Everything You Need to Know About Distribution Channels

Are you looking to know more about distribution channels in order to improve your market positioning? Check out our detailed article explaining the different distribution channels, the benefits of each depending on the situation, and how to choose them in the best possible way.

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What is a Distribution Channel?

Before diving into the subject, it’s important to understand what a distribution channel is. A distribution channel allows your company’s products to reach the final customer, while adhering to a quality-cost ratio defined by your commercial strategy, established in advance. By definition, the distribution channel is the path the product takes to reach the hands of the end-user.

To achieve this, companies have several options and must choose a specific type of channel. As we will see in more detail later, these include direct sales, intensive distribution, or sales through a wholesaler. This is how your product will be distributed to its customer. To successfully optimise this path and choose the best solutions, companies need to define a distribution strategy based on various key factors: brand image, services, financial aspects, etc. Naturally, this policy will also face various constraints depending on the company’s size, financial means, and production methods. Distribution channels are established so that companies – regardless of their industry – can answer a fairly simple question: how do we get our products to the consumer?

The Different Types of Distribution Channels

To distribute their products, companies can opt for different distribution channels or circuits. We will explore some of these, to better understand why a company might choose certain distribution channels over others.

Direct Sales

The direct channel is the most traditional, where a company sells its product directly to the final consumer. For example, when a consumer wants to buy a camera, they go directly to the concerned store or the brand’s e-commerce site. The product thus reaches the buyer directly, without intermediaries in this distribution channel. By choosing this direct route, the company typically maximises its profits because there are no intermediaries, but it also has to invest more in sales teams and infrastructure, without relying on partners.

Retail Sales

This is the most commonly used distribution channel for so-called “mainstream” brands. The company uses third-party retail outlets to sell its goods. Retail sales include, for example, all large-scale retail, both food and non-food. Large retail chains act as intermediaries and points of sale for companies. Most retailers do not necessarily produce their own products; they buy them in bulk from brands to resell them to the general public.

Online Sales

With the rise of e-commerce, online sales have become a crucial distribution channel for companies across all sectors. This channel allows businesses to sell directly to consumers through their own websites or apps, offering the convenience of purchasing from anywhere at any time. Online sales also provide access to a global customer base and often come with lower operational costs compared to maintaining physical stores. Additionally, companies can collect valuable data on customer behavior to personalise the shopping experience and optimise their pricing strategies. However, online sales require strong digital infrastructure, including user-friendly websites, secure payment systems, and effective logistics to ensure fast and reliable delivery.

Marketplace Sales

Marketplace sales involve selling products through third-party. This distribution channel allows businesses to leverage the platform’s established customer base, logistics network, and marketing power. Marketplaces can provide increased visibility for brands and help them reach new customers without the need to manage their own e-commerce platforms. However, using marketplaces often comes with fees or commissions, and companies may face increased competition as multiple brands are listed on the same platform. It is essential to maintain competitive pricing and a unique product offering to stand out in these highly competitive environments.

Intensive Distribution

Intensive distribution is a type of retail sale. The goal of this distribution channel is for the product to be available to the potential consumer wherever they shop. This strategy involves significant logistical investments that should not be overlooked. Typically, this type of channel is used for essential everyday products, for which consumers do not have strong brand loyalty. However, it is not recommended to use the intensive distribution model for niche or luxury products that require a more targeted strategy.

Selective Distribution

A very common form of distribution, selective distribution is a specific variation of retail sales. Selective distribution is used when a brand chooses a few retailers, independent or not, to sell its goods to various consumers. Generally, this solution is chosen to provide the final customer with more personalized service than in large-scale retail. Most of the time, the target audiences of this distribution channel are demanding of brands and are willing to visit specific points of sale to find their favorite product.

Exclusive Distribution

In the same spirit as selective distribution, this type of retail distribution is more reserved for prestige and luxury brands. In this business model, companies partner with a single retailer in a specific sector. The idea is to restrict the availability of this prestige product as much as possible to project an exclusive brand image to the public. The goal is also to protect the brand’s image.

Dual Distribution

Of course, some brands and companies decide, as part of their strategy, to use multiple distribution channels to sell their products. For example, they might choose to work with retailers while also having their own direct sales outlets. This is known as dual distribution.

