distribution-channels

Distribution Channels: Types, And Examples – Updated 2022

A distribution channel is the set of steps it takes for a product to get in the hands of the key customer or consumer. Distribution channels can be direct or indirect. Distribution can also be physical or digital, depending on the kind of business and industry.

Distribution Types Database

Company Distribution Type Description
Amazon Business Model Hybrid (direct to consumers + digital marketing growth strategy) In the case of Amazon, the company is among the most robust tech brands today, and it follows a hybrid strategy, where hundreds of millions of users go straight to the Amazon brand through its website and apps. On the other hand, Amazon also relies on digital distribution to enhance its visibility. For instance, Google search is also a great contributor to traffic for Amazon and many other digital channels.
Apple Business Model Hybrid (direct to consumers + subsidized by mobile carriers) Apple relies both on its stores and on third-party carriers who enhance the distribution of Apple devices across the world. For instance, when it comes to the iPhone, for example, in 2021, Apple’s net sales through its direct and indirect distribution channels accounted for 36% and 64%. The direct channel (Apple’s owned stores) it’s critical to guarantee brand awareness, control over the distribution, customer support & service provisioning. The indirect channel is essential to enhancing the sales of expensive devices like the iPhone. For instance, a good chunk of iPhone sales is subsidized by phone carriers players, who amortize the cost of the phone into the plan, thus enabling more people to afford an expensive smartphone, like the iPhone.
Facebook (Meta) Business Model Direct to consumer (Digital) Facebook is a tech player that primarily relies on direct digital distribution. In fact, over the years, the company has managed to first keep a strong brand for its main product (Facebook). After that, Facebook acquired Instagram, WhatsApp, and Oculus. These powerful brands enabled Facebook to get a direct relationship with users. However, it’s worth highlighting that Facebook (Meta) does not own the platform through which users get to the brand (the Apple Store and Google Play). Users can download and experience the brand’s products are owned by Apple and Google, respectively). Thus, its ability to distribute the product is highly reliant on the ability of the company to keep its brand strong.
Google (Alphabet) Business Model Digital Vertical Integration Google (now called Alphabet) is a great example of digital vertical integration. The company follows each step of the data supply chain, from data harvesting to data repackaging and its exchange within Google’s proprietary advertising marketplaces. On the desktop side, Google owns the Chrome browser, the Google search engine, and the advertising platforms (AdSense, Google Ads, and YouTube Ads) to monetize the data. On the mobile side, Google owns the Android operating system, the Google Play Store, and the Google AdMob advertising platform. In this segment, Google also produced smartphone devices, and it’s now revamping its AR glass business segment.
Luxottica Business Model Phisical Vertical Integration Luxottica is an excellent example of physical vertical integration and complete control over its distribution strategy. The company not only manufactures most eyeglasses frames and lenses but also distributes them across its owned stores and its wholesale distribution.
Tesla Business Model Direct to consumer (Physical) Tesla sells its cars directly from its online stores, distributing them directly to customers. The company also owns Tesla physical stores worldwide, where customers can buy cars directly from them. The company has been spending a substantial effort in building its own stores to bypass classic car distributors, which has been a rule of thumb for a long time.

Why a distribution channel strategy matters

Often companies undervalue distribution channels as they think that a good product or service will automatically create its distribution.

While this might happen, it is more of a utopia than a reality. Distribution needs to be created, at times with sheer force combined with strategic planning and a deep understanding of customers’ needs, or desire generation.

A traditional distribution strategy looks at the classic 4 Ps (product, promotion, price, and placement).

Those are the key ingredients to growing the revenues of a business, quickly and sustainably. Thus, a distribution strategy starts from:

  • Understanding the wants of their customers.
  • Leveraging insights to create a better purchasing experience.
  • Developing new products and services that customers will want to buy.
  • Creating go-to-market strategies that reach the proper customer target.
  • Generating demand for a set of products and services offered.

Without an appropriate strategy of distribution, it is hard to have a successful and sustainable business model.

