For any business, the ultimate goal is to increase sales and turn a profit, but not all companies take the right approach. Instead, some businesses focus on getting more customers into their stores rather than spreading the word about their products or services. Although this strategy can help a business increase revenue and gain more buyers, the best way to achieve this is to sell through additional channels.
Your small business can choose from a variety of distribution channels, all of which can affect your target market, product, price and reputation. You may need to experiment with a mix of distribution options to determine the best strategy for your company to be successful.
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.
The more intermediaries you involve, the higher the product price will be. This is due to the amount of work required for the intermediaries, all of which need to be compensated.
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.
Expanding your distribution channels can be an effective way to increase your business. These are some advantages of broader distribution channels:
Selling to more customers can raise revenue, cut per-unit costs and boost your business’s bottom line.
If you’re selling through one channel, you’re putting all your eggs in one basket. Selling through multiple channels distributes the risk and gives you the flexibility to experiment with new channels.
Making products available in more locations raises consumer awareness of your offerings and expands your brand.
Expanding your distribution channels allows you to find new partners that can help to improve your business’s productivity. These partners can share some of your responsibilities, thereby reducing your workload and streamlining your company’s processes.
While additional distribution channels will drive up product prices, they also have cost-saving benefits, as advertising and marketing responsibilities are not solely dependent on one company. Instead, the responsibility is put on the distributor to promote its products.
Better customer service
Working with reliable partners and expanding distribution channels can improve a business’s customer service, since it leaves more resources for providing prompt, local support to customers.
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.
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.
For consumer brands, retail is the most common distribution channel. Big-box and convenience stores often serve as intermediaries to get products to consumers in a convenient, one-stop shop.
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.
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.
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.
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.
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 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:
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.
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.