Distribution Channels

Every product that gets into the hands of a consumer goes through a journey. From manufacturing to the end of the product’s use, and even beyond, companies need to understand consumer behaviour in order to use the right distribution channels. These paths or roads that the product travels are called distribution channels. Companies that want to grow and succeed in different markets need to constantly monitor distribution channels.

What are the Channels of Distribution

A distribution channel represents the path that a product or service takes from the manufacturer to the end customer. Depending on the type of product, the number of intermediaries (e.g. wholesalers, retailers or agents) and the scale of operations, distribution channels can be divided into direct and indirect channels.

In direct channels, the producer sells directly to the consumer without the involvement of an intermediary. He therefore has control over all stages of the value chain. Here, the manufacturer can closely plan and optimize prices and sales. Whereas in the indirect channels, for example, intermediaries are involved. This gives companies a time advantage over competitors. This is because they have to plan resources for all stages of the value chain. But not all stages in the distribution channel can be planned.

Depending on the strategic orientation, new opportunities open up for companies. The benefits of optimizing distribution channels include lower logistics costs, higher supply chain efficiency, better customer service and a greater competitive advantage. As an important part of the marketing mix, optimized distribution channels offer companies the opportunity to effectively reach their customers and ensure the availability of products at the right place and time.

Traditional offline distribution channels often involve multiple intermediaries can lead to increased costs. In contrast, digital distribution channels eliminate these intermediaries for wholesalers, retailers or agents , resulting in cost reductions and shorter delivery times. But where costs are saved on the other hand, digital distribution channels must be better developed. Building a seamless digital customer journey and knowing all the buyer personas is essential.

But where costs are being cut on the other side, digital sales channels need to be better developed. Building a seamless digital customer journey and knowing all the buyer personas is essential. Costs are reduced for traditional sales channels, but are shifted proportionally to online channels. The choice between digital and offline distribution methods often depends on the product, the target customer and the overall business strategy.

Examples of Distribution Channels

As we have already briefly explained in the text, a distinction is made between direct and indirect distribution channels. In general you can divide distribution channels in two main parts. But nowadays there are many hybrid varieties distribution channels can be organized.

Direct distribution – the manufacturer sells directly to the consumer, typically via an e-commerce platform or physical retail store owned by the manufacturer. Factory sales – partly on the company’s property – are quite typical here.

Indirect distribution – the manufacturer sells to intermediaries like wholesalers, distributors, or retailers who then sell to the consumers. This is common in large-scale retail and wholesale operations.

Dual distribution – the manufacturer employs more than one channel to reach its consumers, such as selling directly via their website and through third-party retailers.

Today, companies such as amazon act in a multifaceted way, as a retailer, marketplace, as a drop shipper, and a fulfillment and logistics provider. This enables an optimal alignment of business activities according to market developments.

Why Distribution Channel Strategies Can Make The Prices

The choice of distribution channel also has an impact on pricing. Here we have already explained that direct distribution allows a high degree of control, but also requires a lot of internal resources. Likewise, the intensity and exclusivity of distribution plays a significant role. Here are two examples of distribution in relation to pricing.

Intensive distribution – the manufacturer’s products are stocked in the majority of outlets. This method is common for low-priced products and impulse purchases such as snacks and drinks. This allows the company to gain extensive market share and optimize consumer awareness.

Exclusive distribution – the manufacturer selects a limited number of retailers to carry its product. Typically, licenses are distributed here. Typically this can be for high-end luxury products. A certain degree of exclusivity is maintained. Quality and service are thus assured at all distribution levels. In addition, the manufacturers determine the price through exclusive distribution models.

It is important to develop a separate strategy for each region where the company has market share. Different regions have different consumer behaviors, different market dynamics and different legal frameworks. All this influences the choice and success of a distribution channel. NIQ supports companies with comprehensive market analyses. This enables you to choose the right distribution channels for your success.

The Role of Customer Experience in Distribution Channels

In today’s consumer-driven market, the importance of customer experience in shaping distribution channels cannot be overstated. An optimized supply chain, facilitated by well-chosen distribution channels, ensures products reach consumers at the right time, in the right place, and in the right condition. This directly impacts customer satisfaction, loyalty, and ultimately, company profits.

NIQ can help businesses understand their customer’s journey, identify offline and online touchpoints with customers, and measure satisfaction levels. By leveraging NIQ’s consumer insights and predictive analytics, businesses can anticipate customer needs, tailor their distribution strategies accordingly, and create a seamless brand experience.

In essence, an optimized supply chain fosters an environment that enables customer satisfaction. It ensures product availability, maintains quality standards, shortens delivery times, and can even contribute to a company’s sustainability goals. All these factors significantly enhance the overall customer experience, leading to customer retention and brand loyalty.

By understanding and optimizing these channels, businesses can enhance customer experience, streamline operations, and ultimately drive growth and profitability.

Developing a Distribution Channel Strategy with NIQ

As a globally recognized market research organization, the NIQ can play a pivotal role in helping companies optimize their distribution channels. NIQ’s offerings include comprehensive market and consumer insights, competitive intelligence, and advanced analytics, which can facilitate the crafting of a strategic distribution plan. The process can be broken down into several steps:

1. Identifying the target market: NIQ’s in-depth market research and consumer insights can help a business identify its target customers, their needs, and preferences.
2. Evaluating distribution channel options: Based on the identified target market, NIQ can provide data on the effectiveness of various distribution channels, their reach, and market acceptance.
3. Selecting the optimal channels: Using NIQ’s analytics and research, businesses can choose the most effective distribution channels that align with their business objectives and customer preferences.

Managing the selected channels: NIQ’s ongoing market monitoring and intelligence can help businesses manage their chosen distribution channels, identify potential issues, and adjust strategies accordingly.