Advantages and disadvantages of distribution channels

 

From the maker to the customer, a product has numerous steps. Manufacturers frequently don’t sell their goods to customers directly. In fact, they do this by using a distribution channel. A distribution channel is a method that businesses use to provide goods or services to customers. The corporation uses distribution lines constantly in its operations, especially when distributing manufactured goods to prevent expiration in the warehouse management system.

A distribution channel is a collection of shipments or distributions of commodities to numerous recipients or locations. As a result, all of the middlemen in this chain are dependent on one another. The manufacturer chooses the distribution process’s medium in order to reach its customers. For instance, the media could be wholesalers, distributors, or agents. It is essential to maintain the chain of distribution from the manufacturer to the customer. This procedure is important because it ensures that the things will remain in good condition until the end user receives them. Myanmar Golden Heart is one of the best distribution chains and also they can guide you for further steps.

Distribution Channel Function

A distribution system’s main job is to get products and services to customers. Additionally, additional distribution tasks that support the main duty include:

1. Information

Distribution channels give businesses the chance to gather vital data on customers and rivals. As a result, this knowledge will aid the corporation in future business planning.

2. Negotiation

When the product is distributed, the process of coming to an agreement between the business and the customer will take place. The company and the customer frequently need to agree on the cost and rules for moving the product. The agreement then permits the buyer to receive ownership of the goods.

3. Promotion

The distribution enables businesses to persuade customers of the worth of their products. People will be more familiar with the company’s products as a result. People are more likely to purchase a product after learning more information about it.

4. Ordering

In this instance, the distribution channel serves as an intermediate for the ordering process of goods, starting from the bottom track and moving up to the producer at the top level—for instance, a distributor ordering items from a business.

5. Payment

A payment method that both the consumer and the producer accepts and follows every transaction. Manufacturers typically take bank payments for their invoices.

6. Finance

Utilizing funds for diverse distribution process costs is the role of finance. Businesses will find it challenging to manually calculate expenses. A manual calculation will be difficult to understand because it involves numerous factors and participants.

Distribution Channel Stages

There are more than one party(ies) involved in the distribution of goods. As a result, there are various stages that must be completed before a distribution channel may be implemented. The following are some of these stages:

1. Manufacturer

A producer is an owner that wants to sell their products to a distributor. As a result, they are in charge of ensuring product availability. Additionally, producers must make sure that the distribution of their products is done as efficiently as possible. To ensure that the delivery of their products goes well, they must also reach arrangements with distributors.  

2. Distributor

Typically, distributors and manufacturers engage in a direct transaction. After that, they will resale the item to wholesalers and merchants. Typically, distributors buy goods from numerous manufacturers to resell them for less money.

3. Sub-distributor

The sub-distributor is the following stage. Sub-distributors operate as the primary distributor’s buyers of the goods. The major distributor has also established the cost and location of the product’s distribution. Having said that, the sub-distributor functions more as the product’s successor in the main distributor’s hands.

4. Wholesaler

Entrepreneurs known as wholesalers purchase items in bulk from distributors to resell. They have the ability to sell goods to a variety of buyers, ranging from wholesalers to retailers.

5. Retailer

Particularly with end-level consumers, retailers are always in contact. Retail business owners offer their wares directly to customers, who do not resale the goods. In most cases, shops even warn customers against reselling the goods.

6. Consumer

Consumers are the product’s last-level purchasers. Typically, this party employs products and services to fulfill their wants. Personal demands and objectives are undoubtedly unique to each individual.

Defining Factor of Distribution Channel

Certainly, the distribution operations cannot be carried out without thought. There are various deciding variables for this channel, including:

1. Market

Identifying market demand aids in identifying the target market for product distribution. This element is essential for the items to reach their intended recipient.

2. Determination of goods

Companies that offer products must take into account factors like an item’s weight and product quality. Naturally, businesses would think of a plan to control the high transportation costs for heavy goods during the distribution process.

