What is a direct distribution channel? A channel of distribution starts with a manufacturer and ends with an ultimate user or end-user. A manufacturer makes or supplies products and services to the ultimate customer. End users are the ones who receive, use and/or dispose of the products or services of a manufacturer.
Different Parts Of The Distribution Channel
Distribution channels include sales through retailers, sales through wholesalers, and sales through distributors. Retailers are entities or individuals who sell goods and services to consumers directly. Wholesalers are entities or individuals who sell goods and services to retailers.
The most common channels of distribution are retailers, wholesalers, distributors, and intermediaries. Intermediaries include companies that send their products to retailers or customers directly. For example, when a business advertises through a podcast on Spotify, they are reaching the consumer directly. They may employ third-party services like SpotifyStorm for better marketing results, but their communication is direct.
How Distribution Channels Impacts The Market Structure
It influences consumer prices as well as the supply curve. It also affects the manufacturer’s ability to make a profit. By using various distribution channels manufacturers and traders can easily adjust the price of their products to match the demand and supply of consumer goods. By adjusting prices they not only can attract more consumers but also minimize the cost of production. However, this process of adjusting prices too often leads manufacturers and traders into a loss-making cycle.
Types of Distribution Channels
One is a Major channel and another one is a Minor Channel. Major distribution channel consists of retailers and wholesalers. Retailers sell directly to the end-user, who then sells to the end-user directly. Retailers can either be part of a chain or independent.
- A major distribution channel usually sells a large number of goods and services to customers at low prices. By selling them directly to customers, they get the benefit of a reduced margin. By selling them at zero level the producer or trader can keep his cost of production unchanged. Thus the producer can achieve a certain level of profit.
- On the contrary, a minor distribution channel refers to a manufacturer selling goods directly to retailers. The manufacturer performs an intermediary role between the retailer and the customer by selling him the wholesale rate. In case the retailer is located at a distance, he can purchase the goods from the manufacturer and deliver the same to the end-user. Retailers can either be a part of a chain or can operate independently. But in both cases, the consumer gets the benefit of price-fixing between manufacturer and retailer.
Direct Vs. Indirect Distribution
Both indirect and direct channels play an important role in the economy of any nation. However, most of the economy is driven by indirect channels. Direct channel refers to the manufacturer selling directly to the end-users, while indirect channels refer to groups of intermediaries who facilitate the final consumer buying process between the manufacturer and the end-user. These intermediaries include distributors, stores, agents, and brokers. All these groups try to earn profit by adding their share in the overall cost of production. Each of these groups tries to maintain a price level above the other.
The nature of the distribution channel has some main effects on the industry of any nation. For example, when a producer decides to change the rate of his product he will have to alter the price of his product also. And if the price of the product increases, then the distributor or broker also has to increase his prices. Thus, in a way indirect channels add to the overall cost of production for both the manufacturer and the end consumer. The direct method is advantageous to the manufacturer because he gets a complete profit and the end consumer also gets a good deal.
Some of the big manufacturing companies are now making use of direct distribution channels to increase their revenues. However, it is not easy for them to change their current distribution strategy and still remain in business. The reason behind this is that they do not want to lose their current customers. Therefore, in order to make their customer happy, they make sure that they follow all the distribution guidelines. They make use of distribution consultants to find out the best strategies in use by other successful firms in the field.
The distribution channel plays a very important role in increasing the revenues of the company but it does not mean that all the efforts are made by the firm on its own behalf. Distribution channels can either be done manually or using computerized systems. The manual methods include distributing shoes, booklets, newspapers, etc. All three types of distribution strategies are described below.
The traditional manual distribution channels include having distributors coming to the shop to deliver the products directly to the consumers. However, computerized systems have made things much easier today. A good example is a supermarket chain. If a customer wants to buy a product from the market then a salesperson enters the store and uses a computer system to locate the products available in the store according to the customer’s specifications. Then, the salesperson calls the customer on the telephone and explains to him the benefits of the product and why he should buy it.