WHAT IS THE DISTRIBUTION CHANNEL? HOW TO MANAGE THE DISTRIBUTION CHANNEL EFFECTIVELY? 

A distribution channel refers to the process of delivering products or services from manufacturers to consumers to achieve business objectives in the market. According to Philip Kotler, “A distribution channel is considered the path a product takes from the producer to the consumer or the end-user.”

A distribution channel typically includes the following elements: Manufacturer, Distributor, Retail Outlet, and Consumer.

The primary goal of a manufacturer is to establish an efficient distribution channel that enables easy access to consumers at the lowest possible cost. Depending on the company’s scale and products, businesses can choose one or multiple distribution channels. 

1. The Role of Distribution Channels 

• Acts as a bridge between manufacturers and consumers 
• Helps manufacturers research market trends and customer demands 
• Promotes and introduces new products to consumers 
• Stores and distributes products efficiently 
• Builds relationships with customers 
• Shares market risks with manufacturers 

2. Types of Distribution Channels

Currently, on the market, there are 4 main types of distribution channels

Direct Distribution Channels

A direct distribution channel does not involve intermediaries. Products are delivered directly from manufacturers to consumers. This model is often used for high-value or fragile items. 

Indirect Distribution Channels 

Indirect distribution channels involve intermediaries in the product flow from manufacturer to consumer. These include: 

• Level-1 distribution channel: Manufacturer → Retailer → Consumer 

In this model, manufacturers sell products through retail stores rather than directly to consumers. It is commonly used for furniture, clothing, and other similar products. 

• Level-2 distribution channel: Manufacturer → Distributor → Retailer → Consumer 

Distributors purchase products in bulk from manufacturers and store them before distributing them to retail outlets. Retailers then sell the products to consumers. 

• Level-3 distribution channel: Manufacturer → Agent/Broker → Distributor → Retailer → Consumer 

Similar to the level-2 channel, but an agent or broker is involved in negotiating deals, promoting products, and connecting distributors with manufacturers. Brokers earn commissions for successful transactions. 

Modern Distribution Channels 

Modern distribution channels leverage technology, enabling businesses to sell directly to consumers or intermediaries such as retailers and wholesalers. Examples include: 

• Social Media (Facebook, Zalo, Instagram, etc.) 

• E-commerce platforms (Shopee, Lazada, etc.) 

• Company websites and mobile applications 

An innovative retail platform like nRetail from HQSOFT allows suppliers to sell directly to retailers, facilitating seamless interaction and optimizing operational costs. 

Multi-Level Distribution Channels 

Multi-level distribution channel is the participants in the distribution channel (except for the manufacturer) acting as both distribution intermediary and consumer.

3. How to Effectively Manage Distribution Channels 

Step 1: Identify Target Market and Customers 

Understanding your market and customers is crucial for developing an effective distribution strategy. Key questions to consider: 

• Where do consumers usually purchase your products? 
• Who are your target customers? 
• Why do consumers buy your products? 
• Where do consumers obtain information about promotions and offers? 
• What factors influence their purchasing decisions? 
• What resources and infrastructure are needed to build a strong distribution channel? 

Accurately identifying your market and target customers allows businesses to choose the right distribution channel and develop a solid distribution strategy, ultimately increasing sales and efficiency. 

Step 2: Analyze Potential Distribution Channels 

Each distribution channel has its strengths and weaknesses. Evaluating these factors helps businesses select the most suitable channel. Key considerations include: 

• Target customers 
• Sales coverage 
• Profit margins 

Step 3: Choose the Right Distribution Channel 

Selecting the right channel is crucial to a company’s profitability. In some cases, the longer the distribution channel, the lower the profit margin. Selling directly to consumers can often be more profitable. 

The choice between direct and indirect distribution depends on how the manufacturer wants to position and market its products. Businesses should make decisions based on their current situation and long-term goals. 

Step 4: Build Strong Relationships with Distribution Partners 

Once the right distribution channel is chosen, businesses should establish strong relationships with partners by: 

• Regularly checking in to address any challenges and offering timely support to build trust and foster long-term partnerships. 
• Assisting with sales efforts by providing high-demand products, training sales teams, promoting products, and boosting market visibility. 
• Setting clear contract terms that protect both parties while aligning with overall business objectives. 

Step 5: Evaluate Distributor Performance 

Regular evaluation of distribution partners is essential for effective channel management. By analyzing key performance metrics such as: 

• Sales performance 
• KPI achievements 
• Promotions and inventory levels 

Businesses can determine whether to incentivize partners to improve performance or replace underperforming ones. 

Step 6: Implement eSales Cloud DMS for Distribution Management 

With advancements in technology, businesses are shifting towards digital Distribution Management Systems (DMS) to streamline operations. A DMS improves efficiency, reduces costs, and enhances overall management compared to traditional methods. 

eSales Cloud DMS by HQSOFT is a flexible solution designed to manage different distribution channels, including direct, indirect, and modern distribution models. For each different type of distribution channel, HQSOFT’s solution will make appropriate adjustments for businesses to optimize both time and workforce efficiency. 

Read more: Highlights of distribution management software – eSales Cloud DMS 

Key features of the eSales Cloud DMS solution help businesses easily optimize the distribution channel comprehensively:

• Track and manage sales representatives’ locations 
• Monitor sales routes and visits in real-time 
• Track customer visit history and retail outlets 
• Update reports on sales activity and performance 
• Manage product catalogs and promotions 
• Approve and manage orders seamlessly 
• Generate sales reports by employee, route, sales group, or product 

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.