Digitization has dramatically altered the marketing landscape, but some things never change.
Case in point: the marketing mix – also known as the “4 P’s of marketing” – remains as relevant today as it did back when it first came to prominence in the 1950s and ’60s. The core ideas contained within that model – namely, that successful marketing is driven by product, price, promotion and placement – still hold up. They are, essentially, the fundamental building blocks of good marketing.
The nature of the 4 P’s has evolved somewhat in response to digitization (software and subscription-based services standing alongside or replacing physical products, for instance), but none have been impacted to the degree that placement has.
Marketers have more distribution channels than ever to consider, with their target audiences spread out across various digital platforms. Not to mention, physical distribution channels haven’t gone anywhere, either. Each one needs to be accounted for in business models and marketing strategies to reach audiences and drive revenue in the digital age.
What is a Distribution Channel, Anyway
Distribution channels are the methods by which companies deliver products and services to customers and end users. Some businesses sell directly to their customers, while others might use a retailer or wholesaler to serve as an intermediary. Companies may also use agents or brokers to facilitate the movement of products to distributors that sell those wares to the customer.
Why so many choices? Consider a clothing manufacturer: It might have its own brand stores, but those would be expensive to expand to achieve optimal market penetration. Selling through retail outlets increases the brand’s presence and visibility, reaching more customers in more varied locations. In this way, the company can maximize its revenue potential without overextending resources by exclusively maintaining its own storefronts.
How Important Is Distribution to the Marketing Mix?
Marketers will argue about which “P” in the marketing mix is the most essential, but there’s no denying that each one is important in its own way. If you’re trying to sell an inferior or inherently flawed product, for instance, you’re already coming at your competitors from a disadvantage.
Place, or distribution, is a critical consideration for marketers, whether you’re selling a physical product, software application or digital service. Where are people going to find your products and services? Where can they purchase them? Where are they going to use them? How are you going to manage inventory?
E-commerce, digital distribution and other internet-age developments have made these questions far more complicated. Businesses might operate brick-and-mortar shops as well as online stores. Digital-only services may be downloaded directly from the provider or distributed through a value-added reseller.
To get an idea of how complex “place” has become, consider the enormous shift in distribution methods witnessed in the video game industry over the past two decades. Twenty years ago, customers would need to travel to a physical store to buy games or use a mail-order service.
Then the internet came along, and retailers started selling those products online.
The rise of e-commerce markets like Amazon added another major distribution channel to account for.
With faster networks, gamers can cut out the middleman – and physical media entirely – by downloading video games through distribution services like Steam. Brick-and-mortar stores, e-commerce retailers and online shops still remain viable distribution channels, and video game companies need to factor in all of them to reach the widest audience.
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What Are the Different Channels of Distribution?
There are several approaches brands can take to distribute their goods, products and services – especially now that digital channels stand shoulder to shoulder with traditional, physical outlets.
These are the 8 most important distribution channels to know:
1. Direct Sales
A direct sales business model eliminates any intermediary in the distribution process, leaving the brand to sell products to customers on its own. That means there’s no retailer or third-party outlet to stock inventory and promote products.
Arguably the most visible example of a direct sales approach comes courtesy of Apple. In many cases, customers need to go through the brand itself to buy software, devices and other products. Apple manages its own physical shops and digital stores where it prefers to sell its wares. It does have a presence in third-party brick-and-mortar retail outlets, but the company tries to direct potential and returning customers to its branded stores.
A more rigid example of direct sales would be a business that creates products and goods on-site and sells to the customers in the same location. For instance, bakeries employ a strict, direct sales business model, assuming their goods can only be found in their stores.
Retail is the most common distribution channel for consumer brands, using third-party outlets to bring products to market. Supermarkets, big-box stores, convenience stores and department stores all act as intermediaries and the point of contact for customers. You don’t go to the Jif store to buy peanut butter, after all.
Not all retail distribution strategies take the same approach, however. Depending on the brand, product and audience, they may aim for the widest market penetration possible, while others focus on establishing exclusivity by limiting availability.
3. Intensive Distribution
Consumers are probably most familiar with this form of retail distribution, where products are sold through as many outlets as possible. Take Jif, for instance. You can find the brand in virtually any grocery store and convenience store in the United States, regardless of the market or location. Jif has an enormous market penetration, and is one of a handful of peanut butter brands that are ubiquitous across the country.
This style of retail distribution is best-suited for goods and products that rarely command a great deal of brand loyalty. If a customer’s preferred brand is unavailable, they are perfectly fine buying another product at a similar price point. For most consumers, if Skippy’s sold out, Jif’s an acceptable alternative.
Intensive distribution gives brands the largest presence possible, reaching more potential customers across disparate markets. Only a select few brands can achieve that high level of distribution. Inventory management, supply chain logistics and marketing demands all become incredibly complicated with an intensive distribution strategy, and many companies simply do not have the resources or capabilities to make this approach work.