3. Determination of the company

A corporation will have an impact on many decisions as a supplier of commodities or products. The business must be able to procure, oversee, and distribute items. In order for the products to reach consumers safely, company oversight is essential.

4. Determining the intermediary

The choice of the middleman is under the company’s discretion. This authority entails that the business must offer services to help consumers buy items.

Types Of Distribution Channels

Direct channels and indirect channels are two categories of distribution channels. Based on the number of intermediaries between manufacturers and customers, indirect channels can also be categorized into one-level, two-level, and three-level channels.

Direct Channel Or Zero-level Channel (Manufacturer to Customer)

One of the earliest methods of product distribution is through direct sales. The manufacturer interacts directly with the buyer at the point of sale without the need of an intermediary. Selling, brand retail stores, receiving orders on a company website, etc. are some examples of direct channels. Manufacturers who offer pricey, perishable products with a regionally concentrated target market typically employ direct channels. Among others, bakers and jewelers.

Indirect Channels (Selling Through Intermediaries)

An indirect channel is one in which a manufacturer uses a middleman or intermediary to sell its goods to the final consumer. Three categories can be useful for categorize indirect channels:

Manufacturer to Retailer to Customer

Retailers purchase the goods from the producer and then market them to buyers. For producers of consumer items like clothing, footwear, furniture, toys, etc. A single level route of distribution works well.

Producer to wholesaler to retailer to consumer

Manufacturers sell their excess product in bulk to wholesalers, who then break it down into smaller packages and sell them to retailers, who in turn sell them to end users. A two-level channel of distribution is useful for products that have reliable, standardized, and moderate prices. Their target market is not constrained to a certain region.

Producer to Middleman to Wholesaler to retailer to consumer

In a three-level distribution system, in addition to the wholesaler and retailer, a third agent helps sell products. These agents are useful when products need to enter the market rapidly after an order is placed. In exchange for a particular proportion of commission, they are assigned the responsibility of managing the product distribution for a given region or district.

Super stockists and carrying and forwarding agencies are two different types of agents. For the benefit of the business, both of these agents hold the shares.

Super stockists purchase the inventory from producers and resell it to local wholesalers and retailers. Alternatively, carrying and forwarding agencies utilize their warehouses and shipping knowledge to process orders and make last-mile deliveries. They also work on a commission basis.

Manufacturers opt for a three-level channel when a product is in high demand and the consumer base distributes across the country.

Advantages of a distribution channel

1. Reduced costs

You could certainly do it yourself, but adding a new place to your distribution map requires a significant investment of time, money, and labor. However, expanding your company’s global reach through an established distribution network is far easier and quicker than doing everything on your own.

Additionally, you don’t pay additional stocking and transportation costs because stores stock their shelves with your products and customers buy them in-person.

2. A tighter focus on your core competencies

You want local knowledge—a thorough comprehension of what the locals need and want—to successfully expand in uncharted terrain. If you own a small business, accomplishing this can need hiring new staff so your existing team can concentrate on doing what they must.

The finer details of the product distribution process are handled by wholesalers, retailers, and dealers. It includes order and inventory management, retailer and customer relationship management, pre- and post-sale customer service activities, and product shipment to multiple locations.

3. Options that enable quick distribution are available

A good distribution channel makes mass deliveries considerably simpler. Implementing a contact to a selected demographic is simple because of the channels’ automatic engagement with end users; supplying desired goods is even simpler.

4. When distribution channels are used properly, no clients feel left out

Discord within the consumer base may result if one group of customers in a particular demographic benefits from products and marketing while another area feels left out. Profits are always lost when there is discord. Because the organization can reach the vast majority of persons in its targeted demographics through an efficient distribution route, very few individual end users will feel left out.

5. Logistic support

Distributors and retailers must effectively manage their inventories, and they typically do so well. Daily order fulfillment is possible, and they are aware of when to ask manufacturers for substantial shipments. Additionally, the distributor or retail chain is responsible for handling any problems that may arise due to a fulfillment error.