Course: FourWeekMBA Business Model Innovation Flagship Course

Types of distribution channels

At a higher level, distribution channels can be broken down, in direct channels, and indirect channels. This primarily depends on how long is a chain between who makes the product and the final consumer.

The number of steps it takes will make the distribution channel direct or indirect. Let’s visualize a distribution chain to understand the difference between direct and indirect strategy:

direct-vs-indirect-distribution-channels

Where in a direct distribution strategy a producer can access the consumer, in an indirect distribution strategy, the producer will meet its consumer demands via third-parties wholesalers or retailers.

Thus, a direct approach makes the value chain shorter and at the same time allows more control by the producer on how the final customer experiences the product or service offered.

At the same time, a direct-to-consumer strategy is quite expensive and not always effective enough to allow proper distribution. Therefore, companies often use a mixture of direct and indirect distribution strategies, which determine their marketing mix.

direct-to-consumer
Direct-to-consumer (D2C) is a business model where companies sell their products directly to the consumer without the assistance of a third-party wholesaler or retailer. In this way, the company can cut through intermediaries and increase its margins. However, to be successful the direct-to-consumers company needs to build its own distribution, which in the short term can be more expensive. Yet in the long-term creates a competitive advantage.

Between the direct-to-consumer and entirely indirect distribution strategy (where the producer sells to a wholesaler), there are several indirect variations, based on how many steps it takes to reach the final consumer and how long is the value chain.

For instance, in the scenarios in which a producer sells to a wholesaler, the wholesaler sells to retailers, who reach the final consumers. However, in some other cases, the distribution channels might be shorter.

Think of the Costco business model, where the company purchases a selected variety of goods in bulk from producers.

costco-business-model

Yet instead of reselling that to retailers, Costco itself acts as a retailer, by leveraging its membership-based business model and selling those items in bulk quantity directly to consumers, who appreciate the convenience of its prices together with the selection of high-quality products.

Related: Costco Business Model

Case study: Apple’s direct and indirect distribution mix

In other cases yet, the distribution channels strategy might be even shorter. Take the example of the Apple business model where the company sells part of its products via its retail stores.

That creates a unique experience for Apple‘s consumers and makes the value chain shorter but it also leverages an indirect strategy, to make those same products (usually quite expensive) more accessible to mass consumers.

apple-distribution-strategy
In 2021, most of Apple’s sales (64%) came from indirect channels (comprising third-party cellular networks, wholesalers/retailers, and resellers). These channels are critical for sales amplification, scale, and subsidies (to enable the iPhone to be purchased by a larger number of people). While the direct channel represented 36% of the total revenues. Stores are critical for customer experience, to enable to provide the service business, and for branding at scale.

Related: Successful Types of Business Models You Need to Know

Distribution channel vs. supply chain

vertical-integration
In business, vertical integration means a whole supply chain of the company is controlled and owned by the organization. Thus, making it possible to control each step through customers. in the digital world, vertical integration happens when a company can control the primary access points to acquire data from consumers.

It is easy to confuse and mix up the definition of distribution channels with the supply chain even though the distribution channels and strategies might sometimes cross with the supply chain.

The distribution strategy concerns primarily with bringing the product in front of customers, especially customers that are willing and ready to buy it.

Therefore, in some cases, bringing a product in front of the right people might be a matter for the supply chain.

For instance, in the Luxottica business model, vertical integration means the ability to control the full customer experience and to choose also the location of the retail stores.

vertically-integrated-business-model

Thus, this is a case in which supply chain management also becomes a distribution strategy. That is why, other players, in the same space, try to enter by using, initially, an opposite strategy.

That of owning only part of the supply chain.

warby-parker-business-model
Warby Parker is a prescription and sunglasses retail company, which focuses on vertical integration to enhance the customer experience by owning the optical laboratories where lenses are developed, and by owning both physical and online stores to enable customers to choose from a variety of products. Warby Parker leverages programs like the Home-Try-On program and the “Buy a Pair, Give a Pair” to lower long-term customer acquisition costs and incentivize recurring purchases and referrals from existing customers.

It is critical to maintain a clear difference between supply chain and distribution channel strategy.

