Channels of Distribution

You have developed a clearer idea of your industry and your potential competitors. It is now time to determine how you will get your product to your customer and what channels of distribution you will use.

There are two main ways in which companies distribute products to customers – direct and indirect.

 

Direct Channels of Distribution

In the direct channel, a company sells directly to the customer without an intermediary. There are many examples of direct channel distribution such as:·

  • Web: Customers buy directly from the website and the product is shipped to them. Examples include Amazon, Apple, virtually all retailers and a host of other companies.
  • Web downloads: This is even better and faster. Customers buy and download software, music or movies immediately. iTunes, Microsoft and most software companies offer this option.
  • Retail locations: This is the predominant channel for most businesses, including:

o  All restaurants: Chipotle, McDonald’s, KFC, Olive Garden and every coffee shop you have ever been to including Starbucks, Peet’s Coffee and Dunkin Donuts.

o  All retailers: Best Buy, Macy’s, grocery stores, office supply stores, hardware stores, etc.

o  Many services: Doctors, hairdressers, dry cleaners and financial advisors.

  • Store pickup: Domino’s and Ikea are prominent examples.
  • Home delivery: Pizza places
  • Home care: Lawn care, plumbers, electricians and most trade services.
  • Farmer’s markets
  • Home shopping TV channels
  •  Infomercials
  • Catalogs
  • Vending machines

Indirect Channels of Distribution

In this case intermediaries are utilized to deliver the products to the customers.The retailer is the key gatekeeper in this form of distribution. The retailer does not generally make the product. Rather companies sell their products to retailers who then sell it to customers. Both the manufacturer and the retailer see the customers as their customers.

  • Company – Retailer – Consumer

o  P&G sells Crest, Tide and Gillette to Walmart who then sells it to us.

o  Publishers like Random House and Hatchette sell books to Amazon, which in turn sells them to you and me.

  • Company – Wholesaler – Retailer – Consumer

o  A retail location can rarely hold a truckload of any one product whether it’s toothpaste, cereal or detergent. In such cases, manufacturers sell their products to wholesalers, who have the capacity to hold large inventories. Retailers then order a combination of products from these wholesalers in truckload quantities. These products are then stocked in the retail stores where consumers can buy them.

o  Let’s follow the story of a box of Cap’n Crunch from its birth to its consumption in your house. The cereal is manufactured at a Quaker Oats’ plant and then shipped to a wholesaler. A retailer like Jewel in Chicago or Vons in Los Angeles will then order a variety of products to fill a truck from such a wholesaler. The truck brings the assortment of the products to the local stores. You then go in and buy a box of Cap’n Crunch and take it home or eat it eagerly on the way back.

  • Company – Agent – Wholesaler – Retailer – Consumer

o  Sometimes another step is involved in the distribution process. Specialty products that are smaller in scale will hire an agent to represent them in dealing with the retail trade. Such agents represent many small companies have marketing and retail expertise and help these smaller companies get distribution and product movement. Most stores will have a specialty aisle for such items. If a product is successful, it will often be bought out by a larger company. Vitamin Water, Odwalla and Naked Juice are examples of this phenomenon.

Verinder Syal: Author: Discover The Entrepreneur Within

Written by Verinder Syal
Verinder is the Principal at Thoughtful Simplicity, an award-winning teacher at Northwestern University, and the author of Discover The Entrepreneur Within.