This approach is a poor fit for niche products with limited appeal. Those brands require a more targeted strategy that zeroes in on their target audiences. Luxury products with high price points may also suffer with intensive distribution, as lower quality offerings can easily undercut them and better appeal to less discerning shoppers.
4. Selective Distribution
Not all companies that sell through retailers are looking to achieve the widest distribution possible. Luxury brands are often highly selective about where their products are placed and how they are represented. You won’t find Hermes handbags in a big-box store, for instance. For those companies, the in-store experience is part of their brand and they tightly regulate retail displays and even how clerks describe or demo their products.
Selective distribution makes sense when brands and products cannot be swapped out interchangeably. Target audiences are extremely discriminating and are willing to travel to specific outlets where their preferred brands are available.
5. Exclusive Distribution
Selective distribution strategies still use a variety of intermediaries and outlets to sell wares, but brands have an even more discerning option to consider: exclusive distribution. Under this business model, companies partner with a single wholesaler or retailer in a particular market. The idea is to restrict availability to protect brand equity and project a more selective and exclusive brand image.
Rolex is one of the more famous examples of exclusive distribution. The company partners with one wholesaler in each market to control precisely where its products are sold and how they are represented. Even though a third party is the final point of contact with the end user, Rolex can still dictate the in-store experience, creating strict brand guidelines for clerks and agents to follow.
Brands also tend to have more leverage in exclusive distribution relationships since wholesalers, retailers and distributors are dependent on the presence of luxury, high-quality products to appeal to their upscale and discerning clientele. Manufacturers are in a stronger position to negotiate distribution and marketing costs with their intermediaries since there are few alternatives to take their place on store shelves.
An exclusive distribution partner agency can also be a huge asset when expanding into new markets. Distributors already have a presence in these markets and understand what motivates local customer bases. That means less risk for businesses that want to reach international audiences, but are concerned about the logistics involved in such a move.
Obviously, exclusive distribution is reserved only for luxury brands where product scarcity isn’t just acceptable – it’s expected.
6. Dual Distribution
Many businesses choose to use a variety of distribution channels to sell their products, working with wholesalers and retailers while also maintaining brand storefronts to sell directly. This approach is known as dual distribution. The Apple example we cited earlier is one instance of dual distribution, although it leans more toward the direct-to-customer end of the spectrum.
Smartphones, in general, highlight this approach, as manufacturers sell their devices through big-box stores, telecom partners, e-commerce markets and their own online store fronts.
Dual distribution allows brands to reach a large audience with varied purchase options. It makes perfect sense for smartphone manufacturers to partner with wireless service providers because customers can’t use one without the other. Many users will naturally want to sign up for a wireless plan when they buy a new smartphone, so why not make those devices available in wireless stores?
Like retailers, wholesalers act as middlemen that buy products from manufacturers and then sell those goods to end users at an increased price point. The biggest differences between these business models are scale and audience.
As anyone who’s shopped at Costco or Sam’s Club can tell you, products are purchased in bulk from wholesalers. Customers wind up spending less money per unit while buying large quantities of a particular product.
Although consumer-facing membership warehouses are the most visible examples of wholesale distribution channels, most wholesalers sell to other businesses. Restaurants, for instance, buy their equipment from wholesale providers. Certain retailers may purchase products in bulk from a wholesaler and then sell those goods to consumers individually at a higher price point.
Brands benefit from wholesale distribution by moving large volumes of products at once. The tradeoff is wholesalers expect discounts and reduced rates in exchange for buying in bulk.
Another factor to consider is that manufacturers can avoid the logistical challenges of selling directly to customers. There’s no store to manage, on-site personnel to train or inventory to stock. Once products have changed hands, those issues are someone else’s concern.
That also means brands have limited – if any – say about how their products are handled and displayed. They can address those concerns by creating brand guidelines for distributors to follow, but there is some added cost to conduct on-site reviews and assess compliance.
8. Channel Partners or Value-Added Resellers
Many B2B companies sell through the channel. That is, they don’t sell directly to end users, but work with channel partners that buy their wares, repackage them and then sell to their own customers.
How is that any different from the wholesaler models discussed earlier? As the name suggests, value-added resellers (VARs) include new features and services to improve a product and appeal to their target audience. The manufacturer provides a basic foundation to work with, and the VAR adds the secret sauce to distinguish its offerings from the competition’s goods.
Software-based B2B products are often sold through the channel, with VARs providing support, training, additional features and other offerings their target audiences might need.
The appeal of working through the channel is that companies can focus on creating a product that has a strong core functionality and let another organization worry about refining it to attract specific audiences. An accounting software manufacturer, for instance, might sell its platform to different VARs that operate in disparate industries like healthcare, education and retail. Each channel partner can then determine the best way to package that solution to appeal to their customers and end user.