While the supply chain comprises all the planning, manufacturing, and logistics activities that make the product go from the purchase of raw materials to transformation into a final product that might get delivered to the final customer (Zara business model leverages supply chain management as a distribution strategy).

In short, where supply chain management concerns itself with integrating supply and demand, a distribution strategy involves itself primarily in the demand chain.

To have a deep understanding of the difference between the supply chain and distribution strategy it is important to consider three main aspects.

Case study: Tesla and Google, from physical to digital integration

tesla-business-model
Tesla is vertically integrated. Therefore, the company runs and operates the Tesla’s plants where cars are manufactured and the Gigafactory which produces the battery packs and stationary storage systems for its electric vehicles, which are sold via direct channels like the Tesla online store and the Tesla physical stores.

 

vertical-integration
In business, vertical integration means a whole supply chain of the company is controlled and owned by the organization. Thus, making it possible to control each step through consumers. in the digital world, vertical integration happens when a company can control the primary access points to acquire data from consumers.

Supply chain vs. demand chain

Where a supply chain seeks efficiencies that can, for instance, reduce the cost of purchasing raw materials, integrate several parts of the supply chain, or at creating better logistics.

Distribution channels and strategies look more at creating demand for a product or service by leveraging several strategies.

For instance, having insight into potential customers can allow a company to generate demand via distribution and marketing just like in the Nike, business model.

Internal vs. external

A supply chain concerns with all the aspects that begin with sourcing raw materials, production processes, inventory management, and all the other processes that bring a product or service in front of the final customer.

On the other hand, a distribution strategy concerns primarily the demand chain. Therefore, the difference is primarily internal vs. external. The supply chain affects costs and how to reduce them via efficiencies.

Distribution channels and strategies look at how to grow the demand. Thus, increasing revenues for the business.

This distinction is not absolute. As in some cases when a core competence of a company is its supply chain management, then that also becomes a distribution strategy, just like in the Amazon business model case study.

amazon-business-model
Amazon has a diversified business model. In 2021 Amazon posted over $469 billion in revenues and over $33 billion in net profits. Online stores contributed to over 47% of Amazon revenues, Third-party Seller Services,  Amazon AWS, Subscription Services, Advertising revenues and Physical Stores.

Via efficient inventory management, Amazon can keep large facilities where most tasks are automated. This allows Amazon to host third-party inventories, of sellers that are part of the Amazon network.

That in turn, makes Amazon stores more interesting for final customers as they can find more products they need, they can get them faster, and purchase them in a bundle.

In this case, the Amazon supply chain strategy in part crosses with its distribution strategy.

Process-centric vs. customer-centric

Where the supply chain is often process-centric. In short, it wants to improve efficiency, reduce steps among several parts of the chain, and make the process as smooth as possible. Distribution channels and strategies focus on the customer.

Where is the customer? How do we get more of them? Is that a matter of price? Value or product?

A distribution strategy is obsessed with customers. Once again, this is a rough distinction as in some cases, companies have a customer-centric approach at any company level.

That’s what Jeff Bezos means when says that successful companies need to stay in “Day One.

customer-obsession
Customer obsession goes beyond quantitative and qualitative data about customers, and it moves around customers’ feedback to gather valuable insights. Those insights start with the entrepreneur’s wandering process, driven by hunch, gut, intuition, curiosity, and a builder mindset. The product discovery moves around a building, reworking, experimenting, and iterating loop.

Why you need to understand the demand chain

Demand chain management is a complex endeavor that involves the relations among suppliers and customers and how those interested to grow the demand for the product or service.

At the core, it is about designing a business model that makes it possible for the organization to meet customer needs and create desire and demand with an existing supply chain.

Thus, the demand chain is the value chain from your customers’ perspective.

This implies synergies between the supply chain and distribution and marketing to design a business model that delivers the most suited value proposition and generates higher revenues for the business.

value-proposition-canvas-business-model-canvas
The Value Proposition Canvas, part of the Business Model Canvas, is a tool used to ensure a product or service is positioned around customer values and needs.

It is almost like demand chain management allows supply chain management to look outside the company’s boundaries and understand the market.

