Types of Distribution channels – Distribution
channel types
When a manufacturing company produces goods, it needs to have
a distribution channel in place to ensure the movement of goods from
manufacturing to end consumer. This is why, most companies use various
types of distribution channels to distribute their products.
With services becoming more advanced day by day, even service products
such as SAAS (software as a service) has resellers and agents. In fact,
tours and travel companies like Thomas cook also have their own
distributors and agents who sell packages of thomas cook to customers.
Thus, both manufacturing companies and service companies have
a distribution channel and they use various types of distribution channels.
These distribution channels operate at various levels. In this article, we will
understand the 3 types of distribution channels.
Table of Contents
Macro Level Distribution channels
At the macro level or the industry level, there are basically two types of
distribution channels.
B2B channels – B2B Channels involve the movement of goods from a
business company to a business company. In this type of distribution
channel,
the
movement
might
happen
from
the
business product manufacturer to the end consumer. Or it may happen
from a distribution network which is in between.
An example of B2B Type of distribution channel is companies
like Caterpillar which manufactures heavy equipment. Even Siemens,
which manufactures high quality Medical and Business equipments is an
example. These engineering products from an Engineering company to a
business company. Thus the sale and the distribution is categorised as
B2B type of distribution. Both Siemens and Caterpillar have their own
distributors and hence they may use multi level channels of distribution
(more on this ahead).
B2C channels – B2C channels as the name suggests are distribution
channels which involve the distribution of goods from the manufacturing
company to the end customer. In this case, the customer is
an individual and not a business entity. Any FMCG, Consumer Durable or
product driven company is involved in B2C channel.
B2C channel generally involves the most wide distribution channel because
of the number of players involved. In B2C, it is highly unlikely that goods
will flow from company to end customer directly. Though some companies
have started their own E-commerce portals for the movement of goods,
most companies still operate through distribution channels to ensure
movement of goods and availibility of goods to end customers.
There is another way to categorize Types of Distribution channels. They
are categorized as direct and indirect distribution channels.
Direct Distribution channel
At any given point of time, when a company sells a product directly to the
end customer, then it is known as Direct distribution channel. Direct
distribution channel is most commonly observed in B2B companies and it is
observed lesser in B2C Companies. In B2B companies, the volume of
sales is lesser though value of sales and margins are much higher. Hence
in B2B companies, to retain the margins, the company might try to sell
directly to the customer.
Another reason that B2B companies generally try direct distribution is
because of customer satisfaction. Most of these B2B product companies
rely on their own expertise and technological advantage to sell their
products. Thus, it is always better if the company is directly in touch with
the end customer rather then being in touch with a channel distribution who
might spoil the relation.
In terms of direct distribution, an example is Honda Motors which sells its
large equipments directly to end B2B customers instead of having a
middleman. The same goes for above mentioned companies like
Caterpillar and Siemens who have a direct distribution channel and directly
sell to hospitals and healthcare centres. This direct distribution channel
ensures higher control for the company.
In B2C, an excellent example of direct distribution is DELL company. Dell
innovated the distribution market back in the 2000’s when it started selling
customised dell laptops to its customers. You could go on the DELL
website, customise the way you want your laptop (larger hard disk, more
RAM) and order the same. It will be delivered to you in 45 days. As a result,
Dell completely bypassed the traditional distribution channel and directly
dealt with the end customer.
Levels of Distribution channels
There are basically Four levels of distribution. To understand them, read
this article on industrial and customer channels. I have given a brief
summary below.
1. Zero level channel – Where the distribution happens from
company to end customer.
2. One level channel – Distribution happens with a single agent in
between. Example – From manufacturer to E-commerce
companies. And from E-commerce to customer.
3. Two Level channel – Distribution happens with 2 business
entities in between. Example – Goods flowing from
manufacturer to Distributor >> Distributor to Retailer >> And
Retailer to customer.
4. Three level channel – Distribution happening with 3 business
entities in between. Example – Goods flowing from
Manufacturer to C&F >> C&F to Distributor >> Distributor to
Retailer >> And Retailer to customer.
To read more on these 4 levels of distribution channel read this article
on industrial and customer channels.
Different types of distribution channels
More reading Three different types of distribution – Besides the movement
of goods, there are different types of distribution channels based on the
type of distribution that takes place.
Exclusive distribution channel – Read more on Exclusive Distribution here.
Selective distribution channel – Read more on Selective distribution here.
Intensive distribution channel – Read more on Intensive distribution here.
Above were the various types of distribution channels as well as levels of
distribution channels which exist in the industry.