Distribution is a major activity that aid in the movement of products from the place of manufacturing to the place of consumption. The medium through which this is made possible is called as distribution channel. Manufacturers make use of different distribution channels in order to make their product available for the final customers.
The goods and services are transported from the manufacturers place to the consumers place through various mechanisms. Also, there are a number of people involved in making this activity complete like retailers, wholesale distributors, warehouse keepers and so on. The involvement of the people depends upon the type of distribution channel chosen by the manufacturer and also the type of product.
Distribution channels are broadly classified into three major types:
Manufacturer – wholesaler-retailer-customer
This channel is also known as the two level channels as there is the involvement of middlemen like wholesale distributors in Australia and is comparatively the longest channel too. The manufacturers sell their produce to the wholesaler who is capable of buying large stock of goods and have the required storage rooms to stock them. The prices paid to the manufacturers will be much low as there is a bulk purchase. The wholesalers in turn charge a small percentage as profit margin on the stock and sell them in smaller quantities to the retailers. Small retailers may not have enough warehouse space and facilities to hoard large stock of goods and so they purchase in small quantities. Retailers in turn again charge a profit percentage on the price paid by them to the wholesalers and sell the products to the ultimate customers. As the channel is long, the product’s price tends to be higher. Garments industry is majorly depending on this kind of channel.
This type cuts off the role of the wholesaler and so there is no heavy price hike in the products. Manufacturers sell their produce to small retailers or even big retail outlets at fixed price. The retailer then sells them to the final consumers at a rate higher than the price paid by them to the manufacturer. As the middlemen are not playing a role, the profit percentage of the middlemen is also saved by the consumers. These kinds of channels are mostly used by the big super markets.
The last and simplest type of distribution channel is the direct sale of products by the manufacturers to the customers. As it cuts the role of all middle men including the retailers, prices of products tends to be reasonably low. They are mainly useful for products that are easily perishable.
Knowing the types enable in best selection of the distribution channel to match the type of product.