Sales channels: What is the right dis­tri­bu­tion channel for your product?

In addition to con­tinu­ously op­tim­iz­ing your shop in terms of offers, search engine rankings, user-friend­li­ness and customer re­la­tion­ships, another long term task you need to keep in mind is being able to make all your products available to customers in ac­cord­ance with the terms and con­di­tions. All planning and measures necessary for this purpose fall within the scope of dis­tri­bu­tion policy. What possible options do you have with e-commerce? What do you need to pay attention to when or­gan­ising a policy?

Every business owner has to decide which dis­tri­bu­tion channels they want to use. In general, there are two different options: de­liv­er­ing directly to the end customer or going through an in­ter­me­di­ary. Using a mix of the two can be a promising solution, es­pe­cially in the e-commerce sector.

If you decide to sell your goods directly, then you are selling to the end customer. This can be done through a web store, or in a tra­di­tion­al store through an offline mail order service or by sales rep­res­ent­at­ives at the store’s premises. 

This means that you assume full re­spons­ib­il­ity for all trading functions, i.e. for the storage of the products as well as the receipt of orders and delivery. With this dis­tri­bu­tion system, you usually need storage space, which you will have to organise as ef­fi­ciently as possible. Par­tic­u­larly when it comes to operators with a large as­sort­ment, it is re­com­men­ded to use a goods man­age­ment system that can help meet the lo­gist­ic­al re­quire­ments of direct sales. There are three main options for getting your goods to your customers:

1. You regulate trans­port­ing the goods yourself: These goods are centrally located in a large warehouse or multiple ware­houses. You either use your own employees and means of transport, or those provided by the warehouse.
    
2. You use a shipping service provider like DHL, UPS or Hermes to deliver the goods. Once again, you will need to have your own central storage facility. Using a shipping service provider will allow you to save on employees and transport vehicles, but you will be giving up on being able to regulate all aspects of the process that ensure punctual, reliable delivery.  
    
3. You link your online shop to local outlets where customers can pick up their goods.  The goods are stored either on site in the re­spect­ive branch, or in a central warehouse. You can arrange transport either through in-house employees or through the external shipping service providers already mentioned.

Direct sales are suitable for both B2C (example: online store for the customer) and B2B, for which you’ll probably need to set up a field service.

Unlike direct sales, you do not work alone when doing indirect sales. Instead, you work with non-corporate sales agents. You’ll have the choice between retailers and whole­salers, who take over all tasks for you from the moment you place the order. Con­trac­tu­ally, you are required to record the profit share your business partner receives from the sale of your goods. This “drop shipping” (also known as route business) allows for the option of another kind of online shop, where you have no contact with the sales de­part­ment: As an in­ter­me­di­ary, you accept customers’ orders and forward them to the cor­res­pond­ing man­u­fac­tur­ers.

When it comes to indirect dis­tri­bu­tion, several factors may (or may not be) be involved:

• Man­u­fac­tur­ers
• Sales people
• Whole­salers
• Retailers
• Customers

However, why choose just one? Sales can also be spread among multiple channels. Multi-channel sales use their own channels, as well as external ones, to create a mixture of direct and indirect sales. For example, you can maintain your own web store, maintain a mortar and brick store, and work with other retailers and sales platforms (e.g. Amazon) at the same time.

In this kind of scenario, you contact the final user through certain channels and offer your goods through an in­ter­me­di­ary, which can sig­ni­fic­antly increase dis­tri­bu­tion reach. Which sales channels you should use, and to what extent depends on both the company’s goals and resources. However, there is not ne­ces­sar­ily an increase in reach: If you already reach a large part of the target group through one channel, then a “cannibal effect” can occur when using multiple channels. For example, creating numerous stores can lead to a decline in online store sales.

It becomes par­tic­u­larly in­ter­est­ing if the product range is not exactly the same on all channels. If you adapt the selection to the sales channel and also the target group, it can often result in larger sales.

In the context of multi-channel sales, the terms “cross-channel” or “omni-channel” are also often used. This is a further de­vel­op­ment of dis­pers­ing sales channels. In classic multi-channel sales, the in­di­vidu­al channels are treated com­pletely sep­ar­ately from each other. The different points of sale have no links to each other. In cross-channel sales, on the other hand, the in­di­vidu­al routes are closely related: The customer can order a product online and pick it up in a store. However, there should be connected warehouse man­age­ment.

Omni-channel sales are a slight ad­just­ment to the cross-channel variety. In omni-channel sales, the company tries to give the customer access to their entire range of products, no matter where they are. For example, customers should be able to browse the catalogue online while in store, where they can then buy their selected product directly.

