Product distribution refers to the chain of processes involved in dispersing a product through the market to make it available for purchase. Transportation, packaging, delivery; several processes are crucial in a product distribution strategy.
If that is how distribution is defined, then how would you describe a distributor? They are someone who comes in between manufacturers and consumers. Purchase of products, storage, and sale are the duties of a distributor.
What Are The Different Types Of Product Distribution Channels?
The path followed by a business transaction between the manufacturer and consumer is referred to as a distribution channel. The channels can have varying complexity, and the distributors act as intermediaries.
Two types of distribution channel are:
Direct distribution channel: In a direct distribution channel, the producer works directly with the consumer.
Indirect distribution channel: it involves intermediaries between producers and consumers.
What Are The Different Levels Of Distribution?
Let us take a look at the different levels of distribution.
Level zero: It is the simplest of all distribution levels as it involves no intermediary between the manufacturer and consumer.
Level one: On a level one channel, there is one intermediary between the producer and the consumer. An example of a middle man is the retailer who is between manufacturer and customer.
Level Two: A level two channel has two intermediaries between producer and consumer. Producer selling to a wholesaler who then sends it to a retailer who finally sells it to the consumer is an example of a transaction involving level-two distribution. The two intermediaries in the transaction chain are the wholesaler and the retailer.
Level three: An additional intermediary, an agent is involved in a level three-channel in addition to the already existing intermediaries, wholesalers, and retailers. The agent who represents manufacturing companies primarily deals with wholesalers.
What Are The Three Types Of Distribution?
Depending on the dispersion rate of outlets, distribution can be divided into three types.
Intensive distribution sets the maximum possible goal for itself and tries to penetrate as much of the market possible. The number of outlets will be kept at the maximum possible level in intensive distribution.
In this distribution strategy, the company makes use of all possible outlets starting from small shops to big stores to ensure that the customers find the product in every store they visit. Sale volume has a direct relationship with the supply, meaning that the greater the supply, the bigger will be the sale volume.
In this type of distribution, outlets are established in specific locations, thereby allowing the manufacturers to select a price point that suits the target market. A customized shopping experience can be expected from selective distribution.
In selective distribution, the supplier enters into vertical agreements with selected dealers in a geographical area. This type of distribution is mostly employed to sell branded products.
This type of distribution is known for the limited number of outlets it maintains. Luxury brands with their products available in specific locations and stores alone are examples of businesses using exclusive distribution. Small businesses with limited production mostly depend on this distribution strategy.
Distributors can make limited edition offers if they limit the number of products they sell, and the whole move contributes to their brand image.
Parties In A Distribution Channel
A distribution channel is formed by two or more participating entities, with the numbers varying according to the level of distribution. Let us take a look at the participants in a distribution channel.
A distributor operates in ways that are similar to that of wholesalers but assume some extra responsibility. They fulfill retail orders and actively sell products on behalf of producers. The role they play is more than that of a middleman between the producers and retailers.
While wholesalers do not generally have a selective affiliation to particular companies, distributors maintain strong relationships with specific companies and work out agreements with them.
Wholesalers purchase in bulk amounts from manufacturers or distributors and sell to retailers. Purchasing in bulk reduces the price per piece. When sold to retailers in smaller packages, the price per piece will be set high. The difference in retail price and wholesale price is the profit of wholesalers.
Retailers buy products from wholesalers or distributors and send through their physical or online outlets. Some retailers operate an online store in addition to brick-and-mortar stores they own.
Agents are the representatives of producers in a sale process, as they take ownership of the products on behalf of manufacturers through the distribution process. The logistic operations of sales are handled by agents.
The availability of goods and their sale volume depends on how well a suitable distribution strategy is executed.