Q&A - How many stages does a distribution channel have?

Distribution channels vary in terms of the number of stages a product goes through between producer and final consumer. “Long” channel routes involve one or more intermediaries such as wholesalers, retailers and agents. in “short” channels, the product is supplied to the consumer directly from the producer without the use of intermediaries (sometimes also called “middlemen”).

Each layer of marketing intermediaries that performs some work in bringing the product to its final buyer is a “channel level”. The figure below shows some examples of channel levels for consumer marketing channels:

In the figure above, the first two channels are “indirect-marketing channels” or “long” channel routes.

Channel 1 contains two intermediary levels - a wholesaler and a retailer. A wholesaler typically buys and stores large quantities of several producers’ goods and then breaks into bulk deliveries to supply retailers with smaller quantities. For small retailers with limited order quantities, the use of wholesalers makes economic sense. This arrangement tends to work best where the retail channel is fragmented - i.e. not dominated by a small number of large, powerful retailers who have an incentive to cut out the wholesaler. A good example of this channel arrangement in the UK is the distribution of drugs.

Channel 2 contains one intermediary. In consumer markets, this is typically a retailer. The consumer electrical goods market in the UK is typical of this arrangement whereby producers such as Sony, Panasonic, Canon etc. sell their goods directly to large retailers and e-tailers such as Comet, Tesco and Amazon which then sell onto the final consumers.

Channel 3 is called a “direct-marketing” channel, since it has no intermediary levels. In this case the manufacturer sells directly to customers. An example of a direct marketing channel would be a factory outlet store. Holiday companies increasingly direct to consumers, bypassing a traditional retail intermediary - the travel agent. You will also have come across businesses like First Direct (banking) and Direct Line (insurance) which built their brand proposition on dealing directly with consumers and “cutting out the middleman”