Why Is Distribution Channel Expansion Important For Your Business?

Expanding distribution channels gives a company better access to its customers which can, in turn, lead to more sales and more revenues.


Who doesn’t want their business to sell more? While selling in the digital age, one has to think of ways to get their products or services out to the customers rather than just getting more customers into the physical store. This is the age where the news of the business can travel faster than the business itself. For any new business, selling through additional venues is one of the fastest ways to gain buyers and shoot up revenues. The bottom line is that every business, no matter its size, wants to sell more of its products and services. And this can only happen if it is able to expand its market reach and acquire more customers. The most effective and efficient way to get new customers is by expanding distribution channels to address untapped markets. 

Companies generally experiment with a mix of distribution options in order to determine the best strategy suitable for its expansion. Expansion of distribution channels can prove to be an effective tool to increase a business. But let us start by understanding what exactly a distribution channel is. In lay person’s terms, a distribution channel is the way a product or a service reaches the consumer. It is a significant part of a company’s marketing strategy. There are two main kinds of processes that businesses are run on. The upstream process comprises the supply chain management while the downstream process deals with distribution channel expansion. Both are equally important for a company to run successfully. 

A distribution channel can directly start from the company and end at the consumer or may have a number of intermediaries in the middle. Based on the number of intermediaries, a distribution channel can be short, long, simple or complex. More number of intermediaries in the channel leads to more cost for the end consumer. Traditional distribution channels have become more fragmented, leading to newer ways of doing business but with opportunities come challenges. Some retailers and distributors risk losing income from customers who may prefer to take their business straight to the manufacturers. One of the challenges of expanding to newer ways of selling is to identity profitable means but without compromising the value chain. And that can only happen if manufactures, distributors and retailers work together.

‘‘

Before choosing a distribution channel, one has to base the decision on a number of factors.

Types of distribution channels 

Placement (a.k.a. distribution) is one of the “4 Ps” of marketing: product, promotion, price, and placement. There are several advantages of distribution channel expansion like boosted profits, brand awareness, lower market risks, etc. about which we’ll discuss in detail a bit later in the piece. 

Before getting into that, it is important to briefly talk about the steps required in distribution channel expansion. It starts by identifying the target market. Once that is through, the next step is to locate those markets with the highest concentrations of potential customers. One can map important information like the traffic patterns, travel times, competitor locations, business establishments, etc. in order to identify the target market more precisely. 

A distribution channel can be defined as a chain of businesses which allows any good or service to reach the final buyer or the end customer. There are many kinds of distribution channels like retailers, wholesalers, the internet, etc. These channels can either be used separately or in combination with each other to find an ideal mix of distribution points, depending on a particular product or a customer. 

Retail

One can leverage the marketing and advertising prowess of existing retailers and place their product with them. There is either an option to go for specialty stores or larger departmental stores and it will depend on the particular product which distribution channel one is willing to pick. The brick and mortar stores are not going anywhere anytime soon. 

Wholesale

Wholesalers are a perfect way to make sure you have an extensive product base if one manufactures their own products. Wholesale is a better way than retail in this scenario. Wholesalers, who buy at a bulk price, don’t have to worry about storage or transportation needs. They also have increased bottom lines using this channel. 

Online marketplaces

There are so many online marketplaces and shopping websites one can leverage to expand their network. E-commerce can be the go to place for businesses looking to expand beyond a geographical location.  

Direct marketing

Direct marketing can provide a channel for products and services to both a more localised, niche, market and at the same time more global audiences. Direct marketing can be done through a number of ways, right from flyers and brochures to email marketing.

Telemarketing

Telemarketing is another way through which a business can reach out to a huge number of customers without the additional expense of opening a brick and mortar store. 

Social Media

Social media channels like Instagram, Facebook, Pinterest, etc. are often used to target customers based on their interests. Businesses can leverage the power of great content to gain more customers through these social media platforms. A number of influencers create user-generated branded content around a product or a service which can help further grow the business.

Advantages of expanding distribution channels

More profit

Expanding distribution channels gives a company better access to its customers which can in turn lead to more sales and more revenues. Eventually, in the long-term this will result in a lower per-unit cost and boost the bottom line of the company. When you increase the number of distribution channels, you gain opportunities to sell more of your products to both new and existing customers. This will also help you develop new target markets and key consumers. 

Brand building

If your products and services are available on more platforms and/or physical locations, it will increase the overall awareness of the brand and its offerings. It will help generate buzz around the brand and eventually lead to a positive image of the brand thereby being advantageous against the completion. 

Reduced risk 

Don’t put all your eggs in one basket, they say. Expanding your distribution channel is one such way to do so. If one is selling through one channel, it concentrates the risk factor while selling through multiple channels distributes the risk. It is more harmful for the company if profits rise and fall based on just one channel. 

Logistical support

Distributors and retailers have to efficiently manage their stocks and are generally good at it. It is important to leverage their expertise. A business can depend on them for logistical support, for fulfilling daily orders, large shipments from manufacturers, etc. 

