Types of Distribution Channels
Industrial channels tend to be shorter than consumer channels because of small number of ultimate customers, the greater geographical concentration of industrial customers, and greater complexity of the product which require close manufacturer-customer liaison.
Consumer channels are normally longer because a large number of geographically dispersed customers have to be reached. The consumers buy in small quantities. The information needed to arrive at a purchase decision is limited because the products are not very sophisticated.
Manufacturers may reach out to consumers either directly, i.e. without using distribution channels, or by using one or more distribution channel members.
Manufacturer to Consumer
Direct marketing includes use of personal selling, direct moil, telephone selling and Internet. Avon cosmetics, Tupperware, Aquaguard and Amazon.com are examples of companies engaged primarily in direct marketing. The company contacts customers directly through salespersons, mail, telephone or Internet and make sales. The products are sent directly to customers by the manufacturers.
This is also called a zero level channel as there are no intermediaries.
Manufacturer to Retailer to Consumer
Retailers hove grown in size. Growth in retailer size means that it has become economic for manufacturers to supply directly to retailers rather than through wholesalers. Supermarket chains and corporate retailers exercise considerable power over manufacturers because of their enormous buying capabilities. Wall-Mart uses its enormous retail sales to pressurize manufacturers to supply products at frequent intervals directly to their store at concessional prices.
This is a one-level channel, with one intermediary, the retailer.
Manufacturer to Wholesaler to Retailer to Consumer
For small retailers with limited order quantities, the use of wholesalers makes economic sense. Wholesalers buy in bulk from producers and sell smaller quantities to numerous retailers. But large retailers in some markets have the power to buy directly from manufacturers and thus cut out the wholesalers. These big retailers are also able to sell at a cheaper rate to consumers than retailers who buy from the wholesaler. Wholesalers dominate where retail oligopolies are not dominant.
This is a two-level distribution channel.
Manufacturer to Agent to Wholesaler to Retailer to Consumers
Companies use these channels when they enter foreign markets. They delegate the task of selling their product to an agent who does not take title to the goods. The agent contacts wholesalers and receives commission on sales.
In their quest to reach more customers, companies are increasingly using multiple channels to distribute their products. A company’s product may be found in a company-owned store, an exclusive store, a multi-brand store, and a discount store simultaneously. Companies have realized that all customers of a product do not buy from the same retail.
This is a three-level channel.
Industrial channels are usually shorter than consumer channels. Direct selling is prevalent due to closer relationship between the manufacturer and the customer, as well as due to the nature of the product sold.
Manufacturer to Industrial Customers
This is a common channel for expensive industrial products like heavy equipments and machines. There needs to be close relationship between the manufacturer and the customer because the product affects the operations of the buyer. The seller has to participate in many activities like installation, commissioning, quality control, and maintenance jointly with the buyer.
The seller is responsible for many aspects of the operations of the product long after the product is sold. The nature of the product requires a continuing relationship between the seller and the buyer. The large size of the order makes direct selling and distribution economical.
Manufacturer to Agent to Industrial Customer
An industrial goods company can employ the services of an agent who may sell a range of goods from several suppliers on commission basis. This spreads selling costs and is attractive to companies who do not have the money to set up their own sales operation.
The arrangement allows the seller to reach a large number of customers. But there is little control over the agent, who is unlikely to devote the same amount of time and attention as compared to a dedicated sales team.
Manufacturer to Distributor to Industrial Customer
For less expensive, more frequently purchased products, a company may use distributors. The company has both internal and field sales staff. Internal staff deals with customer and distributor generated enquiries and order placing, order follow-up and checking inventory levels.
Outside sales staff are proactive. They find new customers, get product specifications, distribute catalogs and gather market information. They also visit distributors to address their problems and keep them motivated to sell the company’s products. Distributors enable customers to buy small quantities locally.
Manufacturer to Agent to Distributor to Industrial Customers
A manufacturer employs an agent rather than a dedicated sales force to serve distributors mainly due to cost considerations. The agent may sell the goods of several suppliers to an industrial distributor, who further sells it to the business user. This type of channel may be required when, for instance, business users require goods rapidly, when an industrial distributor can provide storage facilities.
Distribution channel for services are usually short, and are either direct or by using an agent. Since stocks are not held, the role of wholesalers, retailers or industrial distributors does not apply.
Service Provider to Consumer or Industrial Customer
Close relationship between service provider and customer means that service supply has to be direct, such as in healthcare. The service provider operates several outlets to reach out to the final consumer or to the industrial buyer. Many service providers, such as banks, retail outlets and service centers, operate via this distribution channel.
Service Provider to Agent to Consumer or Industrial Customer
Agents are used when the service provider is geographically distant from customers and where it is not economical for the provider to establish his own local sales team such as in insurance and travel. Many financial institutions are using this distribution channel to cross-sell their services to customers by using a database of existing or potential customers.
Service Provider via Internet to Consumer or Industrial Customer
Increasingly, services like music, software solutions and financial information are being distributed via the Internet. This distribution channel is successful in case of those products for which the customers’ decision to buy is possible via the net. This distribution channel can be adopted wherever the physical presence of the product is either immaterial or matters less for customers.