6. Distribution channels continue to provide some end-user education.

A company that employs distribution channels can be aware of regional influences even when there are fewer possibilities to contact specific end users. The experts at the company may design their marketing messages and products to fulfill these expectations by having knowledge about the customer’s purchase behaviors in a particular region of the world. This allows them to provide a significant value proposition.

7. Faster growth

International agents are experts in product distribution in various parts of the world and are necessary if you want to introduce your products to a global market. You may leverage their knowledge to get your goods in front of customers you might not otherwise reach, especially if you run a small manufacturing company. Even better, they can assist you in making your product more marketable to buyers worldwide.

8. The regional process becomes more successful overall as a result of specialization.

With a mass marketing strategy, there is no actual loyalty developed in the engagement with the distribution channel until the brand awareness is fully saturated. End consumers are only committed to the lowest price that is offered. Although specialization may not always solve the problem, it can give customers a point of contact with the company that can serve as the basis of a relationship.

Disadvantages of Distribution Channels

1. There is no way to communicate with the customer at all

In order to reach several end users at once when distribution methods are used, interaction with the end users must be sacrificed. An organization may interact with its end users more personally when it is aware of their interests, routines, and passions. Higher levels of brand loyalty are the end outcome, which distribution channels may not always deliver.

2. Some distribution routes might be very intricate.

Distribution networks are efficient when they are straightforward. When Point A and Point B are connected, everyone can feel satisfied. A distribution experiences a time delay when Points C, D, E, and F are compelled to be included in the equation. Efficiency suffers as a result, which ultimately leads to individual unhappiness among end users.

3. Multiple middlemen may be needed for different distribution channels.

There will always be additional fees wherever there are middlemen between a company and its end users. To remain in business, a company must generate a specific level of profit. If the organization has to pay middlemen for their services, this raises the price of the overall profit so that everyone may receive their fair portion. The greater costs are nearly always borne by the end user, and they may discourage some of them.

4. This structure offers very little room for maneuver.

It is challenging to adjust a distribution channel plan once it has been implemented by a business. The structures that have been developed are intended to take a mass marketing strategy rather than an individualized one. Companies that put the end user first can develop distribution channels, but because there is no relationship with the end user, companies that develop distribution channels first find it difficult to do so.

5. It's possible for different intermediaries to have various objectives.

All will be okay with this plan if an organization can establish a distribution channel with middlemen that have similar goals. The tendency of the intermediaries to have their own strategies for increasing their profits, which occurs much too frequently, may be a barrier to a successful economic cooperation. A successful commercial partnership might be hindered by the intermediately. When conflicting strategic purposes compete for supremacy, there is conflict that is communicated to the end user.

6. Every region will see some loss of control over the selling environment.

Companies that use distribution networks will be reluctant to respond if consumer purchase patterns shift simply because they lack the information. There isn’t enough information available, so there is no way to effect real change. Even if staff are interacting with end users directly outside of the distribution channel, control only comes from having a unique understanding of each end user, which is practically difficult to achieve with this approach.

Conclusion:

We hope that after learning about the significance, purpose, stages, determinants, and many types of distribution channels, you will be better able to make the best distribution decision as a businessperson. Because they have dispersed goods so that customers can buy them more easily, distribution channels are crucial for businesses while conducting product buying and selling activities. In order to progress over the long run, businesses must carefully evaluate a number of aspects.

The advantages and disadvantages of distribution channels demonstrate that, when used properly, they can be very powerful tools. When you apply them wrongly, issues start to appear. To adopt the most effective plan for sales and customer interactions, take into account each of these crucial points. When choosing a distribution channel for your business, keep in mind that revenue isn’t always dependent on a regional focus. For more relevant data feel free to contact Myanmar Golden Heart. They are available for you 24*7.