Access to untapped markets 

Going multichannel allows merchants to experiment with newer ways of distribution which can open their products to new sets of customers and first-time buyers, leading to more product sales. One of the ways to leverage this is through online marketplaces and international shipments. 

Faster growth

If there is a plan to introduce your products to a global audience, international agents specialize in distributing products across the world. They can even help you improve your product and make it more appealing to global consumers. If you are a small business, you can use their expertise to get access to a customer base which you would otherwise not be able to reach on your own.

‘‘

A distribution channel can be defined as a chain of businesses which allows any good or service to reach the final buyer or the end customer.

Distribution channel management

Distribution channels need to be better managed to increase efficiency. Distribution across multiple channels can do more harm than good if the process isn’t planned and managed properly. And no need to worry. It can be challenging even for the best of companies. A good strategy is a result of a lot of brainstorming about what combination of distribution strategies to apply. Failing to put in a good strategy to manage these channels can lead to a poor business model and even higher costs. Some of the ways to increase channel efficiency are by carefully picking the channel intermediaries, consolidating all channels into a single, stronger channel and increasing focus on supply chain management. Not all methods will work in all types of products or services distribution. The channels you choose should add value to the customer and improve their user experience.

It is very important that one evaluates costs and profit margins while choosing a distribution channel, especially when intermediaries and third parties are involved. It needs to be made sure that it is viable and efficient, with the possibility of scaling according to demand. It is also important to teach all the intermediaries properly about the products or services so that they can act as efficient salespeople and don’t make a mistake in talking to other customers about them. One of the main sources of problems between intermediaries and customers is when product information is not homogeneous or adequate for reference purposes. One way this issue can be resolved is by standardising the process.

Both the sales and marketing team of the company should work hand in hand in order to ensure that the business channel distribution is well marketed. Achieving a balance between distribution channels is important to avoid differences between prices, positioning, launching and promotional campaigns. The balance in this sense means that there should be no discrepancy within different channels. For example, if your customers find the same products at different prices in different channels, it will be a source of conflict for your intermediaries and partners. It can also lead to a bad rep for the company and prove detrimental to profits. 

One of the ways to ensure smoother distribution channel management is to start by looking for so-called ‘natural’ partners, those retailers or brands that already have a relationship with your existing or target customers. This can not only help in expanding your network but also be profitable in the long run. To ensure the success of a partner relationship, companies need to set common objectives and coordinate all promotional campaigns, agree on methods of analytics exchange, provide training on the product or service and assistance with inventory provision. This should include all intermediaries.

Before choosing a distribution channel, one has to base the decision on a number of factors. First is the type of product. If your product is perishable or is unstable, you will need it to arrive quickly and in controlled conditions. This requires a direct distribution method. The second factor is the market. Who is your market? Are you selling your product or service directly to consumers or other businesses? Your distribution channels will change according to the demand. Are your customers more likely to purchase from brick and mortar retailers, websites like Amazon, or through sellers on social media? One has to do proper market research before taking the plunge. Knowing your target audience will help you identify the most efficient way to sell products to them. The third and another very important factor is middlemen. Depending on your needs and the demands on your time, a middleman can help distribute products quickly and efficiently. It will entirely depend on one’s budget whether to have middlemen or not. It is also dependent on the business relationships with them and whether or not the market requires it.

Not just advantages, one has to keep in mind the disadvantages of distribution channel management as well. One of the disadvantages is reduced profit margins due to more number of intermediaries. If one decides to expand through a retail channel of distribution, then they should know that retailers carry multiple products—including the competitors’—which can even be counter-productive for you. Since you are not directly communicating the message of your business, there may be less attention on how it’s done and the ways and means might not be as effective and efficient as you would have directly made it out to be. Before taking the plunge, it’s important to weigh both sides and understand what distribution network is the right fit for you. As such, there’s no direct relationship between the number of customers and the number of distribution channels. In conclusion, each individual company has to find a perfect scheme, and it can either be through multiple channels or a single method of direct sales depending on the need.

DU Desk
DU Desk
Stories from DU Desk are the collective efforts of our in-house authors, guest authors and subject matter experts who collate and distill their ideas and thoughts to bring out actionable insights for our readers.

Your View Matters

LEAVE A REPLY

Please enter your comment!
Please enter your name here

Disclaimer: The opinions expressed by columnists are their own, not those of Dutch Uncles

If you wish to contribute or have a story suggestion,
email to [email protected]

Also Read

Takeaways for Start-ups: PM Modi’s Keynote Address...

Vivatech, one of the largest digital and start-up events...

Farmer Empowerment by Agri-Tech Start-Up Rise Hydroponics

Rise Hydroponics is an Agri-tech start-up based in Ahmedabad....

5 Learnings from D2C Beauty Startup Pilgrim

The pandemic has put several startups at a precarious...

stay abreast!

Never miss key developments & updates from your industry