What Is a Distribution Channel? Common Types Today

Economists say an effective business campaign needs many contributing factors, and one that cannot be overlooked is this distribution channel. However, not many people understand what is a distribution channel? How many common types of distribution are there today? Let's Mona Media look at it in more detail in the article below.

What is a distribution channel?

Distribution channels is known as an intermediary form that helps businesses and organizations distribute services and products to the market, in order to bring them to the final consumer. It is a bridge between consumers and producers, so the supply chain of goods keeps flowing continuously and smoothly. In practice, the intermediary channels in a distribution system include the following:

• Wholesalers: Buy services and products from the producer, then resell them to other intermediaries or sell directly to customers (businesses or individuals).
• Retailers: Move goods from wholesalers or distributors to the final consumer.
• Agents and brokers: Represent the producer. They do not make the product themselves, but they are the largest source of supply to the other intermediaries.
• Distributors: Act as the intermediary that moves goods and services from sellers (retailers, agents, wholesalers) to buyers (wholesalers, retailers, final customers).

What distribution channels mean for businesses and customers

Distribution channels matter a great deal to both businesses/producers and consumers/customers:

For businesses

For a business or producer, the distribution system is the bridge between the producer and the consumers, buyers and users of its products. It is also a tool that helps the business understand the market, consumer tastes and competitors' moves. Distribution channels cover the market by delivering products to the customers who need them. They also support your business by making sure customer service is guaranteed, maintained, serviced and explained in detail at no charge,…

For customers

For customers or users, the distribution channel is how they find the products they want. A distribution network makes choosing and buying products easier and simpler for consumers. Besides selling on the producer's behalf, distributors can also answer customers' questions about the products more easily and give consumers the best advice.

Common distribution channels in marketing

Today, distribution channels are one of the most effective tools many businesses use to market their products. So which distribution systems are the most common in marketing? Specifically:

1. Multi-level distribution channel

This is one of the most common types in the goods market today. Here, consumers are also a party that distributes services and goods to other consumers. Being so versatile, multi-level distribution is becoming a trend in the modern economy. It can adapt flexibly to meet the needs of different business models. A multi-level distribution channel also helps producers save and optimize the cost of running intermediary channels. But it is easy to abuse and can turn into dangerous multi-level scams.

2. Direct distribution channel

A direct distribution channel is also called a zero-level channel. It is one of the simplest types in distribution networks today. In a direct distribution system, intermediaries are removed and goods go straight from the producer to the consumer. In a direct channel, the producer or seller usually chooses one of two platforms: selling through e-commerce marketplaces or selling directly at a traditional store. Both platforms deliver the highest sales results for the producer because goods go directly to the consumer. This approach saves a lot of related costs.

3. Indirect distribution channel

The opposite of the direct channel, an indirect distribution channel needs the help of intermediaries to move goods from producers or agents before they reach the user. An indirect distribution channel is divided into 2 smaller types:

• Modern distribution channel: The parties in this network are usually fewer, because producers, agents and other intermediaries merge to supply services and products straight to customers
• Traditional distribution channel: Follows the traditional order, from the producer through one or more intermediaries and finally to specific customers.

These two indirect forms are also commonly shown in a basic distribution diagram. They are essential parts of the relationship between consumers and producers. Indirect distribution usually takes longer for a product to reach shelves and customers' carts, because it passes through many intermediaries. It is also a way to spread goods across many channels and reach many kinds of customers in the market. As a result, sales and profits for many producers can grow quickly.

4. Mass distribution channel

The mass distribution model is widely used for everyday consumer goods or fast-moving consumer goods, and businesses roll it out at retail points of sale. But before choosing where to sell, you need to research the market and your competitors carefully. For example: Vinamilk chose a mass distribution strategy for their products. As a result, the company has a wide distribution system across 63 provinces and cities and more than 220,000 points of sale for its products.

5. Exclusive distribution channel

An exclusive distribution channel suits high-value, luxury goods best. If you choose retailers to distribute exclusive products, those retailers must commit to selling only your company's products. A business can also sell in its own stores. Prices are then set at list price and stay stable. For example: The watch brand Seiko uses an exclusive distribution strategy. Its retail stores display products to the manufacturer's standards.

6. Selective distribution channel

A selective distribution channel sits between exclusive and intensive distribution. With a selective distribution model, your products are sold at certain locations only. To avoid competing brands appearing on the same shelf, businesses choose this distribution model and deal with selected retailers. For example: The shoe brand Nike distributes its products in stores at high-end shopping malls or large stores.

What role do distribution channels play in marketing?

The distribution system has become an indispensable part of buying and selling. It also plays a very important role in many fields, including marketing. The roles of distribution channels in marketing include:

• Support marketing activitiesso they can use their full promotional power through the variety of platforms and distribution systems.
• Collect consumer feedback and opinions about marketing activities. This lets a business fix and adjust in time.
• Thanks to the distribution network, many marketing campaigns today achieve a very strong viral effect and reach a wide range of potential customers.
• A modern distribution channel also helps a business grow sales steadily and quickly in today's direct marketing models.
• When a distribution network is combined with marketing, consumers' level of satisfaction with their buying needs is met as fully as possible.

-> See also: 8 types of multi-channel support platforms for businesses

How do distribution channels affect a business?

