Expanding Distribution Channels

What is a distribution channel?

At its most basic level, a distribution channel is the means of getting the product to the customer. It is part of a business’s marketing strategy and includes the product, promotion and price.

Distribution channels are part of the downstream process, as opposed to the upstream components (the supply chain). A distribution channel can be short or long, and simple or complex, depending on whether it leads directly from the company to the consumer or has several intermediaries.

Intermediaries are other companies, such as retailers or distributors that sell products to consumers on a company’s behalf. The number of parties involved in the channel can affect the ultimate price to the consumer and/or the profit to the seller.

What is included in a distribution channel?

Distribution channels can include the producer, wholesaler, retailer and consumer. Only the producer and consumer are required, though, as a producer can sell directly to a consumer with no intermediary in a short, direct distribution channel. For example, this is the case if you sell your product in a small storefront that you run yourself or via a mail-order business.

It is important for the distribution channel to be the right one for the product, or for the customer to have options to suit their needs. For example, if a consumer is likely to want to see and feel the product before buying it, a retail intermediary is probably necessary, as opposed to a strictly online purchasing opportunity. If the item is sold in bulk and frequently reordered, thus requiring tremendous storage capacity, an indirect distribution channel, such as a wholesaler, may be a better approach. However, a small, simple item that requires no explanation or inspection prior to purchase might be sold cost-effectively online.

Why should you expand your distribution channels?

Expanding your distribution channels can be an effective way to increase your business. These are some advantages of broader distribution channels:

Types of distribution channels

The right distribution channel for your business’s needs will depend on several factors, including the products or services you’re selling and your customers’ preferences. Here are some distribution channels to consider.

Retail

Take advantage of the marketing and advertising power of existing retailers by selling your product through them. Depending on your product, the best option for this type of distribution channel may be specialty stores or department stores so consumers can see and test the product in person before they buy it.

Wholesale

If you manufacture your own products, wholesalers may be an ideal choice to broaden your product base. There are advantages of this distribution method: Wholesalers buy in bulk, which increases your bottom line and reduces your storage needs, and they often have transportation networks in place, which relieves you of the cost and hassles of moving your products.

Sales reps

Consider hiring sales representatives to widen your reach. Sales reps can reach out to consumers and businesses directly, conducting outreach on behalf of a business. By choosing reps who work independently, you can avoid the costs associated with opening additional offices in targeted areas.

Direct marketing

Marketing directly to customers can open up your products and services to local, regional, national or even global audiences. You can use common tools — such as flyers, brochures and postcards — to open up direct mail channels, or you can try to get your product placed in a big-name catalog.

Telemarketing

Opening up a telemarketing distribution channel can give you access to consumers nationwide without the expense of opening retail locations. Telemarketing requires trained staff, however, which can raise costs.

Internet

E-commerce is a rapidly growing channel, with countless businesses selling online through well-known marketplaces and up-and-coming comparison-shopping sites. E-commerce allows businesses to sell to consumers globally and offer products that brick-and-mortar stores may not have the capacity to sell. [Read more about how to develop a solid e-commerce marketing strategy.]

International

International markets can offer high profit margins and big growth. However, they often come with significant cultural barriers and bureaucratic hassles. Consider the following tips if you use international distribution channels:

• Customize your strategy. The best channels for your company depend on your market, your product and what your competitors are doing.
• Start small. Learn one channel before you move to the next. Sometimes the best solution is to find ways to make your existing channels more efficient, rather than investing in new channels.
• Automate. More channels mean more administrative details to juggle, so ease the load and financial burden by automating processes as much as possible.
• Consider cultural issues. For example, China and India are high-growth markets, but they also come with cultural differences that could present obstacles.

Big-box retailers have pros and cons. Chains such as Walmart, Target and Best Buy can be your ticket to the big time, but they’re also notorious for playing hardball with vendors. They’ll look for any chance to penalize you for mistakes, such as an incomplete bill of lading or an inaccurate Universal Product Code.

Deciding when to invest in a new channel

Rather than investing in new channels, some companies — particularly those that have been operating for less than a year — may benefit from strengthening their existing distribution channels. Evaluate how your current channels are operating, and make sure they are being managed in the most efficient way before you invest in a new channel. If you haven’t utilized your original distribution channel to its fullest potential, it’s best to avoid investing in a new one. If not, you might spend more than necessary on an underperforming channel, spread your resources too thin and fail to reach all relevant audiences. 

After you use your existing distribution channel to its full capacity, consider your next, additional distribution channel and evaluate the financial risks associated with its implementation. This process can require some trial and error and should be done only when a company has been operating steadily and is financially stable for an extended period (no less than six months, but ideally over one year). 

Using a combination of channels is likely the best approach, but make sure you are not stepping on your own toes. With each new channel, additional funding is needed to cover the added oversight, distribution and transportation costs. 

Not every distribution channel will be beneficial to your business, so it’s important to choose the optimal channel for your target market’s demographics, interests and shopping habits. For example, a high-value brand does not belong in a supermarket. Similarly, if your product image includes a high level of personal service, online sales is not the right channel for your company.

Consider various channels in any number of combinations to find the ideal mix of distribution points, depending on your products and customers. You can also offer some of your products via one channel while reserving others for a different selling method.

Finding the right distribution channel requires an understanding of your customer base. Figuring out the best way to get your product in front of consumers takes time and requires some trial and error, but having an effective distribution channel can be your key to success.

Miranda Fraraccio contributed to this article.