DISTRIBUTION CHANNELS - DEFINITION, TYPES AND IMPORTANCE IN BUSINESS

The distribution channel defines how a company delivers a product or service to its customers. However, it is difficult to come up with a uniform definition of this concept - the route a good has to take within a distribution channel varies depending on the business model adopted. Multiple actors may be involved in the process of delivering goods. In addition to the manufacturer and purchaser, various intermediaries are often involved, for example sales representatives, transport companies or retail buyers.

Why is the proper development of distribution channels so important to a company's business model? The type and number of actors involved in the product delivery process affect logistics costs and the speed of order fulfilment. It is important to bear in mind that the consumer, when making a purchasing decision, also takes into account how he or she can acquire the goods in question. Channels for the sale of goods should therefore be tailored to the needs of the customer, taking into account buyers' preferences in terms of payment and collection methods.

Distribution channels can be subdivided on the basis of their most diverse characteristics. Their sometimes very high level of complexity makes it difficult to find an adequate single means of classification. The differentiation of distribution channels therefore usually takes place on the basis of a specific, distinguished criterion. It can be, for example, the number of actors involved in the supply of goods, their degree of integration or the multiplicity of distribution tiers. Here are some examples of the separate categories of distribution channels.

The direct channel is the simplest form of distribution channel when split by the number of actors involved. As its name implies, it assumes the absence of the involvement of any intermediaries. The route the product has to take is as short as possible in this case - only the manufacturer and the buyer are involved in the sale and delivery process.

The indirect channel is the more complex of the options listed by number of intermediaries. In addition to the manufacturer and the buyer, other actors are involved in the delivery process. Based on their function, three groups can be distinguished: participants selling and acquiring products, taking ownership (e.g. manufacturers, wholesalers and retailers, individual and institutional buyers), participants not taking ownership (e.g. sales representatives, agents) and actors supporting the activities of manufacturers and dealers (e.g. courier companies, marketing agencies, insurers). Depending on the number of people, companies or institutions involved, a distinction is made between short channels (one intermediary) and long channels (more than one intermediary).

Conventional channels are an example of specifying within the breakdown by the degree of integration of the actors involved. They presuppose the implementation of a process of supplying goods by multiple participants, who nevertheless remain independent of each other. The work on the individual stages in the distribution channel most often takes place without the active cooperation of the other links in the chain. The actors are bound together primarily by purchase and sale agreements, they are usually not united by a common goal - they pay attention only to those elements of the process in which they have been involved.

When dividing distribution types by the degree of integration of the participants, it is impossible not to mention the vertical structure of the distribution channel. In this case, there is cooperation between multiple actors at the different stages of distribution. Within this model, a distinction can be made between structures such as corporate channels (all levels are controlled by a single management) or administered channels (where a single participant can be distinguished who manages the process). A specific type of cooperation between participants is presented by contractual channels. In this case, the actors operate on a partnership basis, maintaining their independence and carrying out work on the basis of contractual agreements.

Nowadays, distribution channels take many different forms. Traditional sales, where the customer makes the purchase in a stationary shop, are still popular. In the 21st century, however, online sales channels have become particularly important. At a time when many consumers make purchasing decisions by suggesting information available online, the aspect of physical availability of certain products has somewhat lost its importance. When we talk about online distribution channels, we usually mean online shops.

Through the online shop, customers can purchase products, but it also serves to showcase the business' offerings. Unfortunately, investing in one's own website sometimes requires a not inconsiderable budget, so companies looking for cheaper solutions opt for other online distribution channels, such as auction portals or social media. Online sales methods can vary in terms of the complexity of the logistical strategy needed. Less effort is required, for example, for dropshipping (the delivery of goods is handled by the wholesaler, the company is only an intermediary with whom the end customer places the order).