A channel of distribution refers to the means by which a business makes contact with its customers in order to sell them a product.
The channel of distribution for a product can be split into five points at which contact needs to be made.
- After sales
The channel of distribution can be direct from business to customer, or indirect distribution channels using intermediaries such as wholesalers, retailers, agents, and distributors, but generally falls into one of the following four categories.
- Manufacturer – Customer
- Manufacturer – Retailer – Customer
- Manufacturer – Wholesaler – Retailer – Customer
- Manufacturer – Agent – Wholesaler – Retailer – Customer
Direct channels of distribution normally have a higher profit margin but distribution channel management can be expensive and difficult to organize and operate. Indirect channels allow rapid expansion of the business, are cheaper to maintain, but offer lower profit margins, as with each intermediary a price increase and a margin needs to be allowed for.
The channels of distribution strategy selected can have a significant impact on the profitability of the business and needs to take into account among other things, the type of product, the target market, and distribution costs.
For further information see the Wikipedia Distribution Channel definition.
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