The distribution channel is, perhaps, the least glamorous and the least respected sales process, but it is the most essential. Without it, you can’t get your product to your customer. With that in mind, it’s good to know the basics.
The distribution channel represents the various levels your product passes through on its way to your ultimate customer. You may sell your service through a broker or clearing house that provides you with a client. But if you’re selling a material product, you have to deal with a distribution channel. There are several different kinds of distribution channels, but most contain one to four steps on the path from producer to buyer. Here are three basic types:
1. Conventional Distribution. This type of distribution channel is typical of retail sales. It’s used with almost all consumer products, from dresses to groceries to television sets. This system starts with wholesalers who are known as distributors or jobbers. (If a broker is involved, they don’t take possession of the product, they just get a cut for getting it from the producer to the distributor, or in some cases direct to the retailer.) The distributor’s trucks pick up products in the largest possible quantities, to maximize efficiency. Most trucks involved are 18-wheelers. They carry a trailer, van or container that is 40-45 feet long and holds 22 pallets, arranged in 2 rows of 11. Each pallet is 4 feet by 4 feet. Once delivered to the distributor, the product may be transported in smaller delivery trucks to the retailer. In some cases, it may go to the retailer’s warehouse before the retailer himself distributes it to his retail stores.
2. Fulfillment centers. This type of distribution channel starts with the producer of the product delivering it at his own expense to a distributor at a hub with a warehouse called a fulfillment center. The fulfillment center then breaks down the producer’s pallets of product, re-packages the product, puts them into the right containers, then fills orders for the product by delivering it via common carrier or using his own trucks.
3. Direct. In this scenario, it’s also possible for you as the producer to sell your product directly to the retailer. The retailers may pick up at your warehouse, or you may have to deliver it to their warehouse or retail outlet, or you may deliver to a fulfillment center. Some specialty items are also sold using the direct distribution channel. Fresh bread, for example, is often delivered direct to grocery stores via the bread company’s own vehicles.
As unexciting as they may seem, these various distribution channels have inspired volumes of writing by experts regarding the problems that can arise and ways to ameliorate them — information well worth studying. No matter the distribution channel a product takes from the producer to the ultimate customer, what they all have in common is the crucial role they play in the sales of the product.
There’s so much more that could be said on this subject. What’s been your experience? Michael Houlihan, co-founder of Barefoot Wine, the largest wine brand in the nation, invites you to lend your voice to this discussion on Distribution Channels with your comments, thoughts, and opinions below.
Who Are We.
Having built and sold a bestselling national brand, we appreciate the value of brands and everything it takes to make them successful. Companies are valued by their brand equity. Achieving and maximizing brand equity requires tremendous respect for all your customers, from your wholesaler to your end user.
Starting in our laundry room with no money and no knowledge of the industry, we built the famous Barefoot Wine brand. We learned a lot they don’t teach in school and much of it the hard way. Although our success was in consumer products, our real world experience will be helpful to anyone looking for information and advice about brands.
We have written the New York Times Bestselling Business Book, The Barefoot Spirit: How Hardship, Hustle and Heart Built America’s #1 Wine Brand, which chronicles the history of the famous brand from its inception through its acquisition. Our book is now required reading in schools of entrepreneurship across the country. We hope this book will provide inspiration and encouragement for all those contemplating starting a brand or wanting to improve their existing brand.
Michael Houlihan and Bonnie Harvey
-Barefoot Wine Founders