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Distribution Channel Explained - Notes
This video covers the three core distribution channels which are direct selling, retailing and
wholesaling, providing you with real life examples along the way, as well as the benefits and
drawbacks of each one.
The distribution of a business’ products is a key marketing activity which links to the
‘Place’ P of the extended marketing mix. How the product gets from the producer to the
end consumer is a critical factor which can impact not just how many sales a business
makes, but how profitable those sales are.
Therefore, it’s essential that products are available for consumers to purchase in
locations which are convenient to them, in other words, products are available in the
right place, at the right time, and in the right quantities. Typically, businesses have
several options when deciding where customers can buy their products from, these
are known as ‘distribution channels’ and include:
1. Direct selling Retailing
2. Direct Selling
3. Wholesaling
This video will explore each one of these distribution channels with examples of
businesses which use them along the way.
DIRECT SELLING - Definition
So first up, it’s direct selling, which is also known as direct-to-consumer distribution.
There are no intermediaries or additional levels to the direct selling distribution
channel.
In other words, it just involves the manufacturer and the consumer.
The business simply produces the product and supplies it directly to the consumer
without the involvement of a third party.
Through the direct selling approach, a business has full control and flexibility over the
distribution of its products and services, reaching consumers through a variety of
methods such as:
1. The internet
2. Direct mail
3. Door-to-door selling.
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DIRECT SELLING - Who uses/Benefits
Direct selling is a very popular choice of distribution channel for service businesses
such as dentists, hairdressers, and solicitors.
But is also used by many businesses which produce products, for example Gymshark,
Boohoo and Moonpig all utilize the direct selling distribution channel through their
websites.
Because no third parties such as retailers and wholesalers are involved, the
manufacturer doesn’t have to share a cut of the revenue or agree any terms and
conditions with them.
This provides the manufacturer with greater control and flexibility in the distribution
of their products and services, meaning they can employ strategies such as having a
sale to become more competitive in the market whilst still retaining a good level of
profit per sale.
DIRECT SELLING - Drawbacks/Issues
However, as consumers don’t typically purchase in big quantities like wholesalers and
retailers do, using the direct selling distribution channel typically leads to lower total
sales volumes, whilst the manufacturer is often hit with increased distribution costs
per sale and would usually need to invest heavily in marketing to attract consumers.
RETAILING - Intro/Benefits
The second distribution channel is retailing. When using the retailing distribution
channel, a manufacturer would produce products and sell them onto a retailer in bulk
with the aim of consumers being able to purchase them from a wider range of
locations which may be more convenient to them in comparison to the direct selling
method.
This helps the manufacturer to sell more of its products as retailers typically have a
wider reach and higher footfall across multiple locations, meaning more consumers
are seeing the brand and the business doesn’t have to invest as heavily in marketing.
Selling through retailers also reduces the distribution costs for the manufacturer in
comparison to direct selling. This is because the number of deliveries required reduces
as the product is delivered in bulk to each retailer instead of individually to each
consumer.
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RETAILING SELLING - Drawbacks/Issues
It’s also important to acknowledge that retailers will only stock a business’ products if
they believe they can make a profit, therefore they will pay less than a consumer
would, meaning it’s typically not as profitable per unit for the business.
RETAILING SELLING - Who
Retailing is a very popular choice of distribution channel and can really help
a manufacturer to reach a wider range of consumers that they might find impossible
to reach via the direct selling method alone.
Examples of famous manufacturers who sell their products through the retailing
distribution channel include Nike, Heinz, and Samsung.
Alongside retailers, some businesses use agents or brokers to link buyers and sellers
together, which has become a very popular form of distribution channel in the travel
and tourism industry.
WHOLESALING - Info/Benefits
The third and final distribution channel is wholesaling. Wholesaling as a distribution
channel involves wholesalers buying products from a manufacturer
in very large quantities with the aim of selling them on to various retailers,
many of which will be independents, who will then sell the products onto consumers.
This is the most complex of the three distribution channels as another layer is added
and there’s now two intermediaries involved, a wholesaler and potentially multiple
retailers.
Selling to wholesalers, allows a manufacturer to guarantee high sales volumes due to
the amount of product a typical wholesaler would purchase.
Which also leads to reduced distribution costs in comparison to the manufacturer
selling and shipping their products to multiple retailers or individual consumers.
While still at the same time, the manufacturer still benefits from the exposure and
reach it gains from retailers once their products appear in their stores, meaning they
again don’t need to invest as heavily in marketing.
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WHOLESALING - Drawbacks/problems
However, as two intermediaries are now involved, profit margins are squeezed even
tighter, as both the wholesaler and the retailer look to make a profit.
By selling to wholesalers, the manufacturer typically loses control over which retailers
will then be able to purchase and sell their products onto consumers,
which could result in the brand’s image being damaged if the wrong retailer is involved.
Mars, Kellogg’s and Persil are all famous examples of manufacturers
which successfully utilizes the wholesaling distribution channel for their products.
Summary
So, now that we’ve looked at the three different types of distribution channel,
It's important to acknowledge that manufacturers can, in fact, utilize a range of
distribution channels and don’t have to just use one exclusively; this is known as
multi-channel distribution.
But knowing which distribution channels to use will depend on a variety of factors
such as: The nature of the product The costs involved and impact on overall
profitability.
The type of market that the manufacturer operates within and the level of control that
over the distribution of its products to consumers
Apple is a great example of a business who utilize multi-channel distribution
successfully as their products can be purchased directly from their website, via their
retail stores and through various
independent retail chains.
So that’s it, distribution channels explained. I hope that’s given you a good insight into
the different types of distribution channels a business which manufactures products or
provides services can choose from, as well as some of the key benefits and drawbacks
of each one.