Companies can dramatically simplify marketing requirements when they sell through the channel rather than attempt to create campaigns and strategies that target various industries and audiences.
What is the Difference Between Direct and Indirect Distribution Channels?
Now, of the 8 channels of distribution we covered, only the first was direct. For the 7 others, they fall into a category called indirect distribution channels.
As the names would imply, the difference between the two types of distribution is fairly self-explanatory. Direct distribution is — wait for it — a direct sale between the business and the end consumer. On the other hand, if you utilize indirect distribution, that means a third-party vendor of some kind is being introduced to the equation. You sell to them, they sell to your customer.
There are plenty of pros and cons when it comes to using either method of distribution. Let’s go over some of the most important to help you decide which is the right choice for your business:
What Are the Benefits of Direct Sales?
Since companies manage distribution without any external assistance, they don’t need to divide their revenue with third parties. By cutting intermediaries out of the equation, brands have the financial flexibility to set lower prices to entice customers and gain a competitive advantage. Businesses that are able to adequately control distribution costs and still reach their target audience can find an optimal level of profitability.
Brands can also tightly control the customer experience when they sell directly. They can build stores – both physical and digital – that directly align with their core values and messages. Going back to the Apple example, every aspect of the in-store experience – from the layout to the lighting to the furniture to the music – is meticulously designed to make customers feel a certain way. The stores are extensions of the brand.
Managing a direct distribution channel and selling to end users brings brands closer to their customers. It’s easier to receive feedback regarding services and products because there’s no filter or middleman separating the customer and the brand. Companies can then refine and improve their offerings to more closely reflect what the customer wants.
Another benefit to the direct sales approach is that businesses don’t have to deal with as many communication problems. When products change hands between manufacturers, wholesalers, retailers and other distributors, it dramatically increases the number of stakeholders involved. And more stakeholders means more potential for misunderstandings and communication breakdowns. That’s less of a concern if the entire distribution process is managed in-house.
What Are the Benefits of Indirect Sales?
When we think of the advantages of going with indirect, it’s basically the opposite of all things direct sales.
- Existing customer base: When you work with a third-party vendor, you’re hitting the ground running. They already have an established relationship with their customers, meaning you’re one step closer to connecting with your own.
- Increased speed to market: Thinking about venturing into a new region or market? If you don’t have your own sales force ready to go, opting for indirect sales channels allows you to enter at a lower cost and with less risk.
- Two heads are better than one: Your would-be partner has already been in the game. They’ve picked up experience in logistics, manufacturing and operations that might take you years to acculumate. Together, you can create even more value without having to overcome that learning curve.
Remember: There’s no one right distribution channel. At the end of the day, the decision to go direct or indirect all comes down to your target audience. For the foreseeable future, online sales will command the market. For companies who are just getting started, this is great news. Creating an ecommerce presence from scratch is definitely a smaller lift than establishing a brand-new brick-and-mortar storefront.
A word of caution: Some specialty items will always benefit from a more hands-on approach. Although luxury brands are starting to test the waters with digital twins and immersive online shopping experiences, we may still be a few years out from a fully virtual market.
How to Define Distribution Channels for Your Product
With so many different channels available, it can be a challenge to pick the right one for your business. As you start to create your own distribution strategy, consider the following tactics:
- Take a look around your industry: What are your competitors doing? In some cases, your product category might require a certain channel due to the nature of the goods you sell. However, you may be able to uncover untapped channels that could help you fill a gap in the market.
- Do a cost analysis: If you’re just starting out, cost might be one of the most important factors in your decision. Decide which channels you’d like to start with, and then determine which are the most feasible at this time.
- Look toward the future: Just because you open with a channel doesn’t mean you have to only use that one for years to come. Instead, sit down and plan where you’d like your business to be in one year. How about 5 or 10? As you map out your short- and long-term goals, consider how you could use multiple channels to get there.
Let Your Distribution Channel Guide Your Marketing Strategy
The most effective marketing strategies for your business will heavily depend on the distribution channels you use. Some examples include:
- Companies that sell through the channel need to develop messaging that resonates with VARs rather than end users.
- Luxury brands using exclusive distribution strategies should create product scarcity to help drive demand with upscale audiences.
- Businesses that sell directly to consumers should refine every aspect of their digital and physical touch points to create a holistic brand experience.
There’s no denying that the digital revolution has dramatically changed how businesses market their products, interact with customers and generate revenue. Marketing fundamentals have not changed, however, and brands should follow every component of the marketing mix as diligently today as they would have 30 years ago.
Your products’ placement and distribution is part of your brand identity. And that will always play a central role in your marketing strategies, no matter what industry changes come down the pike.
Editor’s note: Updated May 2022.