The Advantages of Channel of Distribution to a Small Business

Perhaps the biggest function of a small business, aside from generating customers and sales, is delivering the orders that are placed. In addition, if you want to grow your business you must find ways to get more customers.

As a small business, your operation may be small enough that you’re able to sell all you produce and generate new sales leads by yourself or with a small team of employees.

At some point, however, your business may grow to a point where it becomes very difficult, if not impossible, to sell all your products on your own.

That’s why small businesses often use different types of distribution channels, as they can serve as a way to reach new customers that the business cannot reach on their own. For some local businesses, one of the most important functions of distribution channels is to help them achieve brand recognition and sales in other parts of the country, or even remote parts of the world if that’s the goal.

Simply put, a channel of distribution is a way to make a product of service available for consumption to a certain market of consumers. That could be as simple as a phone call to a local market; you are a manufacturer with a good for sale and you would like them to buy it from you.

Sounds simple enough, until your business gets larger. At some point, it becomes impossible for you to call every market in your area every time you have a new product for sale and would like to make it available to customers so it can make you money.

Enter the distribution channel, which is one or several intermediaries that can help improve the flow of your goods into the market of customers that you are hoping to reach.

In its simplest form, a distributor buys lots of what you have to sell, and they then market it for you. In today’s fast-paced world of e-commerce, there are many types of distribution channels that businesses can choose from.

Wholesalers. A wholesaler is an intermediary that buys from a company or manufacturer, usually in bulk, and sells to retailers and other merchants. This type of distribution channel can serve as a great way to reach regional industrial and commercial customers, who then sell to retail and business customers.

Costco is an example of a wholesale club. Car manufacturers are wholesellers that sell their products to dealerships.

Retailers. Retailers largely serve the same role as wholesalers, the difference being that they sell directly to the public, while a wholesaler may not. The number of retailers in the country are countless, and they range from small mom-and-pop stores to department stores and regional chains.

Agents. This type of distribution channel serve as the middlemen, who work to put buyer and seller together but don’t necessarily buy any good from a company to sell to the public. Travel agents who take a commission to sell airline tickets or hotel stays to vacationers are a classic example of this type of distribution channel.

Jobbers. These types of distribution channels are the little guys who get around in a local area and sell goods to local stores. For the most part, these distributors are called “rack jobbers,” and operate out of trucks.

Think about your local bread delivery person making his rounds early in the morning, or the independent guy selling Lay’s potato chips to local delis from his truck. They generally work on a smaller scale and sell directly to smaller retailers.

The internet. Business websites and social media are quickly becoming one of the largest (and cheapest) types of distribution channels because of ease of use, global reach and targeted demographics. E-commerce sites such as Amazon and Etsy that allow the customer to shop from the comfort of home have eliminated the need for retailers, and the use of package delivery couriers such as UPS and FedEx make the need for distributors almost obsolete.

Business owners with computer skills and the knowledge of how to send a package in the mail can use these services as their distributor at a minimal cost.

While it’s important to know the different types of distribution channels available, which ones you will use for your business purposes largely depends on what your goals are and what you are selling.

A distribution channel strategy will be developed for factors such as whether your products are perishable, for instance, and what markets you would like to serve.

Mass Distribution. Also known as intensive distribution, this distribution channel strategy aims to flood the market with your product to reach as many customers as possible. Soft drink makers, snack companies and ice cream manufacturers are an example of this.

As their products appeal to many different demographics in virtually any part of the country, it makes sense to use distributors that can appeal to the masses, distributing to channels such as supermarkets, small community stores and vending machine vendors.

Selective Distribution. This distribution channel strategy is used for products designed for a very specific customer base, and the distribution channels selected will only be used to target that demographic.

Companies such as Dr. Scholl’s will only sell their foot products through pharmacies (or stores that contain them, such as supermarkets), because that’s where the targeted demographic would shop for them. Same thing for sneakers; you’re not going to find a pair of Nike shoes distributed at your local supermarket.

Exclusive Distribution. This distribution channel strategy happens when a manufacturer decides to use only one distributor to sell their products, usually high-end or niche products such as jewelry, construction or medical equipment. The distributor works with the company to maintain an exclusive arrangement and makes sure that the distributor adds value after the sale with service contracts or other client services.

Luxury watchmaker Rolex is an example of a company that is very choosy about the jewelry stores that it distributes to. In order to avoid diluting brand equity and maintaining an “exclusive” feeling to its luxury brand, it will not hire too many distributors in any one region.

As previously discussed, using distribution channels can make it much easier for a company to get its goods to market and target a larger geographic area and demographic. The functions of distribution channels are actually quite extensive, and your choice of which channel to use will depend largely on your reason for distribution, what you have to sell and who your target is.

Cost and time savings. Using a distributor takes the job of sales and delivery out of your hands as a small business owner, and that’s no small thing. The distributor buys from you in bulk, and sales to the end user are handled directly by the distributor.

You incur fewer expenses, because you don’t have to employ as many sales representatives, and you don’t need to buy trucks or other means of transportation to get your goods to the customer.

If there is a downside, it’s that you as the business owner don’t have as much face time with the customer. In addition, you need to have trust in the distributor – that they will represent your brand with respect and treat your customers well.

Mass delivery is much easier. Again, being able to run your goods for sale over to the customer on the other side of town is simple when you are a small operation. Become larger, however, with customers all over the country, and the game changes.

One of the best functions of distribution channels is that it makes it easier not only to reach large numbers of customers quickly, but to get your products to a targeted demographic as well.

Targeting an audience. Employing a distribution channel can help your business target a certain audience. Are you an East Coast company looking to branch out and sell your products in the Midwest? It would do you well to select a distributor that knows that market and can help bring your products to market there.

Are you specifically looking to sell to a younger audience? Perhaps marketing and distributing your products through social media and online marketplaces is the way to go.

Connecting with a demographic. Sure, by using a distribution channel, you run the risk of losing face time with your customers. At the same time, it becomes easier to connect with a certain demographic. If you know the regional influences in place in the Midwest that are different on the East Coast, you can tailor your marketing messages to that particular demographic.

Take for instance Coca-Cola, which is distributed throughout the world. The company changes its marketing message depending on the country they are selling in and the people who live there.

It doesn’t really cost that much. At first, it may sound like it would cost of a lot of money to take advantage of different distribution channels; but really, is a couple of bucks to take an ad out on Facebook really that much money to spend to potentially reach thousands of eager teenagers looking to buy the new iPhone case you are marketing?

If you go the regional route, most areas already have established distribution channels for certain demographics, so all you have to do is sign up with a reputable distributor in the area and maintain the relationship for a reasonable cost. It beats having to work against the competition in those areas to find a channel to those customers yourself.

Collecting customer data. If you’re looking to collect data about who is buying your products, one of the most important functions of distribution channels is that it can make that job much easier. Retail stores can help by collecting demographic information such as age and zip codes of customers who are buying, and they also can ask for customer reviews about your product. Spend some time on Amazon and read customer reviews about products and you’ll get an idea of the valuable (and free!) data that companies can get from using online distributors. This helps you collect feedback that can help you improve your product or increase sales.