Distribution Channels-Retailers
Like for wholesalers, it may be that you only use retailers if you manufacture your own products: again, evidencing the larger smaller business. Retailers can promote your product by making consumers aware of its availability and by passing on technical information that could encourage the sale.
Because there are thousands of retailers located all around the country, they are an excellent intermediary for distributing your product to a wide geographical range of consumers.
Today, many retailers prefer to buy their products directly from producers (you) instead of going through wholesalers: this is typical of supermarkets. By selling directly to retailers, the added expense of transportation is the only issue.
Small businesses account for a high proportion of retailers and so they can often find themselves at the end or in the middle of a distribution channel, where their own channel of selling to a consumer would be direct.
Consequently, a small business retailer may use the diagram to work backwards to identify the best channel of buying in stock to sell at their own premises.
Using Multiple Channels of Distribution
When analyzing which distribution channel is best for your business, you should not restrict yourself to one channel, but instead adopt a number of channels that are suitable for selling your product/service efficiently and effectively (if necessary).
For example, a business may use a retailer to sell their product and at the same time, use direct mail and telemarketing to further encourage sales: there are a number of feasible combinations.
Choosing the Right Distribution Channel
There are several factors affecting how you may decide on the most appropriate distribution channel(s). A few of these are highlighted below:
Profit and Sales
- Which channels will maximise sales and profit? Using intermediaries such as agents, retailers and wholesalers can distribute your product on a wider scale but can often lead to reduced profit levels. Finding the right balance is the key
Product/Service
- Perishable products such as certain foods (e.g. fruit) usually require direct sales because of their short shelf lives. The same principle applies to fragile products to reduce the amount of transportation and handling
- Arguably, services need to be sold direct or through intermediaries that provide a strong link between the consumer and the business such as direct mail, e-commerce or telemarketing. This way the consumer can specifically give their situation or requirements directly to the business so a tailored service can be provided
- Products of low value that are manufactured in high quantities may be influenced to take a distribution channel involving a wholesaler. This way, it reduces the issue of storage, as wholesalers will buy in bulk
The Consumer
- How convenient is it for them to purchase your product or service
- Who is your target audience
Competition
- How does direct competition sell their product? Is it effective enough to follow?
Personal Knowledge/Confidence
- Do you know the different intermediaries well enough to be confident that it is the best option? For example, which retailers have a good reputation and where are they located?
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