Distribution channel

Distribution tool.

The distribution channel is the path followed in the marketing process of a product from the manufacturer to the industrial user or final consumer. The distribution channel is the mechanism by which distribution, as an economic function, takes shape and adapts to the needs and characteristics of each economic sector.

A distribution channel is made up of the companies or people that facilitate the circulation of a manufactured product until it reaches the hands of the buyer or user. The starting point of the distribution channel is the producer. The end point or destination is the consumer. The set of people or organizations that are between the producer and the end user are the intermediaries. Distribution channels can be direct, when the relationship is established without intermediaries between producer and consumer, or indirect, when there are intermediaries.

Functions of intermediaries

Some of the functions carried out by intermediaries are:

• Research: collect information necessary to plan and facilitate the exchange.
• Promotion: creating and disseminating persuasive messages about the product.
• Contact: Find potential buyers and communicate with them.
• Adapting: modeling and adjusting the product to the requirements of the consumer. This requires activities such as manufacturing, classification, assembly and packaging.
• Negotiation: try to find a mutually satisfactory price in order to make the transfer of ownership or possession.
• Physical distribution: transport and store goods.
• Financing: obtaining and using funds to cover the costs of your activities.
• Risk acceptance: taking the risk of performing the functions of the distribution channel.

The path followed in the marketing process of a product from the manufacturer to the industrial user or final consumer is called the distribution channel. They define it^{[citation required]} as “the set of interdependent functions and organizations involved in the process of making a good or service available to its users or consumers”. In other words, the distribution channel is the mechanism by which distribution, as an economic function, takes shape and adapts to the needs and characteristics of each economic sector.

The starting point of the distribution channel is the producer. The end point or destination is the consumer. The set of people or organizations that are between the producer and the end user are the intermediaries. In this sense, a distribution channel is made up of a series of companies and/or people who facilitate the circulation of the manufactured product until it reaches the hands of the buyer or user and who are generically called intermediaries.

Broker classes

The most important are three:

• Majorist. The wholesale trade is an intermediary that is characterized by selling detallists, other wholesalers or manufacturers, but never the consumer or end user. wholesalers can buy a producer or manufacturer and also other wholesalers. In English it is known as a channel Tier 2 (level 2), since the goods or services give two jumps of wholesaler to retailer (sales to retail), and hence to the end user or consumer of the product or service.
• Retailer or detailer. Detallists or retailers are those who sell products to the final consumer. They are the last link in the distribution channel. They are important because they can alter, curb or enhance the marketing and merchandising actions of manufacturers and wholesalers. They are able to influence the sales of the items they market. They are also known as shops; they can be independent or associated in shopping centers, food galleries or markets, among others.
• Trade agent. Trade agents in the marketing process of a product are individuals or institutions that organize transactions between buyer and seller in exchange for a commission when the operation is executed. They can also advise and advise on business-related issues.

Distribution channel levels

There are two levels of channels, direct and indirect:

• Direct channel (short marketing circuits). The producer or manufacturer sells the product or service directly to the consumer without intermediaries. This is the case with most services. It is also common in industrial sales, because demand is concentrated in few buyers, but it is not so common in consumer products. For example, a hairdresser provides the service and sells it without intermediaries; the same applies to banks and savings banks. Examples of consumer products can be Avon products, the Iberian Reader Circle and Dart (Tupperware) that are sold at home. It is also a direct channel selling through vending machines, also called vending.
  • Direct channel: Manufacturer → Consumer

• Indirect channel. A distribution channel is indirect when there are intermediaries between the supplier and the end user or consumer. The size of the distribution channels is measured by the number of intermediaries who form the path that runs through the product. Within the indirect channels you can distinguish between short channel and long channel:
  • A short channel It only has two steps, that is, a single intermediary between manufacturer and end user. This channel is common in the marketing of cars, appliances or design clothing, for example, in which retailers or detallists have the exclusive selling for an area or commit to a minimum purchase. Another typical example is the purchase through a hypermarket.
    • Short Channel: Manufacturer → Retailer → Consumer →
  • In a long channel involve multiple intermediaries (majorities, distributors, stockholders, resellers, retailers and commercial agents, etc.). This channel is typical of almost all consumer products, especially products of convenience or frequent purchase, such as supermarkets, traditional shops, markets or food galleries.
    • Largo Channel: Manufacturer → Retailer → Consumer →

Short distribution channels are generally considered to lead to low retail prices and, conversely, long distribution channels are synonymous with high prices. This is not always true: it may be the case that products purchased directly from the producer (for example, wine or cava from a winery, at source) have a higher sale price than in a commercial establishment.

Relations between companies of a distribution channel

Distribution channels can also be classified according to the relationship that exists between the companies that participate in the distribution:

• Horizontal Connection Channels: they are established between companies that perform the same function in the distribution chain; for example, a commercial center with a multitude of retailers.
• Vertical connection channels: they are established between companies that perform different functions within the distribution.