Q&A - Outline the role of a distribution channel

A distribution channel can be defined as: “all the organisations through which a product must pass between its point of production and consumption”. Looking at that definition, you can see that a product might pass through several stages before it finally reaches the consumer. The organisations involved in each stage of distribution are commonly referred to as “intermediaries”.

Why does a business give the job of selling its products to intermediaries? After all, using an intermediary means giving up some control over how products are sold and who they are sold to. An intermediary will also want to make a profit by getting involved.

The answer lies in efficiency of distribution costs. Intermediaries are specialists in selling. They have the contacts, experience and scale of operation which means that greater sales can be achieved than if the producing business tried to run a sales operation itself.

Customers themselves often wish to buy from specialist sellers. They appreciate the range of products and brands offered by a specialist intermediary like a retailer. The customer may need specialist advice on making the final choice.

The main function of a distribution channel is to provide a link between production and consumption. Organisations that form any particular distribution channel perform many key functions:

Information: gathering and distributing market research and intelligence - important for marketing planning

Promotion: developing and spreading communications about offers

Contact: finding and communicating with prospective buyers

Matching: adjusting the offer to fit a buyer’s needs, including grading, assembling and packaging

Negotiation: reaching agreement on price and other terms of the offer

Physical distribution: transporting and storing goods

Financing: acquiring and using funds to cover the costs of the distribution channel

Risk taking: assuming some commercial risks by operating the channel (e.g. holding stock)