The Major Functions of a Distribution Channel

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A distribution channel is a network of businesses or people that helps companies reach their final customers. The channels can be direct or indirect, and include sales teams, websites, wholesalers, retailers and distributors. Companies select the channels that offer the most cost-effective and efficient means of reaching their target market and providing customers with a quality service.

Warehouse worker holding a box
Warehouse worker holding a box (Image: Jupiterimages/Stockbyte/Getty Images)

Hold Stock

Distribution channel members hold stock of a company’s products in their own facilities. A wholesaler, for example, can support a network of local retailers by holding stock, delivering goods to stores or offering retailers a local collection service. This helps reduce a company’s own stockholding costs and ensures products are readily available close to the point of sale. By taking responsibility for delivery to local customers, channel members also reduce a company’s logistics costs.

Provide Customer Support

Distributors of industrial or business-to-business products may provide technical support and maintenance services to a company’s customers. By handling installation, training, scheduled servicing and maintenance to agreed-upon quality standards through distributors, companies can ensure customers obtain essential support without stretching their own service resources.

Increase Market Coverage

Setting up a network of wholesalers and retailers enables companies to reach territories they could not cover with their own sales resources. This provides companies with a low-cost method of expanding geographically without increasing its internal sales resources. Members of the distribution channel with their own customer base offer companies the opportunity to gain new business without incurring sales and prospecting costs.

Support Smaller Customers

Companies can use their distribution channels to deal with their smaller customers, leaving their own sales teams free to focus on dealing with large accounts. Distributors and retailers may deal with small customers in a particular geographic region or sell to a specific sector of the market. Companies must decide which customers their channel partners can service as the retailer or distributor then controls the relationship with the customer.

Improve Customer Convenience

By developing an online channel, companies can improve convenience for customers. A website is open for business around the clock, so customers can order at any time without having to search for a local stockist. An online channel also enables companies to sell their goods in territories where they do not have direct or indirect channel coverage.

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