefully decide their distribution channel for serving their customers better & winning their loyalty. They should try to lower the cost involved in delivering goods to ultimate customers. Also, they should choose the one involving fewer intermediaries in between that will lower the profit margin & cost to customers. This will help in reducing the time involved in the delivery of goods.
There are different types of distribution channels available for businesses to choose from. Broadly, there are 2 main categories of distribution channels which are discussed below:
Types of Distribution Channels
- Direct channel or Zero level channel.
- Indirect channel.
It is the most simple type of distribution channel. Direct channel is one of the oldest form of distribution channel used by businesses to sell their products. It is also termed as Zero-level channel because there are intermediaries involved in this type of channel. Producers directly delivers its products to their customers with using any middlemen.
The most important advantage of this channel is that it cuts all profit margins of the intermediaries. Businesses are able to deliver at lower rate to their customers. It also reduces the time involved in delivering process as product directly flows between manufacturers & customers. This channel is basically used by businesses to sell perishable or expensive goods.
Indirect channel is those in which manufacturers do not directly sell to customers. There are various middlemen & intermediaries involved in the distribution channel. Intermediaries work for their commission. They purchase products in bulk from manufacturers & supplies them to final customers as per their demand.
This type of channel saves manufacturers from risk of delivering products. They sell all their products to intermediaries & receive payment in cash. There are 3 types of indirect channel: one level, two-level & three-level channel.
One level channel
It is a distribution channel where there is one intermediary involved in between manufacturer & customers. This intermediary is termed as retailer. Manufacturers instead of selling their products directly to customers sell them to retailers. These retailers then sell them to customers as per their requirements. Retailers set their profit margin over the price they pay to manufacturers. This channel is used for consumer goods like clothes, furniture, watches, mobiles etc.
Two-level distribution channel is one in which there are 2 intermediaries involved in distribution network of business. These intermediaries are wholesalers & retailers. Producer’s sells goods in large quantities to wholesalers; wholesalers sell them in small quantities to the retailers. Retailers finally deliver the goods to customers in quantities demanded by them. They both charge their commission for supplying the goods from producers to customers. This channel is more convenient in case of durable & inexpensive products.
Three-level distribution channel is longest form of distribution channel. Here there are 3 intermediaries involved: Agents, Wholesalers & Retailers. Agents are the person who represents the producer & company. In place of manufacturers, the agents deal with intermediaries. These agents do not have ownership of goods but they work on remuneration basis for companies.
In this channel, agents sell goods to wholesalers on behalf of the company. Wholesalers then sell these goods to retailers & retailers sell these to final customers. This channel is used when demand for the product is very high & customers are scattered largely all over the country.