The distribution channel is the activity of distributing products/services from producer to consumer to achieve business goals in the market. According to Philip Kotler, “A distribution channel is considered the path of a product from producer to the final consumer”.
Elements commonly present in a distribution channel include Manufacturer, Distributor, Retail Point, and Consumer.
The goal of the manufacturer is to build a distribution channel to easily reach many consumers at the most optimal cost. Depending on the scale of operations and products of the manufacturer, businesses can choose one or many different distribution channels.
The role of distribution channels
Types of distribution channels
Currently, on the market, there are 4 main types of distribution channels: direct distribution channels, indirect distribution channels, flexible distribution channels, and multi-level distribution channels.
Direct distribution channel is a distribution channel without intermediaries, but products will be delivered directly from the producer to the consumer. This distribution channel usually applies to expensive products and fragile items.
In contrast to direct distribution channels, indirect distribution channels will need the help of intermediaries to move goods from producer to consumer. Indirect distribution channels include:
The 1-level distribution channel is where the manufacturer does not directly sell goods to consumers but through retailers. This distribution channel usually applies to products such as furniture, and clothing (Model of level 1 distribution channel: Manufacturer => Retail point => Consumer)
The 2-level distribution channel is where the distributor will buy a large number of goods for storage to distribute the product to the retail point. Then the retail point will sell the product to the consumer (Model of the level 2 distribution channel: Manufacturer => Distributor => Retail point => Consumer)
The 3-level distribution channel has the same process of transporting goods as the 2-level distribution channel, but the collaborators (agent/broker) will represent the business to search, promote, provide information, and trade. Talk to distributors. When the collaborators have closed the deal, they will contact the manufacturer to start the shipping process. Affiliates will receive a certain amount of commission for each successful deal.
Flexible distribution channel (Modern) is a channel in which a business can sell its products directly to the final consumer and through intermediaries (points, brokers, wholesalers, retailers).
Multi-level distribution channel is the participants in the distribution channel (except for the manufacturer) acting as both distribution intermediary and consumer.
Identify the target market and customer
When developing a distribution channel strategy, you must really dig deep into the market and target customers through some of the following questions:
Identifying the right market and target customers helps businesses choose the right distribution channel and build a solid distribution channel.
Research potential distribution channels
Each distribution channel has its own advantages and disadvantages, so analyzing the strengths and weaknesses of each channel will help you choose the best distribution channel for your business.
Factors determining the choice of distribution channels include:
Choose the right distribution channel
This is an important issue affecting the profitability of the business. In some cases, the longer the distribution channel, the lower the profit margin, so the manufacturer selling directly to the customer is still the most profitable.
The choice of direct or indirect distribution channels depends on the manufacturer’s requirements in marketing the product to the consumer. Therefore, businesses should make the best choice based on the current situation and future development direction.
Build relationships with Intermediaries
After choosing a distribution channel suitable for products, businesses should connect and build business relationships with intermediaries.
In the process of negotiating, businesses need to set out contract terms between the two parties to ensure the interests of both parties while still building a close and long-term relationship.
Evaluate the performance of the distribution channel
In order to maintain a close relationship between manufacturers and consumers in the distribution channel, businesses need to conduct regular surveys to determine the level of customer satisfaction with the product and then devise a strategy. suitable business.
In addition, businesses must analyze the financial performance of the channel to evaluate its effectiveness. At the same time, regularly evaluate the efforts of intermediaries in terms of sales revenue, the number of goods sold, and the quantity of inventory,…
After collecting these indicators, the company will step by step perfect the business strategy to achieve the operating efficiency of the distribution channel.
Currently, many businesses still use manual methods such as paper, books, and Excel to manage distribution channels, so they still face difficulties in the management process. Instead of manual management that costs a lot of money, manpower, and time, it does not bring efficiency. Therefore, businesses should apply HQSOFT’s solutions to manage activities in the distribution channel. eSales Cloud DMS is a flexible solution for managing different distribution channels such as direct, indirect, or flexible distribution channels depending on the size of customers’ operations. For each different type of distribution channel, HQSOFT’s solution will make appropriate adjustments for businesses to optimize time and human resources to manage distribution channels.
The features of the eSales Cloud DMS solution help businesses easily optimize the distribution channel comprehensively:
With experience in deploying eSales Cloud DMS products for many businesses and corporations in different industries, HQSOFT is confident and ready to bring customers optimal and comprehensive solutions to fully meet their needs. in optimizing the distribution management system. If you have any questions or need advice on distributor management solutions. Please contact the hotline: 0792 342 278 to receive the best support.