There are a variety of ways to get consumer goods and services to market, often known as distribution, and each has unique benefits. From direct customer sales to working with wholesalers or agents, distribution methods also vary in complexity. Whether you are considering a career in distribution or need to decide what kind of distributor to use for your company’s products and services, it’s important to understand the different types of distributors. In this article, we discuss what distributors are and explore seven primary types of distribution options that you can use to sell goods and services to consumers.
What are distributors?
Product distributors are professionals who buy products to store and sell through a specific channel. They handle the movement of goods and services to the customer and often are the intermediaries between a manufacturer or company and the consumer. Distributors work in collaboration with one or more companies at a time to market, transport, and sell items in various ways. A distributor can enhance a company’s market and expose it to a larger audience of consumers and sometimes offer service, technical support, or warranty on behalf of an item or company.
Using distributors can be a simple or complex process, depending on the method used. Sometimes, a company or product manufacturer overlaps distribution methods. Distributors can help a product or company grow, reaching markets through their established networks you might not otherwise gain, and can be individual agents or a business firm. Also, some distributors serve specialized market segments or product genres, such as computer or technology wholesalers and car dealer wholesalers that work with certain brands.
Including distributors, there are four main intermediaries involved in the distribution process:
Distributors: Distributors oversee sales and marketing of a product and establish strong relationships with manufacturers. They fulfill and deliver orders, though they also sell on behalf of the producer and study market trends and consumer activity to best plan future orders, shipment,s and sales. Distributors can sell to wholesalers, retailers, and agents.
Wholesalers: Wholesalers fulfill retail orders and purchase items in bulk to sell later, which often costs less initially. They buy from manufacturers and distributors and focus primarily on the storage and delivery of goods for the consumer market. They act as a trader in buying and selling of goods and rarely interact directly with consumers.
Retailers: Retailers sell products and items to consumers online or in brick-and-mortar storefronts, and they buy from manufacturers and distributors with the goal of serving as an outlet to purchase products for resale. Retail outlets are the most common place for customers to make a purchase, whether at outlet stores, department stores, or online retailer platforms. Customer service in retail selling is imperative, and retailers often grow their offerings to be competitive, like providing home delivery service.
Agents: Agents, or brokers, handle contracts and special shipments and often represent manufacturers or product inventors. They get involved in marketing aspects and focus on handling the customer relationship on behalf of the producer. They sell to wholesalers and retailers, too, though this is often the most complex distribution method, mainly because more entities get involved.
7 types of distributors
It is helpful to know about different types of distributors and how you can use them when you want to grow your business, expand into new markets, or find cost savings in your existing distribution strategy. Here are seven types of distributors to consider:
With direct distribution, the producer of a product directly sells to a consumer. It is often the simplest distribution method, with no intermediary between the product manufacturer and the consumer, though it can also be costly depending on your location, product, and ability to distribute your goods. Benefits of direct distribution include creating trust with the customer, controlling the consumer experience, and providing excellent customer service.
Direct distribution, known as a one-level channel, often sells to consumers through:
Mail order methods
Storefronts, booths and shops
Direct distribution is the shortest sales path to a customer, and it works well for some industries, like automobile, technology and agricultural businesses. For example, if you purchase a laptop computer directly from the manufacturer’s website and it ships to you, it is likely no distributor was in the middle of arranging the sale and shipping.
Indirect distribution uses other channels besides the direct-to-consumer method. It can be helpful for manufacturers with limited lines of products or financing or when retailers and wholesalers specialize in certain goods and promotional support. Manufacturers can involve one more indirect channel to create a larger distribution network to reach more customers. Indirect distribution can have a variety of paths, including:
Producers to retailer to consumer, like many ready-made garments, electronics, and food items
Producer to wholesaler to consumer, like industrial goods sold to government agencies
Producer to wholesaler to retailer to consumer, like most goods used in a daily business where competition is high among other brands
Producer to agent to wholesaler to retailer to consumer, often for a particular geographic location or area, like agricultural goods
Exclusive distribution is the approach of using limited sales outlets only available in specific locations or stores with the mindset of creating rarity and exclusivity of an item or brand. It is most common for marketing and distributing luxury brands, though a variety of brands and products use exclusive distributors sometimes. For example, a high-end luxury shoe brand may have flagship stores in major metropolitan areas only, and customers make a special trip to purchase. Exclusive distribution deals allow greater control over contract negotiations, rates, and product distribution because fewer entities are involved.
This distribution method aims to penetrate the market thoroughly by selling in as many sales outlets as possible. For example, a garden hose manufacturer might stock their product at all retail stores of any size during the spring and summer seasons, without needing to be choosy about what type of retailer they work with. Intensive distribution often involves:
Intensive distribution most often happens with affordable and commonly used products, like gum, soft drinks, candy bars, household products and food items. It provides the most consumer reach, continued buyer trust and also offers an opportunity for substitution buying, where a customer purchases a similar item rather than the one they were initially looking for. For example, buying one brand of soda, toothpaste, or coffee over another because it is in stock or on sale.
Selective distribution setup is a good middle ground between exclusive and intensive distribution options, and many industries or businesses use it. It balances selecting specific locations or selling opportunities with having more presence in the market than exclusive distribution. It offers you a fair amount of control, and a higher feeling of consumer exclusivity compared to intensive distribution while still having greater consumer reach.
Selective distribution is often for a certain product and its fit within a store. For example, a high-end watch company may partner with a luxury department store to have more reach outside of its own flagship store, but selectively choose not to partner with big-box or warehouse stores that could diminish its luxury appeal.
Dual distribution combines both direct and selective methods to reach a larger market audience. For example, a well-known cell phone manufacturer may have its own storefront locations while still partnering with cellular service stores that sell package plans and hardware. The benefit of dual distribution is growing your market influence while still maintaining direct customer sales.
Reverse distribution flows from the consumer back to a company, rather than the other way around. It typically follows a path of going from a consumer to an intermediary and then to a business and is most often used for recycling, refurbishing or disposal of items. While reverse distribution is the least frequently used type of distribution, it is a growing method and business and doesn’t actually have a producer. Here are some examples of reverse distribution and its uses:
Reusing products, like industrial or construction materials, shipping containers, and some electronics
Refurbishing products, like computers, electronics, and certain furniture or clothing
Recycling products, like paper, plastic, and glass
Disposing of products, like waste and organic material
Considerations when selecting a distribution channel
When choosing a distribution channel, consider the brand, profitability and operational scale of your product or organization. Here are three primary considerations to focus on:
Cost: Understanding the relationship of each distribution channel and the product is important, though the cost of each may vary and choosing one that fits a company’s budget is just as imperative as the market reach.
Target audience: Consider your target audience and how they want to shop for the item or service, whether that’s online, at a brick-and-mortar storefront or through large warehouse stores. You can use market research to learn trends and preferences.
Brand: Branding is an important consideration when selecting a distribution channel and method, because it can either reinforce, enhance or take away from a consumer perception of a product or company. For example, a luxury item sold in a low-cost department store could send a conflicting message about a company’s brand.