The Major Functions of a Distribution Channel

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Distribution channels play an essential role in a company's supply chain. A distribution channel strategy is one way a manufacturer can bring its products to market. It can be an effective way of reaching a variety of customer demographics. Distribution channels can work for any industry that manufactures products. When a product leaves the point of origin, it enters the supply chain and moves through distribution channels. The goal is to reach as many customers as possible using these channels to grow sales revenue.

Types of Distribution Channels

Distribution channels can come in various forms, but all have one element in common: transferring the products from the hands of the producers to the final consumers. These channels can have different names including wholesalers, distributors, retailers, franchised dealers, jobbers, authorized dealers and agents.

When a company starts to think about distributing a product, the traditional distribution model is an excellent place to start. This model has three levels: the producer, the wholesaler and the retailer. The producer develops and manufactures the product. Wholesalers source the product in bulk, holding goods in a warehouse until they are ready to be resold to independent retailers. For companies, this is a quick way to move products through retailers, and they are often shipped directly by the wholesaler or through a third-party logistics company. Retail channels such as brick and mortar stores, catalogs and online, are a more direct distribution channel since they sell directly to the consumer. These are called indirect distribution channels.

An alternative is to use a direct distribution channel which is when a company sells and delivers the product using its own salespeople and warehouses. This distribution channel strategy can keep costs down because it takes out the intermediaries.

Customize Your Own Channel

Distribution channels are a way to funnel sales to target markets. They play a pivotal role in marketing and promotion. They also increase efficiency and close the gap between producers and consumers. An effective distribution channel strategy can assist in expanding product reach and availability, as well as increasing revenue.

Companies can modify the traditional distribution model. They may choose to sell directly to retailers, or a retailer could go directly to the manufacturer for inventory. Walmart uses this model. There are many ways to set up a channel strategy, and a company does not need to be limited when it comes to getting their products out on the market.

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About the Author

Liz Gold has been published in a variety of capacities writing about everything from Kennebunkport and southern Maine municipal government, art and cultural events, to cloud technology and business transformation. Her experience extends to both corporate and freelance; she's a former Senior Editor at the B2B publication Accounting Today, writing about public accounting firms with a specialization in diversity, technology, best practices, and business development. During her tenure, she was also co-founder and editor of AccountingTomorrow, a blog focused on intergenerational workplace issues that is still thriving today. Most recently, Liz has been writing about accountants working in the cannabis industry on CPA Trendlines and reporting on cannabis trends for Southern Oregon Good Herb magazine in Oregon.