Deciding where to distribute goods, products or services is always a hard decision for businesses and leaders. A leader's decision on distribution channels directly affects all later decisions about Marketing, strategies and marketing methods. These decisions also affect the marketing budget, the sales team, the need for staff training and agent management. Distribution channels also affect long-term commitments to partner companies.

How does a distribution system affect a business?

Today, keeping up with new business trends is just as necessary as using a distribution system if a business wants to win a position in a competitive market. If a business chooses well and uses its distribution sources sensibly, they help it reach what it wants: profit, brand, competitive edge and customers,… The positive effects of distribution channels also help a business gain a firm footing in the market and a deep understanding of customers, so it can set excellent business strategies for the future. See also:

• Steps to define a customer profile
• How to identify customer behavior

However, if a business is not careful with its distribution sources, they can become a double-edged sword and bring unwanted risks to the whole company. The most dangerous result of choosing the wrong distribution system is that customers lose trust and form a negative view of the business. Without customers, everything a business does becomes meaningless.

The process of building an effective distribution channel

A distribution system is an extremely important external resource for a business. To build a distribution channel faster and more effectively, you can follow this process:

Step 1: Define the market and target customers

To build an effective distribution channel, you cannot skip this first step: defining the market and target customers. This step is the most important and takes the most time. You need to invest time and effort to understand the market, who your customers are and what they want. Only then do you have a basis for a fitting business plan and strategy. To define the market and target customers, answer these questions:

• Which kinds of customers does the company's sales strategy suit?
• What infrastructure is needed to build a distribution system?
• What experience and capabilities are needed?
• What does the specific customer profile look like?
• How do your target customers shop on e-commerce marketplaces?
• What content and articles will attract your target customers?

-> See also: The 5 steps in detail your target market

Step 2: Make a list of potential distribution channels

Distributors play an important role in building a distribution channel. So you need a specific list of potential distributors, ranked in priority from highest to lowest and from most important to least important.

Step 3: Negotiate and agree terms with the distribution channels

Once the first 2 steps are done well, move on to step 3: negotiating and agreeing terms with your agents and distributors. The business's topics to negotiate include:

• The benefits of the products or services your company provides.
• Product prices.
• The profit they earn by distributing your products or services.
• Commission policy and promotion programs.

To succeed at this step, keep in mind:

• Prepare a script for questions customers may ask.
• Apply the principle of fair give-and-take so both sides benefit in the negotiation.
• Keep Yes/No questions to distributors to a minimum.

Step 4: Choose the right distribution channels

Among the distribution channels you negotiated with successfully, narrow down and pick the most suitable one before deciding to work together. To tell which distribution system fits, consider these factors:

• A similar market and target customers.
• Meets the agreed commission percentage and profit.
• Already has experience distributing products or services.
• Able to invest in the long term and do it well.
• Responsible and professional.
• Has clear goals and direction for growth.
• Follows the agreement between both sides.

From these specific evaluations, you will find suitable distributors. Then you can sign the agreement. But do not forget to look at each side's rights and obligations in the contract.

 Step 5: Review your decisions

Summarizing and reviewing your decisions is an important step before you finish building the distribution channel. It helps you promptly set the best methods for high effectiveness. When you review your distribution system, pay attention to these 3 essential basics:

• Vision and mission of the business.
• Sales goals.
• Where the business wants to grow.

Step 6: Develop and control your distribution channels

Once your distribution network is built, you can put your full effort into growing the channel. The main goal is to push distribution harder so your product reaches your target customers faster. Besides building and growing the channel, you also need to control it with specific measures such as:

• Keep up with market trends and shifts.
• Collect feedback and survey customer satisfaction with your products and services in several ways.
• Build training and support programs for your distribution intermediaries.
• Use modern software and technology to manage the distribution system efficiently, saving time and cost and keeping things convenient.

You can also use this strategy as a basis to adjust your current distribution system or keep it as it is, so the business performs better. -> See also: How to measure goals with KPIs that work for the business

Frequently asked questions about distribution channels

1. What is a one-level distribution channel? A one-level distribution channel uses retailers as the intermediary. The manufacturer sells directly to the retailer, and the retailer sells to the final consumer. No wholesaler is involved in this channel. 2. What role does the distribution channel play in business and marketing? The distribution channel you choose directly affects your overall strategy and each marketing plan. Sales strategy also differs from one distribution system to another. So a business has to define its distribution system before it can build marketing strategy and sales. 3. How do you build an effective distribution channel? To build an effective distribution network, make sure you:

• Choose the right distribution channel.
• Analyze your potential customer base.
• Measure performance correctly and adapt quickly to change.

4. What should you watch out for when managing a distribution channel? When you manage a distribution channel, it is easy to make mistakes that disrupt operations and cause trouble. Avoid these mistakes:

• Confusing distribution partners with end customers.
• “Overstuffing” the distribution network.
• Expecting a supplier to deliver a channel instantly.
• Believing “more agents means more profit.”
• Ignoring demand creation.
• Not supporting your partners.
• Being indifferent to using technology in channel management.

In short this distribution channel is still known as a powerful tool for helping businesses with marketing and selling. We hope this article gives you more useful knowledge to answer the question what is a distribution channel along with some popular types today.