A distribution channel is a chain of businesses or intermediaries through which a good or service passes until it reaches the end consumer. It can include wholesalers, retailers, distributors and even the internet itself. However, goods and services are sometimes passed to consumers through multiple channels, a combination of short and long. While increasing the number of ways in which a consumer can find a good can increase sales, it can also create a complex system that sometimes makes distribution management difficult. In addition, the longer the distribution channel, the less profit a manufacturer might get from a sale due to the fact each intermediary charges for its service.
This flow chart explains the many different ways a product can reach its consumer. Some channels require more steps than others to reach the final destination.
Why are Distribution Channels Important?
Distribution channels are important because they help companies and businesses decide the best, most efficient, way of getting their product or information to the consumer. Some channels are better for companies that are selling through stores while others are better for for companies that distribute online. This allows a company to save money and expand at the same time.
Some places a product can pass through to reach the consumer are:
Wholesaler/Distributor
Direct/Internet
Direct/Catalog
Direct/Sales Team
Value-Added Reseller (VAR)
Consultant
Dealer
Retailer
Sales Agent/Manufacturer’s Rep
Example: SAMSUNG
Samsung reaches its customers in 3 different Channels of Distribution: Manufacturer -> Consumer Manufacturer -> Retailer -> Consumer Manufacturer -> Wholesaler -> Retailer -> Consumer
These channels of distribution are most effective for Samsung because it allows them to reach the consumer in the easiest ways possible; online and in store.