Therefore, demand management will primarily understand, generate, and stimulate customer demand and align the supply chain processes with that.

A proper distribution strategy focuses on understanding the supply and value chain to design a sustainable business model, where for instance:

  • The company has to guarantee enough margins and the proper condition to third-parties distributors to allow them to run sustainable operations.
  • Align the incentives between the company, the distributors, and consumers.
  • Train and educate distributors so that they can offer the best customer experience.
  • Create alignment between distributors to avoid fragmented pricing, placement, and promotion strategy.
  • Understand what products or services might allow the organization to grow its reach.

B2B, B2C, and distribution channels

marketplace-business-models
A marketplace is a platform where buyers and sellers interact and transact. The platform acts as a marketplace that will generate revenues in fees from one or all the parties involved in the transaction. Usually, marketplaces can be classified in several ways, like those selling services vs. products or those connecting buyers and sellers at B2B, B2C, or C2C levels. And those marketplaces connect two core players or more.

A distribution strategy and therefore the distribution channels involved will change based on the target customer. Indeed, selling to a business clientele is not the same thing as selling to consumers.

This implies different capabilities and distribution strategies. For instance, a B2B (business to business) distribution strategy might be shorter, as you might be able to reach directly the businesses that will act as intermediaries between you and the final consumer.

Think of the case of a company selling software as a service (so-called SaaS). If that software is complex and requires a certain degree of expertise, it will be better suited to be sold via other agencies and third parties, which in turn will have access to the consumer business.

This will imply a distribution strategy focused on acquiring the proper sales force to manage the more complex clients.

On the other hand, if a company sells an app for the iPhone, which doesn’t require any particular expertise from the final user.

The company will have direct access to its consumers and will use marketing channels, which don’t necessarily require a complex salesforce.

This is a critical difference between marketing and sales.

marketing-vs-sales
The more you move from consumers to enterprise clients, the more you’ll need a sales force able to manage complex sales. As a rule of thumb, a more expensive product, in B2B or Enterprise, will require an organizational structure around sales. An inexpensive product to be offered to consumers will leverage marketing.

B2B2C distribution strategy

b2b2c-business-model
A B2B2C is a particular kind of business model where a company rather than accessing the consumer market directly it does that via another business. Yet the final consumers will recognize the brand or the service provided by the B2B2C. Therefore, the company offering the service might gain direct access to consumers over time. This kind of model can help build a robust B2B as the foundation of the consumer market. While it makes it less scalable in the short term, if well-executed, it can scale.

Another form of distribution strategy is a B2B2C, where a brand can leverage existing pipelines to access the market.

In this case, the B2B2C strategy to work has to enable the brand to be known by a larger customer base or audience, while it leverages existing players with an established distribution platform.

That is how you can structure your company’s strategy around a B2B2C business model.

Traditional distribution channels vs. digital distribution channels

digital-marketing-channels
A digital channel is a marketing channel, part of a distribution strategy, helping an organization reach its potential customers via electronic means. There are several digital marketing channels, usually divided into organic and paid channels. Some organic channels are SEO, SMO, and email marketing. And some paid channels comprise SEM, SMM, and display advertising.

Over time, to build a sustainable digital strategy, you need to move from third-party to owned distribution, as explained below: 

As consumer behaviors had swiftly changed in the last decades, more and more people purchase via the internet, and they feel more and more comfortable buying expensive items on the web.

tesla-online-stores

For instance, Tesla allows you to order a $65K car directly on its site.

Therefore, digital distribution strategies are critical for any business, also one that has always operated offline.

As explained by Gabriel Weinberg, CEO, and founder of DuckDuckGo, there are at least 19 distribution channels between online and off-line:

  1. Targeting Blogs
  2. Publicity
  3. Unconventional PR
  4. Search Engine Marketing
  5. Social and Display Ads
  6. Offline Ads
  7. Search Engine Optimization
  8. Content Marketing
  9. Email Marketing
  10. Viral Marketing
  11. Engineering as Marketing
  12. Business Development
  13. Sales
  14. Affiliate Programs
  15. Existing Platforms
  16. Trade Shows
  17. Offline Events
  18. Speaking Engagements
  19. Community Building

Each of those channels can be a critical ingredient to enhance the revenues of a business.