Dis­tri­bu­tion policy design can determine the success or failure of your company. Those who use the wrong channels reach fewer customers, or may not generate sales at all. To help you choose the right sale channels right from the start, we’ve put together a few tips for you.

To begin with, you should be clear about what goals you want to achieve by setting up your sales dis­tri­bu­tion policy. Consider your entire policy, not just dis­tri­bu­tion itself. The purpose, of course, is to generate sales as high as possible, and therefore the highest profit possible. Instead, ask yourself which strategy approach is most ap­pro­pri­ate for your business. Depending on the starting position, the following ob­ject­ives may be suitable:

• Eco­nom­ic­ally-oriented goals: Using your available funds sparingly and in an energy-saving way is a tried and tested measure, es­pe­cially when you’re starting out. With this goal, you are not just setting a good price level, but also in­creas­ing sales volumes easily while keeping sales and logistics costs low.
   
• Eco­lo­gic­ally oriented goals: It may be par­tic­u­larly relevant for your store to take into account the impact of the en­vir­on­ment when storing and de­liv­er­ing your goods. Energy ef­fi­ciency, emission reduction and adequate waste man­age­ment play a major role here – however, something just as important to keep in mind is that the more en­vir­on­ment­ally friendly solutions often entail higher costs.
   
• Lo­gist­ic­al goals: Es­pe­cially if you want your store to grow quickly, lo­gist­ic­ally motivated goals should come first. The aim is, for example, to increase the degree of your goods dis­tri­bu­tion (i.e. their dis­tri­bu­tion on the market), to shorten delivery times and to optimise the re­li­ab­il­ity and avail­ab­il­ity of goods shipping.
   
• Com­pet­it­ive goals: With your sales concept, you want to do well with the com­pet­i­tion in par­tic­u­lar. It might even be your goal to de­lib­er­ately push com­pet­it­ors out of the market, and you should make sure that the necessary measures do not conflict with other ob­ject­ives.

Not all dis­tri­bu­tion channels will be suitable for all companies. Depending on what you want to sell and what ad­di­tion­al services you want to offer, certain sales channels may already be elim­in­ated. An important factor, for example, is returns. If you do not have shops, and instead only use online stores as a sales channel, you have to develop solutions for return shipping, for example.

On the other hand, certain products are un­suit­able for dis­trib­ut­ing through a catalogue, whether offline or online. High-priced items or very complex products are purchased by very few without having direct contact to the seller. Either you will want to inspect the product be­fore­hand, or at least have a con­ver­sa­tion with the vendor. Even tailor-made products in the B2B sector are rarely sold through an online store.

Target group com­pos­i­tion is also crucial when choosing a dis­tri­bu­tion channel. Older customers are more likely to be reached through tra­di­tion­al, offline methods while a younger customer may prefer to make their purchases online through a mobile device. The product’s price and com­plex­ity also plays an important role in terms of the target group. As the price and com­plex­ity increase, most target groups will want per­son­al­ised advice.

If you aren’t sure how your dis­tri­bu­tion policy should be struc­tured, it is worth taking a look at the com­pet­i­tion: what kind of strategy do others in the market use? A com­pet­it­ive analysis should only serve as a guide. There are two good reasons why you shouldn’t just copy another com­pet­it­or’s strategy outright without extra con­sid­er­a­tion: On the one hand, you have to pay attention to your company’s cap­ab­il­it­ies. A market leader that has been suc­cess­ful for decades has other options than those of a start-up. Ad­di­tion­ally, your company should be dis­tin­guished by a unique selling point. If you copy everything, you won’t stand out from the com­pet­i­tion. However, if your com­pet­it­ors only have a few brick and mortar shops, you could probably reach new customers with a web store, for example.

Different sales channels have different, serious effects. For example, direct sales via phone call can have some ad­vant­ages, but many customers react neg­at­ively to these kinds of calls. Very elab­or­ately designed shops can look high-quality but may deter customers in search of a bargain. It is precisely at this point that you can see just how important it is to choose the right sales channels for marketing.

There isn’t one specific dis­tri­bu­tion channel you should def­in­itely use. Be sure to adapt your dis­tri­bu­tion policy, bearing your goals and company in mind. Don’t forget, es­pe­cially at the beginning, that you shouldn’t try too much at once. Es­pe­cially when con­sid­er­ing multi-channel sales, the sheer amount of options can cloud your overview of the company. First of all, focus on just one channel or a man­age­able selection, and be sure you are capable of con­duct­ing business pro­fes­sion­ally and com­pet­ently within them – after all, sales is the true meas­ure­ment of your company.