You walk into your local grocery store and trust that your favorite brand of coffee will be right there on the shelf, ready for you to take home for your daily caffeine fix. But have you ever stopped to consider the route that coffee takes to get from the field to the store shelf?
From direct to indirect channels, intensive to exclusive distribution, here’s everything you need to know about product distribution channels:
First, What Is Product Distribution?
At its most basic, product distribution is the path that products take from manufacturer to consumer. Product distribution involves transportation, packaging, and delivery. Effective, efficient product distribution is essential to the financial health of all businesses along the chain – manufacturers, distributors, agents, and retailers.
There are two basic types of product distribution channels: direct and indirect.
Direct distribution channels take products directly from the manufacturer to the consumer. An easy example of a direct distributor is handmade goods website Etsy. A consumer purchases a product directly from the person who creates it, and the creator sends the product directly to the consumer.
Indirect distribution means there is at least one intermediary between manufacturer and consumer. For example, manufacturers who sell their products through Amazon send the products to Amazon’s warehouse. Consumers then purchase the product from Amazon, and the product is sent from Amazon’s warehouse to the consumer.
The Four Levels of Distribution Channels
There are four different levels of distribution channels, with each adding a person or business between the manufacturer and consumer.
Level 0 channels have product moving from the manufacturer directly to the consumer.
Level 1 channels have one intermediary between the manufacturer and consumer, often a retailer who buys from the manufacturer and sells to the consumer.
Level 2 channels insert two intermediaries between manufacturer and consumer, such as a wholesaler who buys from the manufacturer and sells to a retailer. The retailer then sells to the consumer.
Level 3 channels include three intermediaries, usually an agent working on behalf of a company and dealing with the wholesalers.
Fulfillment centers like Cannon Hill Logistics typically do not add another level to the distribution chain. Rather, they work to improve costs and efficiency for a client who already has a role in the distribution channel.
The Three Types of Distribution
Within the levels of distribution, there are three main types of distribution.
Intensive distribution focuses purely on saturating the market as much as possible. There is no cap on the number of retailers or wholesalers; manufacturers want their products on as many shelves as they can manage. Coke and Pepsi, for example, focus on getting in front of as many consumers as possible.
Selective distribution targets specific markets, capping the number of distribution hubs in any given area. An example of this would be Walmart deciding to only carry a particular product in five locations in a geographic area, creating buzz and a feeling of demand for consumers.
Exclusive distribution limits availability to a few locations worldwide. The scarcity creates a feeling of rarity and prestige around the brand. Examples of exclusive distribution include high-end automotive companies such as Ferrari and Bugatti.
Understanding product distribution channels can help you better select your preferred route to the consumer, and can help you maximize your business’s profitability.
Individualized Distribution Solutions in Maryland
At Cannon Hill Logistics, we offer logistics solutions for businesses of all sizes. Our location near the Port of Baltimore in Maryland allows us to reach more than half the United States population by ground shipping within three days. Contact us to learn how we can help you grow your business.