What’s matter is to experiment, according to the Bullseye Framework:

bullseye-framework
The bullseye framework is a simple method that enables you to prioritize the marketing channels that will make your company gain traction.

Related: Growth Marketing Strategies For Your Online Business

Distribution management: marketing or sales?

Understanding whether distribution management is a matter of sales or marketing is superfluous as it might make us switch the focus from what’s important.

However, it makes sense to draw some lines as this allows proper attribution of responsibility and accountability across the departments of an organization.

Thus, distribution management is typically seen as a marketing function. Yet, once again it depends on the kind of organization you’re running.

Imagine the case of a company that sells to wholesalers or retailers; this means most of the contracts might be managed by salespeople, as they require an understanding of deal terms, relationships, and partnerships in place.

In that case, your salesforce will be able to give you insights that can help you improve the distribution strategy.

In the opposite scenario, where the company sells a product directly to consumers, most of the processes might be automated. Thus, most of the insights will be in the hands of the marketing department.

How do you assess the right mix for your distribution strategy?

distribution-strategy
Distribution is one of the key elements to build a viable business model. Indeed, Distribution enables a product to be available to a potential customer base; it can be direct or indirect, and it can leverage several channels for growth. Finding the right distribution mix also means balancing between owned and non-owned channels.

When building up a distribution strategy, it’s important to balance speed and control.

And to leverage those channels that can give momentum to the business.

Yet also, in the long-term prioritize those channels that make the company viable and its business model solid.

Key takeaways and why distribution is your most important asset

At any time, businesses can leverage open and closed strategies to enhance and create ecosystems that enable the business to thrive.

In short, companies like Google, Amazon, GitHub, Uber, Airbnb, Twitter, Facebook, LinkedIn and many others that we discussed on this blog while growing managed to create parallel ecosystems of developers, publishers, small businesses, entrepreneurs, and users that are really the base and foundation for those companies business model success.

In short, the turnover those companies make is just the tip of the iceberg of an ecosystem, which is often hard to control.

The Internet, enabled ways for these organizations to involve thousands of publishers, developers, and users, where an organization, generating profits, built a strong distribution platform, thus making it compelling to other key players to participate in the growth of the ecosystem.

At the center of those open, and uncontrollable ecosystems, there is a strong distribution network, controlled by the organization in charge of the platform, that is able to monetize the ecosystem.

Thus, the distribution network is, in many cases, among the most valuable assets a company has in the long run.

Even if that’s expensive to develop, a distribution network is always worth it, because that is how you build a business you can control and a platform where you make the rules of the game.

This is the essence of business platforms!

business-platform-theory

To finish this up, how can you plan an entry strategy, based on the distribution context in which we’re operating? 

Other key resources:

Business models case studies:

What is distribution

Distribution is a process of enabling a product or service to be easily accessible to the critical customer and consumer who needs that kind of product and service. Usually, distribution channels can be direct or indirect depending on the distribution strategy adopted by an organization to grow its profits.

What is direct distribution?

In a direct distribution model, a company can get its products directly into the hands of consumers without passing through an intermediary. Think of the case of a company like Apple, which sells its iPhones directly through its owned store thus reaching its key customers.

What is indirect distribution?

In an indirect distribution model, a company can get its products into the hands of the final customers, only passing through an intermediary. Think of the case of a company that manufactures a product that then gets sold by a third-party retailer. Thus the company can’t reach its customers directly.

Connected Business Concepts To Distribution Channels

B2B2C Business Model

b2b2c-business-model
A B2B2C is a particular kind of business model where a company, rather than accessing the consumer market directly, it does that via another business. Yet the final consumers will recognize the brand or the service provided by the B2B2C. The company offering the service might gain direct access to consumers over time.

Account-Based Marketing

account-based-marketing
Account-based marketing (ABM) is a strategy where the marketing and sales departments come together to create personalized buying experiences for high-value accounts. Account-based marketing is a business-to-business (B2B) approach in which marketing and sales teams work together to target high-value accounts and turn them into customers.

