What is a Distribution Channel?
Distribution channels are the paths that products and services take on their way from the manufacturer or service provider to the end consumer.
For instance, a manufacturer of light bulbs may produce the light bulbs, but the distribution channel that takes them from factory to customer is likely to include wholesalers and retailers. These links in the sales chain are the light bulbs’ channel of distribution.
Companies develop various distribution strategies or channel strategies for their products and services, based on a variety of factors and potential steps in the distribution process or intermediaries.
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What we will cover:
- Types of Distribution channel explained
- Distribution Channel in the Digital Age
- Defining your Distribution Strategy: How Do You Choose the Right Channel for Your Business or Product?
- Considerations When Developing a Distribution Strategy
- Distribution Channels in Marketing
- Pulling It All Together: Make Distribution Channels Work for You
- What is a Distribution Channel?: Key facts and FAQs
Types of Distribution Channels Explained (with Examples)
What is a Direct Distribution Channel?
Direct Distribution Channel Example: Tesla
Tesla is a well-known real-world example of a company that employs a direct distribution channel. Instead of selling its electric vehicles through traditional dealerships, Tesla markets and sells its cars directly to consumers through its online platform and company-owned showrooms. This approach allows Tesla to maintain tight control over pricing, customer experience, and brand messaging.
However, it also means that Tesla must invest significantly in its own sales infrastructure, digital marketing, and customer support systems to ensure a seamless buying experience across various regions.
What is an Indirect Distribution Channel?
An indirect distribution channel is where companies work with one or more distribution partners or intermediaries to bring products and services to customers.
There are numerous types of intermediaries that could be used in an indirect distribution channel:
The length of the channel of distribution depends on the number of intermediaries.
A short distribution channel could be:
Company > VAR > Customer
A long distribution channel could be:
Company > Distributor > Wholesaler > Retailer > Customer
All of these intermediary partners serve as a connection between a company and its customers. Intermediaries often aren’t occupied with manufacturing, for example, so they can devote themselves to marketing and sales.
Indirect Distribution Channel Example: Coca-Cola
Coca-Cola is a prime example of an indirect distribution channel in action. Instead of selling directly to consumers, Coca-Cola relies on a vast network of intermediaries:
Bottling Partners: Coca-Cola produces its concentrate, which is then sold to independent bottling companies. These bottlers mix the concentrate with water and other ingredients to produce the final beverage.
Distributors & Wholesalers: The bottlers distribute the finished products to regional distributors or wholesalers, who then manage the logistics of getting the product to various retail outlets.
Retailers: Finally, retailers – from supermarkets and convenience stores to vending machines – sell the product directly to the end consumer.
This model allows Coca-Cola to achieve a global market presence without the need to build and manage a large retail infrastructure. The company can focus on brand building and marketing while leveraging the expertise of its partners in logistics, local market dynamics, and customer service. However, this approach also means sharing profit margins with several intermediaries and having less direct control over the customer buying experience.
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Distribution Channels in the Digital Age
1. Enhancing Direct Distribution Channels
Digital tools have made it easier for companies—especially small businesses—to sell directly to consumers. Key points include:
Easy Setup: Affordable eCommerce website templates and payment processors (like PayPal) allow businesses to sell online without needing retail partners.
Smart Sales Management: Tools like Salesforce Einstein help automate routine tasks, manage customer data, and free up sales teams to focus on building personal relationships.
Modern Marketing: Inbound marketing (using content) and social selling (through social media) are now industry standards. For example, PwC’s Total Retail Survey found that 39% of consumers are inspired to make purchases from social networks.
Cost-Effective Reach: With digital marketing and targeted online advertising, small businesses can reach specific audiences without a huge marketing budget.
2. Streamlining Indirect Distribution Channels
Even when companies use intermediaries, digital technology improves how they manage these relationships:
Data-Driven Decisions: Enterprise software collects customer data from various touchpoints, allowing companies to better manage both customer relationships and partnerships with intermediaries.
Efficient Management: Digital tools enable companies to coordinate with partners more effectively and adjust their overall distribution strategies with precision.
In summary, whether selling directly or working with intermediaries, digital technology empowers companies to reach customers more efficiently, manage relationships better, and optimize their distribution strategies.
Defining your Distribution Strategy: How Do You Choose the Right Channel for Your Business or Product?
First of all, one size of distribution channel does not necessarily fit all of your products. You may have different approaches within your company. So, how do you know which distribution channel is the best for your product or service?
Look at the product itself.
Does it need to reach the customer quickly? Does it need to be bundled with other products in order to be useful or attractive? If you’re selling fresh vegetables from a small farm, your best distribution channel might be direct, selling at a local farmers’ market. If you’re selling a specific piece of computer hardware, you might be better off working with a VAR or major retailer of computer products that complement your product.
Consider your sales goals.
Are you trying to target a very specific, international population of enthusiasts, such as gamers? Then maybe a direct channel of distribution via the Internet geared towards connecting with influencers in the community focused on your type of video games may work better than using a wholesaler and their retail partners. But there might already be a retailer that has created a meaningful relationship with that community and has expertise in this area - in which case, an indirect distribution channel might be a better bet. Are you trying to achieve the widest possible audience for your product? Then, perhaps the bigger wholesalers and retailers are the perfect intermediaries within an indirect distribution channel.
Considerations When Developing a Distribution Strategy
Here are some tips for an effective distribution strategy:
Think about the needs of your customers.
Beware of channel conflict if you choose to use multiple distribution channels for the same product.
Include your distribution channel partners in your company’s marketing strategy.
Distribution Channels in Marketing
When thinking about distribution channels, marketing is usually a core component. That’s because marketing isn’t just about reaching end consumers – it’s also about engaging and empowering your distribution partners if you’re leveraging indirect distribution, or owning the end-to-end customer relationship via a direct distribution strategy.
How should you think about distribution channels in marketing?
Your chosen distribution channel can be a powerful differentiator in building your brand and enhancing marketing effectiveness. For example, Tesla’s direct distribution model example we covered earlier, allows the company to control every aspect of the customer experience – from pricing and showroom design to digital marketing and after-sales service. This tight control not only reinforces Tesla's strong brand identity but also differentiates it from competitors who rely on traditional dealerships.
On the other hand, companies that opt for an indirect distribution channel can still benefit by leveraging the robust marketing operations of their intermediaries. By partnering with distributors or retailers that have strong local market expertise and established customer bases, these companies can extend their reach and enhance brand credibility without having to build the full marketing infrastructure themselves.
Pulling it all together: Making distribution channels work for you
There is so much to consider when developing a distribution strategy - how do you make sense of it all? The key is managing your data and understanding what it’s trying to tell you about your company’s needs, your products and services, B2B customers, and end consumers.
A CRM system could be the answer. Partner relations can be managed in the same way as customer relationships and a CRM provides the technology to support this.
That’s a lot of info!
Here’s what you should take away from this article:
- What’s a distribution channel? A distribution channel is a path that a product or service could take on its way to market.
- What’s a direct distribution channel? A direct distribution channel is one where a company sells directly to the consumer, usually through their website or retail store.
- What’s an indirect distribution channel? If a company is using an indirect distribution channel, it means they’re using an intermediary to bring their product or service to the customer.
- How do I choose a distribution channel? When choosing a distribution channel, consider your audience, your sales goals and the product itself. Different products require different approaches.
- How do I develop a distribution strategy? Developing a distribution strategy starts with focusing on the needs of the customer, deciding what distribution channels should be used, and conferring with partners on a marketing strategy.
- How do I get the most out of my distribution channels? Optimise your distribution channels by better managing your data to gain actionable insights. A CRM system can help.
