Your distribution channel is the series of businesses, sellers, or other intermediaries your products must go through to reach your final consumers. Depending on your business and your products, this series can include wholesalers, brick and mortar retailers, online marketplaces, or shipping companies that take your products directly to consumers.
Choosing the right distribution channel is a pivotal decision for your business. What you choose determines how your products are handled, the speed in which they are delivered, and how successful you are at getting your goods into the hands of consumers.
What to Consider Before Choosing a Distribution Channel
Before you choose a distribution channel for your products, there are a variety of factors to consider.
- Type of product. If your product is perishable or is unstable, you will need it to arrive quickly and in controlled conditions. You may need to use a direct distribution method.
- Market. Are you selling products to consumers or other businesses? Are they more likely to purchase from brick and mortar retailers, websites like Amazon, or sellers on social media? Can you ship directly, or do you need to work with retailers? Knowing who your ideal consumers are will help you identify the most efficient way to get products to them.
- Middlemen. Depending on your needs and the demands on your time, a middleman can help distribute products quickly and efficiently. Whether or not a middleman makes sense will depend on your budget, market, and existing business relationships.
How to Choose a Channel of Distribution
Once you have a sense of the type of distribution channel that will work best for your business and customers, you need to select a specific option. Depending on your business and where your customers are located, you may need more than one. To choose the right channels, you will need to:
- Consider your competitors. What methods are your competitors using? Why? Does it provide a qualitative advantage over other channels, or is it simply the way the industry has always operated? If there is a distribution channel that your competitors have overlooked, you could gain an advantage by using it. For example, if your competitors are mainly distributing products via big-box retailers, taking advantage of direct sales through the internet can give you a unique angle.
- Examine costs and benefits. After deciding on a method of distribution, creating the support systems that go with it is time-consuming and expensive. Once your company is oriented around a specific distribution channel, it's difficult to reverse your decision. Carefully weigh the costs and benefits associated with each option before committing resources to it.
- Rank your options. After examining the different methods available to you, rank them by order of preference according to what will net you the highest revenue at the end of the year, minus associated costs. Choose the option that allows you to reach the most customers while remaining within your budget.
- Have a plan for growth. You may find that pursuing one distribution channel doesn’t preclude you from adding additional channels as you acquire more capital, or that as your business expands you need additional methods of connecting customers with products. Keep up with your market and competitors so that you can continue to make informed decisions about distribution as your market grows.
The most important thing you can do when choosing a distribution channel is to carefully consider your options and not select a direction simply because it’s the industry standard or most convenient avenue for your business. If you question the reason behind your decision at the onset, you may discover overlooked advantages, hidden drawbacks, or new ways of reaching customers in a budget-friendly and innovative manner.