Retail Business Model

retail-business-model
A retail business model follows a direct-to-consumer approach, also called B2C, where the company sells directly to final customers a processed/finished product. This implies a business model that is mostly local-based, it carries higher margins, but also higher costs and distribution risks.

Wholesale Business Model

wholesale-business-model
The wholesale model is a selling model where wholesalers sell their products in bulk to a retailer at a discounted price. The retailer then on-sells the products to consumers at a higher price. In the wholesale model, a wholesaler sells products in bulk to retail outlets for onward sale. Occasionally, the wholesaler sells direct to the consumer, with supermarket giant Costco the most obvious example.

Direct-to-Consumer Business Model

direct-to-consumer
Direct-to-consumer (D2C) is a business model where companies sell their products directly to the consumer without the assistance of a third-party wholesaler or retailer. In this way, the company can cut through intermediaries and increase its margins. However, to be successful the direct-to-consumers company needs to build its own distribution, which in the short term can be more expensive. Yet in the long-term creates a competitive advantage.

Marketplace Business Models

marketplace-business-models
marketplace is a platform where buyers and sellers interact and transact. The platform acts as a marketplace that will generate revenues in fees from one or all the parties involved in the transaction. Usually, marketplaces can be classified in several ways, like those selling services vs. products or those connecting buyers and sellers at B2B, B2C, or C2C level. And those marketplaces connecting two core players, or more.

E-Commerce Business Models

e-commerce-business-models
We can classify e-commerce businesses in several ways. General classifications look at three primary categories:
– B2B or business-to-business, where therefore a business sells to another company.
– B2C or business-to-consumer, where a business sells to a final consumer.
– C2C or consumer-to-consume, or more peer-to-peer where consumers sell to each other.

Marketing vs. Sale

marketing-vs-sales
The more you move from consumers to enterprise clients, the more you’ll need a sales force able to manage complex sales. As a rule of thumb, a more expensive product, in B2B or Enterprise, will require an organizational structure around sales. An inexpensive product to be offered to consumers will leverage on marketing.

What’s Distribution?

whats-distribution
Distribution represents the set of tactics, deals, and strategies that enable a company to make a product and service easily reachable and reached by its potential customers. It also serves as the bridge between product and marketing to create a controlled journey of how potential customers perceive a product before buying it.

VBDE Framework

vbde-framework
A Blockchain Business Model according to the FourWeekMBA framework is made of four main components: Value Model (Core Philosophy, Core Values and Value Propositions for the key stakeholders), Blockchain Model (Protocol Rules, Network Shape and Applications Layer/Ecosystem), Distribution Model (the key channels amplifying the protocol and its communities), and the Economic Model (the dynamics/incentives through which protocol players make money). Those elements coming together can serve as the basis to build and analyze a solid Blockchain Business Model.

Dropshipping Business Model

dropshipping-business-model
Dropshipping is a retail business model where the dropshipper externalizes the manufacturing and logistics and focuses only on distribution and customer acquisition. Therefore, the dropshipper collects final customers’ sales orders, sending them over to third-party suppliers, who ship directly to those customers. In this way, through dropshipping, it is possible to run a business without operational costs and logistics management.

VTDF Framework

competitor-analysis
It’s possible to identify the key players that overlap with a company’s business model with a competitor analysis. This overlapping can be analyzed in terms of key customers, technologies, distribution, and financial models. When all those elements are analyzed, it is possible to map all the facets of competition for a tech business model to understand better where a business stands in the marketplace and its possible future developments.

Digital Strategy Mix

distribution-strategy
Distribution is one of the key elements to build a viable business model. Indeed, Distribution enables a product to be available to a potential customer base; it can be direct or indirect, and it can leverage on several channels for growth. Finding the right distribution mix also means balancing between owned and non-owned channels.

Business Development

business-development
Business development comprises a set of strategies and actions to grow a business via a mixture of sales, marketing, and distribution. While marketing usually relies on automation to reach a wider audience, sales typically leverage on a one-to-one approach. The business development’s role is that of generating distribution.

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