How Distribution Channels Function

Distribution Channel

Navigating distribution channels is difficult when you are first starting out. Thankfully, with Atlantic Dominion Distributors, you don’t have to do it alone. As a top convenience store foods distributor in Virginia, North Carolina, and South Carolina, we understand the needs of your business. This article will discuss how distribution channels function and why an indirect distribution channel is a way to go when you are just starting. 

What is a Distribution Channel?

To better understand how distribution channels function, it is necessary to know what a distribution channel is. A distribution channel is any path in which the manufacturer’s product reaches the consumer. The distribution channel includes the intermediaries—distributors, manufacturers, retailers, and wholesalers—involved in the process. 

Distribution Channel Types

There are two main types of distribution channels—direct and indirect distribution. Direct distribution is when the manufacturer sells directly to the end consumer. This is usually used by perishable goods manufacturers, e-commerce sites, and jewelers. For example, if you purchase a product from a bakery, you buy it directly from the person making it (the manufacturer). 

In contrast, indirect distribution is used by manufacturers who are looking to market to a broader audience. In an indirect distribution channel, the product travels from the manufacturer, through the intermediaries, to the consumer. These intermediaries include the manufacturer, the distributor/agent/broker, the wholesaler, and the retailer. 

Functions of the Indirect Distribution Channel

Now, after reviewing the types of distribution channels, you may be asking yourself why manufacturers use the indirect distribution channel. Surely they can make more money if they sell directly to the end consumer? Well, not necessarily. That is where the functions of the distribution channel come into play. Indirect distribution allows manufacturers to utilize the functions of the channel, including marketing, transactional, and logistical functions. 

Marketing Function

First, let’s talk about marketing. When a manufacturer is first starting, customers will not have a lot of trust in them. They have not been vetted or deemed a quality brand, so consumers are less likely to spend their money on their product. Instead of setting up shop and directly marketing to consumers, brands can use indirect distribution to earn their customer’s trust. This is called brand promotion. 

Along every step of the distribution process, there is a level of established trust between client and company. Retailers trust their wholesalers will provide quality goods, and consumers trust their retailers. New manufacturers can promote and sell their products much more effectively through this established relationship. This function also leaves room for sales outreach and new companies to form connections.  

Transactional Function

In addition to the marketing function, indirect distribution channels provide transactional functions. This includes sharing the risk of products, negotiating prices, selling products, and managing the payment flow. With risk sharing, no single company is at a high risk of failing. The manufacturer has already sold its products. The wholesaler distributes the product to several retailers, and retailers are not in danger of losing their profit if a specific product doesn’t sell. This also ties into the selling of products. 

Similarly, indirect distribution channels allow wiggle room for negotiation, unlike with a direct distribution channel. This negotiation can bring the risk-sharing down even further and help manage cash flow. Each person in the distribution process receives money, thus allowing for a profit, even if the product is not a massive hit. 

Logistical Function

Finally, there is the logistical function. This is beneficial for the storage, transportation, and distribution of goods and market information transfer and creating efficiencies. Without the indirect distribution channel, storing, transporting, and distributing products would be the manufacturer’s sole responsibility. Instead, the wholesalers can keep the product in multiple warehouses worldwide, from which retailers can distribute them—allowing the manufacturer to sell to a vast network of consumers.

In addition, the open communication between retailers, wholesalers, and manufacturers allows for market information to be shared. Is a product doing well or not? What improvements should be made? Are supply shortages upcoming? Does a particular product need to be pushed? Put on sale? 

Similarly, this can help create efficiencies within the distribution channel. This is completed through bulk breaking and assortment. As you descend the distribution channel, the number of goods sold breaks into smaller orders. Instead of having a considerable bulk of products, you can spread the same amount across multiple retailers and wholesalers. Plus, retailers offer many different products in one area, allowing consumers to try new products without going out of their way to find them. 

Atlantic Dominion Distributors—A Wholesale Food Distributor in Virginia, North Carolina, and South Carolina

Are you looking to expand your distribution channel? Atlantic Dominion Distributors is here to help. With over a century in the business, we understand our distribution channel’s unique needs and demands. Our team provides reliable deliveries, personalized assistance, technologically advanced systems, and cost-effective measures to ensure your business thrives. We want you to succeed. 

So, when you use Atlantic Dominion Distributors, you are getting the best convenience store distributor and new team member. Are you ready to discover what makes Atlantic Dominion the best wholesale foods distributor? Contact us today!