Distribution Channels


What are Distribution Channels?

Distribution Channels are defined by the different phases or stages through which a product passes, so that its ownership goes hand in hand: from the manufacturer to the consumer or end user.

Formally the distribution channels could be considered as defined circuits and whose final objective is to facilitate the product by the producers so that customers can enjoy it when purchasing it. On the other hand, the distribution is usually classified according to the main object of the channel: consumables, industrial goods or services.

Another type of classification separates the channels in direct distribution, if it's done without intermediation between manufacturer and consumer, or indirectly if it includes intermediate points in the chain. The choice of one modality or another will depend on various factors such as the price of the product, the target audience or the size of the company.

Usually, companies that actively participate in the process and have ownership of the product are usually included among the factors of a channel. For this reason, the banks that finance many of these businesses aren't considered as parts of the distribution channel.

Distribution Channel Functions

The importance of a channel lies mainly in the fact that there are geographical or location and chronological separations, and it's necessary to carry out storage, transport and sale of the merchandise from the producer to the final customer thanks to wholesalers and retailers.

- Wholesalers: they mediate between the manufacturer and the retailers, dedicating themselves to the sale of products and services in large quantities, which will be sold either to other wholesalers or manufacturers or, mainly, to retailers. Wholesalers never relate the manufacturer and the final consumer directly, that is, they don't sell products and services purchased from the manufacturer or other wholesalers to consumers of the product.
- Retailers: link the offer of wholesalers and manufacturers with the final consumer of the products and, like the wholesaler, perform functions apart from the generic ones that justify their existence, such as grouping the products of different suppliers and creating an assortment for the final consumer, grant credit and payment facilities to customers in their purchases, among others.

Thus, forming a complex structure, the distribution channel groups different businesses or organizations that carry out this chain. Thus, the distribution channel is made up of people and firms that participate in the transfer of the product from the initial manufacturer or producer and the customer or end user.

On the other hand, the same company can cover several steps within the distribution chain by carrying out several works of the channel, through a vertical integration strategy.

It's important to highlight that the distribution chain or channel covers up to the last point where the product in question hasn't been transformed. That is, if this is modified or transformed into another new product, this will involve the creation of a new chain and the distribution channel of the start will be put to an end.

Selection of the Number of Intermediaries

One of the main decisions in the design of a distribution channel structure is the determination of the number of intermediaries at the vertical level, that is, different intermediaries involved in the channel. The three basic types of channels are:

- Long channel: when the number of different intermediaries used for distribution is the maximum possible, as in the case of the perishable food market, where a manufacturer, to access the final consumer, uses origin and destination wholesalers.
- Short channel: where the number of intermediaries is reduced and, usually, manufacturers use only one intermediary to reach the final consumer.
- Direct channel: when the manufacturer directly accesses the consumer. This level isn't very common in tangible products, because all the functions that must be performed in the distribution would be assumed by the manufacturer, not being often operational in economic and efficiency terms.

Benefits of Using Distribution Channels

There are benefits derived from the use of distribution channels:

- Of place: Bringing the product as close as possible to the location of the consumer prevents it from needing to travel great distances to meet its need. In this way it's possible to give greater attractiveness to the product by putting it more at hand thanks to a good use of the distribution.
- Time to the consumer: Taking into account the existence of exclusive products, only available in specific and exclusive places. It's usually assumed that certain products for which the end customer is willing to make an effort to acquire it. It's time because the moment in which the product offer is made is measured and studied in terms of satisfaction for the public through market research.

One of the main advantages in terms of distribution is the existence of multiple channels, which help the transfer and commercialization of goods or similar products by their nature, such as mobile phones and their accessories, which usually take advantage of identical channels of distribution taking advantage of the same business structure.

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