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Posted by Morgan Rose Elliott - 20 October, 2020

The Advantages of a Distribution Channel for Manufacturers

If you’re a manufacturer, your ability to sell more products depends, in part, on the channel of distribution you choose to adopt. 

  • Should you sell directly to end users (direct distribution)? 
  • Or should you use an established distribution network (indirect distribution) to help you reach more potential customers?

Both methods work, and both have their pros and cons. In this post, we’ll discuss some of the advantages of selling your products through a distribution network.

Direct vs. indirect distribution

But first, let’s define direct and indirect distribution.

In direct distribution, the manufacturer sells straight to the customer and uses no intermediary. 

Some examples:

  • Manufacturers selling their products through their own retail chains
  • A farmer selling his produce to shoppers at the farmer’s market 
  • Artists using Etsy or eBay to sell to their work

Advantages of distribution channel

On the other hand, an indirect distribution channel makes use of intermediaries for your product to ultimately reach the end user.

Some examples: 

  • A household products manufacturer may look to retail outlets like Costco or Wal-Mart to reach and sell to their target market.
  • An online course builder may make use of affiliate sites, reseller programs, or online learning marketplaces like Udemy to sell their products.
  • Insurance companies pay agents and independent sales representatives a commission based on the revenue they generate.

Indirect distribution 

Your channel options

If you use to use third-party distribution networks to sell your products, your channel options include:

  • Retail stores
  • Wholesalers or distributors
  • International dealers
  • eCommerce sites

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Advantages of a distribution channel

1. Reduced costs

Sure, you can do it yourself, but Including a new location to your distribution map involves a lot of resources - time, money, and human resources. Using an existing distribution network, however, extends your company’s geographical reach much more easily and quickly than if you do everything on your own. 

And because retailers stock their shelves with your products and customers go to store locations to purchase them, you don’t incur additional stocking and delivery expenses.

2. A tighter focus on your core competencies

To successfully expand in unfamiliar territory, you need local expertise - a deep understanding of what the people in the area need and want. If you’re a small business, doing this may require that you hire new personnel so your existing workforce can focus on doing what they need to be doing. 

Wholesalers, retailers, and dealers take care of the nitty-gritty involved in the product distribution process: order and inventory management, management of retailer and customer relationships, customer service initiatives pre- and post-sale, and product shipment to various locations.

3. More efficient marketing 

To maximize the value of your marketing dollars, you can collaborate with other manufacturers and run joint marketing or promotional campaigns to drive more foot traffic to the retail outlets that sell your products. This way, you don’t have to shoulder the full advertising costs.

4. Wider customer reach

Another advantage of distribution channels is the speed at which you can distribute your products in large geographic areas. Established distributors can readily tap a network of retailers and other distributors to help with market coverage.

Distribution of retailers

As such, you don't have to deal with the time, cost, and effort it takes to build those relationships. Plus, you need not go through the difficulties of setting up your own direct distribution channel in the area you’re expanding in.

5. Logistic support

Distributors and retailers have to efficiently manage their stocks and are generally good at it. They can fulfill orders daily and know when to request large shipments from manufacturers. And in case a fulfillment error occurs, the distributor or retail chain takes care of resolving any issues.

6. Easily available feedback

Retail chains know which products sell well in their specific areas of coverage. Their feedback can prove valuable in making a product that more customers need and want.

7. Faster growth

If you plan to introduce your products to a global audience, international agents specialize in distributing products in various areas of the world. Particularly if you’re a small manufacturing business, you can use their expertise to put your product in front of a customer base you would otherwise not reach on your own. 

They can even help you improve your product and make it more appealing to global consumers.

Final word

The above are just some of the advantages of an indirect distribution channel for manufacturers. Keep in mind that this method of product distribution also has accompanying disadvantages, such as:

  • Smaller profit margins
  • Less attention to how your message is communicated
  • Not as passionate as you are in selling your products
  • And, of course, retailers carry multiple products, including your competitors’

So before you take the plunge, take the time to study both sides of the equation, as well as research the various distribution channel trends, to see if a distribution network is indeed the right fit for you. If you choose to sell direct, be sure to read our ebook to help, or check out the top consumer goods strategies.

Consumer Goods CPG profits

Topics: Management, Sales & Marketing, CPG


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