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Wholesale Sales

Similar to retailers, wholesalers act as intermediaries by purchasing products from manufacturers and selling them at a higher price, in bulk, to a second intermediary. It is the second intermediary who finally sells the product to the end consumer. This distribution channel is generally used by companies with limited market knowledge. It allows for commercial development and broader geographic coverage while reducing the stock management requirements, which are transferred to the wholesalers.*

How to Choose the Right Distribution Channel

Choosing the right distribution channel is very important because it will enable your target audience to acquire your product or service. Therefore, this choice must be the result of a thorough study and careful consideration. A company’s distribution strategy must address numerous issues. First, it is important to understand that the choice of distribution channel will depend on the nature of the product, production capacity, target market, and the company’s financial capacity. You should never rush your final decision. It must be able to answer many questions.

Study the Chosen Product Carefully

First of all, it is crucial to examine the product being sold to better understand it. You will need to put yourself in your target audience’s shoes to understand how your strategy should reach the customer and whether it should be associated with other products to become more attractive. Again, it’s all about positioning because depending on the product you want to sell to the final consumer, the form of distribution must be adapted. For example, if you decide to sell vegetables and fruits from a small farm, the most suitable channel would logically be direct sales, with real proximity to your target audience. In this case, you could sell at a local producers’ market. However, if you are selling computer equipment, it would be better to work with a specialized retailer. It is therefore important to carefully study your product as well as the market it is in, to establish a distribution strategy that makes sense.

Define Your Sales Objectives

Secondly, and to make your choice in full awareness, you will need to think about your sales objectives. Again, you need to ask the right questions. What type of population are you trying to target? Is it a very specific target, or is it more general? This will also help you determine the choice of your distribution channel. Are you trying to reach a wider audience for your product? In this case, the strategy to adopt would be retail sales with intensive distribution. However, in the digital age, it seems essential to consider the growing importance of digital sales tools and digital marketing. To communicate well with your consumers and deliver the right message, it is essential to implement a performant and optimized website to maximize your e-commerce sales.

Other Important Criteria

Moreover, regarding the success of your distribution strategy, important criteria will come into play, such as the location or the attractiveness of the area you choose. To start, you need to choose a location in a catchment area, meaning the geographic space that surrounds your point of sale. It should be a suitable area for customers to come to you. To achieve this, there are many elements to consider: the movement habits of your target audience, the proximity of supply sources, and the training opportunities for staff. Are you planning to rent a space to sell your products? Again, you will need to ask the most relevant questions, such as the history of your location to know if it is a safe area, its visibility relative to your potential target customers, the commercial environment, and, of course, the cost of acquisition. Everything should fit into your commercial and budgetary strategy.

The Impact of This Decision on Your Business

When choosing a distribution channel, you must consider your brand’s history. So, if you are just starting out and launching your business, your primary concern will likely be budgetary. Generally, in the early years, a company doesn’t necessarily have substantial cash reserves. Therefore, it will start its distribution strategy with a method suited to its means, before evolving its distribution mode as it grows. Nonetheless, it is important to choose a distribution strategy that aligns with your brand image.

Ultimately, the distribution strategy must be in harmony with the company’s overall strategy. Depending on the targeted product or service or the consumer profile, the company will not opt for the same choices. As we have seen, depending on the chosen distribution channel, it generates costs, and not all companies are capable of bearing the consequences. That is why all this must be studied and budgeted in advance.

Optimising Your Distribution Channels Using Pricing AI

If you want to better position yourself and gain market share in your field; optimising your distribution channels is crucial.However, it is sometimes difficult to assess how each one should be optimised.

This exercise, which is extremely complex, takes into account a large number of variables. Therefore, it may be wise to use a pricing AI like the one from PricingHUB to determine it. Its machine learning continuously tests to determine the elasticity of each product or service offered and suggests prices that instantly adapt according to the real conditions of your market and the commercial objectives you have set. PricingHUB also optimised pricing based on your distribution channels, ensuring you maximise profitability across different sales avenues. To learn more, don’t hesitate to contact us for a meeting with our experts and a free demonstration of our solution.

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