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Distribution channels: Types and functions

Posted by Lógicos 3PL on Dec 10, 2020 6:14:00 PM

When you start a new business, one of the first actions you should take is to study the market.You have to take into account the environment, identify the competitors and, above all, know what your target audience is going to be.

In the end, understanding the profile of the people we will be addressing will also influence the rest of the decisions we make. Your target audience will be the group in which you want to focus your specific marketing efforts. Once you have defined this ideal audience, deciding what channel you will use to bring your goods and services to them will be much easier.

In Lógicos 3PL, we explain you which are the basic distribution channels and which channels you can use to carry out your sales. In addition, we also explain the advantages of having a logistics operator in charge of managing your distribution chain.

What is a distribution channel? Basic types

A distribution channel is the route or path through which products and services pass until they reach the final buyer or the end consumer. Depending on the nature of the product or its destination, the relationships and length of the distribution channel will vary.

If we focus on the most common division of distribution channels, these channels can be divided into: direct and indirect.

  • Direct distribution channel
In this channel, there are no intermediaries between the producer or the manufacturing company and the final consumer.

  • Indirect distribution channel

On this occasion, companies work with one or more intermediaries to bring their products or services to the final customer.

There are numerous intermediaries depending on their nature or function. Besides, the length of this distribution channel will depend on the total number of intermediaries or partners we have.

In this respect the channel can be:
  • Short distribution channel - The number of intermediaries is reduced. Normally, there is only one intermediary between the manufacturer or producer and the final consumer.
  • Long distribution channel - A distribution channel is considered long when it is made up of at least four levels.
  • Double distribution channel - In this type of channel, apart from wholesalers and retailers, the figure of the agent comes into play. This agent becomes the exclusive distributor of a service or product. The double distribution is very characteristic in businesses that work through franchises. 

distribution channels

Factors influencing choice of distribution channel

When choosing the distribution channel that best suits your company, you have to assess a number of factors:

Internal factors

  • The product - You will have to take into account each of the product's own characteristics to determine, among other things, if a short or long channel is favorable to it. For example, if your product is of high quality and perishable, the shorter the distribution channel, the better.
  • Company or manufacturer - The company itself will have to determine if it has the necessary resources to be autonomous in the shipment of goods or services; or, on the contrary, if it needs the support of intermediaries to provide certain services for them.

External factors

  • The market -This is one of the essential factors that will make us determine which distribution channel best suits our business. We will have to identify, among other things: the geographical extent, the volume of orders or the purchasing capacity of the sector or sectors.
  • Competition - Before choosing a distribution channel, companies usually look at the channels chosen by their competitors. Normally, this channel will be familiar with both the type of product and the consumers.
  • Intermediaries - Although they have to be totally aligned with the manufacturer or producer, we take intermediaries as an external factor. In order to choose the right intermediary, you will have to take into account issues such as availability, the markets in which they operate or the products for which they are experts.

From Lógicos 3PL, we want to become your main logistics operator so we invite you to take a look at all our services.

types of distribution channels

Types of Ecommerce Business Models

Ecommerce businesses have transformed the way in which we buy today and the role of the distribution channels. If you are about to start an ecommerce business, we are sure that you will fall into at least one of these categories:

B2B or business to business

This model is the one that deals with transactions between companies. In other words, the flow of goods is related to a corporate need.

Normally, in B2B, the relationship between the two parties is long-term and the transactions are of greater value. In this model, understanding the customer's needs is a key issue, since the Customer Lifetime Value will depend on it.

The best strategy for this type of business is to offer the highest quality and reliability through an infallible logistics chain. In Lógicos 3PL we take care of the integral logistics so that you can take care of other activities that can give added value to your company.

B2C or business to consumer

In this model the flow of goods goes directly from a company to the end consumer. This model is one of the most common in our day-to-day life and one of the ones that has grown the most with the irruption of ecommerce.

Although in this model the relationship with the customer is more direct, the disadvantages of managing it yourself are also much greater.

If you outsource the management of your warehouse with 3PL Logic, you save time and costs. In addition, we will also help you achieve the geographical reach you always dreamed of, we send your orders anywhere in the world!

what is a distribution channel

Although B2B and B2C are the basic channels, in recent years other types of business have emerged such as B2B2C and C2C.

  • B2B2C - In this model, a company serves both companies and the final consumer. One of the clearest examples of this type of business is that of online marketplaces.
  • C2C or consumer to consumer - C2C businesses connect consumers to exchange goods or services. A clear example of this kind of business is the one we find in the online pages where we can sell and buy used stuff.  

Ecommerce has benefited both the treatment between producers and consumers and the treatment between producers and their intermediaries. We have adapted to this world that's why our cloud-based system is integrated with yours, which will give you total visibility of your operations and will make it easier for us to manage them.

We hope you find this information useful and please do not hesitate to contact us if you have any other questions.

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