Every business in the world wants to be able to sell more and get higher profits. One of the best ways to achieve that is by getting your products out to more customers by selling through different venues. In order to do that, your company can choose to use different distribution channels which can affect your selling price, reputation, and target market.
That’s why when deciding what channel strategy to utilize for your business, it’s important to test new things until you find a winning combination.
In this article, you will learn more about what distribution channels are, how you can use them, and why they can be vital for your business’ growth.
Let’s get started.
What’s a Distribution Channel?
Essentially, it’s a part of your business’s marketing strategy and is one of the ways to get your product to potential customers.
Normally, a distribution channel is part of the so-called downstream process and as such can vary in length and complexity, depending on whether it goes directly from the company to the client or it has several intermediaries.
Those intermediaries can be other companies, retailers, and distributors that sell products to customers on behalf of other businesses. Depending on the number of parties involved in a distribution channel, the price offered to the end customer or your profit margin can vary.
What are the Elements of a Distribution Channel?
Distribution channels include a variety of elements, some of them being producer, wholesaler, retailer, and consumer. The only ones that are absolutely required however are the roles of the producer and consumer as in some scenarios the producer may directly sell to the customer, without using any mediators.
A distribution system can be one of two ways: direct or indirect. With a direct channel, the customer can purchase the product directly from the manufacturer, while with an indirect one products can only be bought from a retailer or a wholesaler. Usually, the more intermediaries there are, the higher the price of the end product can become. On the other hand, a shorter distribution channel can offer lower prices to customers as they’re purchasing directly from the manufacturer.
Types of Channels
Sometimes the definition of a channel can vary, as there are four main types of distribution channels that are common in the business. Let’s take a look at what they are.
If you’re a manufacturer and produce products, wholesale may be the way to go for your business. Wholesalers usually buy in bulk, which helps you decrease your storage needs and increase your revenue. Additionally, most of them have transportation networks set in place, which means you don’t have to take care of shipping products.
One great idea is to sell your products by utilizing the advertising power of already existing retailers, especially if you’re making an item that needs to be seen or tested out before it gets purchased. By using this channel, you’re allowing your potential customers to see, touch, and look at the product before making a decision whether to buy it or not.
These are essentially sales reps who can widen the reach of your company by contacting customers and businesses and offering them your product. Many companies utilize this method for generating sales, as it gives them a way to get to a specific audience that they might be unable to target otherwise.
Selling products on the internet has become the main distribution channel for many businesses, especially after last year, when lockdowns basically made any other way of distributing products almost impossible.
Ecommerce is a terrific way to market and sell your products, as it allows you to sell internationally and thus generate more sales and higher profits. Moreover, by having online stores, you will be able to more easily get data on which items sell most and which ones are not a hit with customers. Doing ecommerce gives you the opportunity to also do flash sales, whenever you need to free up inventory space. Out of all the distribution channels we discussed so far, having an online store is the one that will continue to thrive and generate more and more profits in the future, as it looks like our whole lives are getting more and more virtual as each day passes.
How to Use Distribution Channels to Achieve Business Growth Goals
Finding the right customer distribution services to apply can be tough for any business, especially since trends in commerce are always shifting and what used to work before may no longer be effective in generating sales for your company.
That’s why it’s important for every owner to know how to use the different distribution channels correctly so that his or her business can keep generating profits, even when trends are shifting and the market is hard to understand.
More often than not, you will have to leverage a mix of distribution tactics for your business and be able to choose which one to add or remove, depending on the current situation. Here are a few tips that can help you with making the decision when the time arrives.
Identify the Right Channel
There’s one thing you have to remember here: there is no channel that’s always going to be the right one and that will bring in profits forever. That’s why it’s vital that you follow all the trends in the world of business and that you remain on the lookout for innovative ways to distribute your products at all times.
That being said, one of the best ways to find the right distribution channel for a certain product is through testing. When launching a new item, try selling and marketing it in at least two different ways.
For example, let’s say you’re launching an innovative dog leash and you opt to try offering it to customers through your online store and through a retailer. A month after the launch, check out the data: where did you sell more items? Which channel led to higher profits? This will help you establish the right distribution channel for this particular product. Once you have one channel that’s working, you can keep trying different ones until you identify a second one that is able to generate profit with this particular item. From there, you just continue using them and monitoring their performance.
Evaluate & Adapt
The entire process of testing and trying new distribution tactics has to be done for each new product you decide to launch. Along with that, occasionally you should reevaluate the effectiveness of each distribution channel that you’re currently using. Many businesses do that by using a strategic profit model that examines all the key metrics of a channel’s financial performance, along with its logistics performance, to determine how effective it is in getting your product to customers.
You can also try getting feedback through a satisfaction survey from your partners and customers to see how well a particular channel is working and what are some of the issues that it causes.
All in all, the right distribution strategy for your business will often change and evolve as time passes. However, that shouldn’t worry you at all. If you know how to change up your distribution strategy and how to implement new channels quickly, your company will remain successful no matter what happens on the market.
Choosing When to Use Distribution Channels
In the previous paragraph, we discussed how you can effectively implement distribution channels so that there are more profits coming in. Now let’s discuss when to start implementing them and why.
It’s likely that as a business you will have one main distribution channel which brings in the majority of the profits and is mainly responsible for keeping the company afloat. As you start thinking about growing your venture, you will likely begin considering adding new channels into the mix, so that you can increase your reach and thus your profits as well.
However, finding the right time to start doing that is crucial here. There are a few things you have to consider.
First, you don’t want to dive headfirst into new channels when you haven’t maximized the potential of the ones you’re already using. If you just started your company a few months ago and your only solution for bringing in more revenue is adding new distribution channels, then you’re simply being lazy. During the first year of your business, there are many unexplored audiences you may want to try reaching and a lot of marketing strategies to test out. Only once you’ve done all that, you can start thinking about new ways of distributing products.
That’s because adding new distribution channels requires an investment even before it starts bringing in profits and you have to consider the idea that it may not ever have the effect you anticipated. Essentially, choosing to utilize a new channel requires you to take a financial risk, which is something you want to avoid doing when your company is still new and it hasn’t established itself yet.
Generally, the best time to try out a new distribution strategy is when things have been going steadily well over a longer period of time: a year or six months. That’s when you will have some financial stability and taking risks won’t necessarily mean potentially jeopardizing the whole company.
Another great time to test out a new channel is with the launch of a new product. In that situation, you will already be investing money into the item and you can spare a portion of the budget to try a new way of bringing the end product to your customers.
Growing your business can sometimes be as difficult as starting it. There are many possible obstacles you have to consider, while also thinking about what the right timing for expansion might be. Some factors that may influence your company’s potential growth include your financial situation, the current state of the market, and what type of risk you’re willing to take.
When it comes to utilizing distribution channels it’s all about knowing your customer base and what way of purchasing products would be the one that works the best for them. This largely depends on their age, occupation, the place where they live, as well as the type of product you sell.
Once you consider all of these outside factors, the best thing you can do is test and learn. If you’re sure that your business is stable enough to the point where you can start considering growth, then you should be comfortable taking risks until you find the right distribution mix that is able to bring in more profits.