When a company wants to increase its turnover, it is essential that it looks at the right distribution channels to put in place. Indeed, the impact of the chosen channel on sales and on the positioning of the company is significant. So what are the different distribution channels? Here are the tips to follow to choose the right distribution channel for your business.
> Download this e-book to discover the issues and challenges of digital transformation for SMEs.” align=”middle”/>
What is a distribution channel?
The distribution channel is the route that a product follows from producer to consumer. It can be direct, short or long and sometimes involves several intermediaries. It meets several purposes such as positioning a product on the market, reducing production costs or increasing the number of sales.
The different distribution channels
There are several distribution channels. For a company, it is advisable to choose its own according to its business objectives.
The direct distribution channel
When the distribution channel is direct, a company itself sells its products to its customers, without involving any intermediary. This is the traditional sales channel. For example, a craftsman who makes jewelry can sell his creations himself through his website or physical store. It is the same for the vegetable producers present on the markets. These two professionals use the direct distribution channel.
This distribution channel is extremely advantageous for companies which benefit from higher margins when they do not use an intermediary. Likewise, at the start of a professional activity, it is interesting to set up the direct distribution channel for:
- Build your clientele.
- Refine your marketing offer.
- Improve the quality of its products.
Since the company is in direct contact with its customers, it is also easier for it to obtain valuable feedback on the products and services it offers.
Choosing a direct distribution channel, however, requires investing in marketing and sales, all the more so as the geographic scope of the actions carried out is necessarily smaller.
The short distribution channel
When a company chooses a short distribution channel for its products, there is only one intermediary (a retailer or distributor) between the manufacturer and the end customer. The manufacturer is then considered to be the supplier. The distributor buys the product in bulk for resale to its retail customers.
The sale of sporting goods in a large chain or the sale of wine in a restaurant are perfect examples of short distribution channels.
This solution is advantageous for the company which benefits from the strength of the chosen distribution network. It also makes it easy to set up business relationships.
Conversely, short distribution channels induce significant logistics, delivery and even storage costs for the manufacturer. It is therefore better to set up long-term relationships with your distributor to reduce the impact of these costs on your business.
The long distribution channel
If the company opts for a long distribution channel, several intermediaries exist between the manufacturer and the end customer, such as a wholesaler, retailer or distributor. Long distribution channels are, for example, used by supermarkets who buy products from wholesalers and purchasing centers.
Of course, the sales force is reduced since the manufacturer sells his products in large quantities. However, he has no possibility of getting in touch with the end customer. Likewise, the margin achieved can be very low depending on what is requested by each intermediary.
How to choose the right distribution channel?
Insofar as it impacts both sales and production costs and the positioning of a company, it is essential to choose the right distribution channel. Several parameters must be taken into account, such as:
- The nature of the product marketed.
- The desired sales volume.
- The cost incurred by each intermediary.
- The target market.
To make the right choice, the company must ask itself the following questions:
- Which distribution channel best matches the type of product sold? For example, a luxury product cannot be sold in a supermarket. The choice of distribution channel must be consistent with the company’s brand image.
- Where is its core target? You have to choose the distribution channel that corresponds to the place where the customers are.
- How is the competition positioned on the distribution channels envisaged?
- Are the selected intermediary (s) recognized in the target market?
- Do the margins imposed by intermediaries allow the company to be profitable?
- What delivery times can the company ensure in the case of direct distribution?
Whatever the choice made at time T, it is always possible to change the distribution channel later. For example, nothing prevents you from starting your activity by choosing direct sales, then opting for short or long distribution channels when the production capacities of the company increase.
To go further, download this report on the digitization of SMEs to discover all the issues at work, the main challenges and examples of successful transformations.