January 30, 2024

How Do Businesses Benefit From Channels of Distribution?

The goal of distribution channels is to move products from producers to final consumers. During the journey, a product may pass through multiple intermediaries known as channel members or middlemen, such as wholesalers and retailers. The more intermediaries a product has, the higher its price will be, as each intermediary must be compensated for their work. Channels provide a variety of benefits to businesses, including increased profits and lowered risk by allowing companies to outsource their distribution services to qualified intermediaries.

Depending on a company's business strategy and market needs, different types of distribution channels exist. The first type of distribution channel is direct, which involves selling a product directly to the end consumer without any intermediaries. Examples include e-commerce websites and retail stores. A second type of distribution channel is indirect, which entails selling a product to wholesalers, who then sell it to retailers. Wholesalers stock a wide range of products from many manufacturers and act as central hubs for the supply chain. Examples include Sysco, which distributes food to restaurants and hotels, and Ingram Micro, which distributes computer hardware and software.

Indirect channels are beneficial to businesses because they eliminate the need for businesses to invest in their own distribution infrastructure, such as warehouses, transportation networks and order fulfillment systems. Distributors share these costs with the businesses they serve and offer economies of scale by enabling them to purchase in bulk at discounted prices. This is especially important for small, new businesses that are just beginning to establish a presence in their markets.

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