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Distribution channels

There are three main types of distribution channel used by businesses: direct, modern and traditional. These are categorised by the steps a product goes through from the raw materials stage to reaching the end consumer.

• Direct: Manufacturer – consumer
• Modern: Manufacturer - retailer – consumer
• Traditional: Manufacturer - wholesaler - retailer - consumer

Direct channels of distribution

Manufacturer – Consumer

A direct channel of distribution only involves the manufacturer and the customer. The producer sells products directly to customers in a physical shop, using a website or through the post. For example, a farmer might sell produce directly to customers through a physical shop.

The advantage for a producer of selling directly is that they can control the distribution of their products and the prices that are charged. However, the disadvantage is that it can become increasingly difficult to sell directly to a large number of customers.

Modern channels of distribution

Manufacturer - Retailer – Consumer

A modern channel of distribution introduces an intermediary into the distribution process. There are advantages and disadvantages of using intermediaries.

Advantages of intermediaries:

• makes it easier for producers to distribute their products
• makes it more convenient for consumers to buy those products

Disadvantages of intermediaries:

• poor customer service could limit sales
• cause higher prices for the end consumer, as the intermediary must make a profit

For example, retailers and e-tailers are both types of intermediary. They buy products in bulk from producers and then sell them in smaller quantities to consumers.

Traditional channels of distribution

Manufacturer - Wholesaler - Retailer - Consumer

A traditional channel of distribution often introduces an additional intermediary into the distribution process. In addition to the manufacturer and the retailer, the traditional channel of distribution also adds wholesalers into the process.

A wholesaler is a type of business that purchases goods in bulk from a manufacturer, and then sells them to retailers. Wholesalers benefit from economies of scale, which allows them to profit by selling products to a number of different retailers at a higher price.