Distribution Channels and Transportation Methods in Business

Posted on Jan 14, 2025 in Economy

Distribution Channels in Business

Businesses need to know how to get their products to the consumer. They may use a variety of distribution channels:

Channel 1: Direct Sales

The manufacturer sells directly to the customer. For example, agricultural goods are sold straight from the farm, or businesses buy raw materials from another producer.

Channel 2: Retailers

Involves selling to retailers. This is common when the retailer is large or the product is expensive.

Channel 3: Wholesalers

Involves the product going through wholesalers as well. Wholesalers break bulk, allowing retailers to buy in smaller quantities.

Channel 4: Agents

Involves selling the product overseas through an agent, who sells to wholesalers on behalf of the company. This may be because the agent has better knowledge of the local conditions.

Methods of Distribution

  • Department Stores: Usually in the center of town, selling a wide range of goods from many producers.
  • Chain Stores: Two or more stores with the same name and characteristics.
  • Discount Stores: Offer a wide range of products, including branded products, at discount prices. Often, all the products are similar.
  • Superstores: Very large, out-of-town stores.
  • Supermarkets: Very large retail stores with various goods, usually daily needs and foods.
  • Direct Sales: Goods are sold directly to the consumer.
  • Mail Order: Customers order via mail by looking at a catalog.
  • Internet/E-commerce: Customers order via the internet by looking at a website.

E-commerce

E-commerce is the use of the internet to carry out business transactions. Businesses can communicate via email as well. Both producers and retailers can use the internet to sell to customers.

Pros of Wholesalers

  • Breaks bulk.
  • Reduces storage costs for retailers and producers.
  • Fewer transactions are needed for the producers (only a few wholesalers), so they no longer need to make as many deliveries.
  • Gives credit to small retailers.

Cons of Wholesalers

  • More expensive for small retailers.
  • May not have the full range of products to sell.
  • Takes longer for perishable products to reach the retailer.
  • Wholesaler may be far from small shops.

Selecting the Right Distribution Channel

  • Type of Product: Is it sold to other producers or customers?
  • Technicality: Will you need to explain how to use the product? If yes, Channel 1 should be selected (e.g., airplanes).
  • Purchase Frequency: If it is bought every day, it should be available in many retail outlets; otherwise, people might not bother to buy it.
  • Price: If it is expensive and has an image of being expensive, then it will be sold in a limited number of retail outlets.
  • Perishability: If it is very perishable, it should reach customers quickly or be available in many outlets so it can be sold quickly.
  • Customer Location: Channel 4 might be used for customers overseas. E-commerce would be viable anywhere apart from the countryside.
  • Competitor Strategy: Usually, producers will sell their product in retail stores where their competitors sell, so they can compete directly for consumers.

Methods for Transporting Goods

This refers to the types of vehicles used to transport products. They should be fast enough for the product to reach its destination in time. However, they must also be cost-efficient and safe. These factors are taken into account when deciding which method of transportation is used.

Road Haulage

  • Cheap and fast.
  • Requires no rail links.
  • Can advertise on the side of lorries.
  • Not cost-effective if lorries are not used often; may need to hire a specialist transport business instead.

Railways

  • Even cheaper and faster than road haulage.
  • Useful for long distances.
  • Goods need to be transported to retail stores by road haulage at the end of the destination.

Canal and River

  • Slow but cheap.
  • Good for products far too big or heavy to be transported by road or train.
  • Needs canals and rivers.

Sea Freight

  • Used mainly for international trade.
  • Can carry a lot of products.
  • Products are stored in containers, which can be easily loaded onto lorries, making it cheap to load and unload ships.

Air Freight

  • Extremely fast but expensive.
  • Used for small, expensive, or perishable products.

Pipelines

  • Used to transport liquids or gases over long distances.
  • Cheaper than using road haulage for liquids.
  • Roads are not always available.