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Channels of Distribution

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What are channels of distribution?

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Definition of channels of distribution

Channels of distribution (or a distribution channel) are channels of businesses or intermediaries which a product or service travels through before reaching the final customer.

These channels often include wholesalers, distributors, retailers, and online stores. 

Examples of channels of distribution

There are 3 main types of distribution channels. Each type includes some sort of combination of manufacturer, wholesaler, retailer, and final paying customer.

The first type includes all 4 channels and is the longest. A good example of this would be the alcoholic beverage industry, as manufacturers usually sell their product to a wholesaler, who in turn sell to a retail store. 

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The second excludes the wholesalers and goes straight to the retailer. Car dealerships are a good example of this type of channel. Dealerships will typically buy new cars straight from the manufacturer and then sell it directly to the paying customer.

The third and final type goes straight from the manufacturer to the paying customer. One of the best examples of this is Apple. You can buy Apple products directly from their retail stores.

What are some pros and cons of using channels of distribution?

Depending on your preferred channel of distribution, a manufacturer can offload a lot of products very quickly. However, they may not be getting the best prices.

In order to sell from the manufacturer directly to the customer, your brand name has to carry a lot of influence, and you will have a much bigger initial cost.

It is very important that you do your research and consider, all costs before making any sort of decision regarding channels of distribution. What works well for others may not be the best choice for you and your company.

General FAQ

What motivates channels of distribution to sell a product?
A few factors that can motivate a certain channel of distribution to sell a product are exclusivity for a certain product or brand, better prices, and good customer support.
What kind of channels of distribution do Saas companies use?
Some of the most commonly used channels of distribution for SaaS companies are SEO, customer referral programs, content and social media marketing, ads, and word of mouth.

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