Every small business wants to sell more. Rather than simply thinking of ways to get more customers into your store, however, start thinking of ways to get your products or services out to more consumers. One of the best strategies for gaining more buyers and increasing revenue is to sell through additional venues. 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.
What is a distribution channel?
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 (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 a retailer or distributor that sells 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 selling entity.
FYI: 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.
What is included in a distribution channel?
Distribution channels can include the elements of 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. This would be the case if you sold your product in a small storefront that you ran 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.
What are the benefits of having a distribution mix?
Expanding your distribution channels can be an effective way to increase your business. These are some advantages of broader distribution channels:
|Bigger profits||Selling to more customers can raise revenue, cut per-unit costs and boost the bottom line.|
|Less risk||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.|
|Brand building||Making products available in more locations raises consumer awareness of your offerings and expands your brand.|
Types of distribution channels
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.
FYI: 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 a local, regional, national or even global audience. 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 to consumers.
FYI: 2.14 billion people, more than a quarter of the world’s population, are expected to shop online in 2021.
International markets can offer higher profit margins and big growth. However, they can come with significant cultural barriers and bureaucratic hassles, according to the International Trade Administration. Consider the following tips if you use international distribution channels:
- Customize your strategy. The best channels for your company depend on your market, your product and what your competitors are doing.
- Start small. Learn one channel before you move to the next. Sometimes the best solution is to find ways to make your existing channels more efficient, rather than investing in new channels.
- Automate. More channels mean more administrative details to juggle, so ease the load and financial burden by automating processes as much as possible.
- Consider cultural issues. For example, China and India are high-growth markets, but they also come with cultural differences that could present obstacles.
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 UPC code.
Deciding when to invest in a new channel
Rather than investing in new channels, some companies 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.
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 based on 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 choose to offer some of your products via one channel while reserving others for a different method of sale.
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.