Distribution channels enable companies to reach customers through direct and indirect selling routes. As an industry analyst who has helped numerous clients optimize their distribution models, I want to provide you a comprehensive overview of the landscape. In this guide, we‘ll explore the 9 main types of channels, pros and cons of each approach, real-world examples, and trends shaping the future. I‘ll share distribution cost models, predictions and actionable advice targeted specifically to help grow your business.
A Brief History
Before diving into channel specifics, it‘s helpful to understand how we arrived at the current state. In the 1980s and 90s, most technology product sales flowed through wholesaler/distributor intermediaries who negotiated bulk rates. Var‘s then customized offerings for end clients. The rise of ecommerce giants like Amazon as well as Apple‘s launch of direct retail stores brought about a major shift. Tech companies gained newfound ability to control branding and reach customers directly.
According to CompuBase industry research, direct online sales now account for 35% of tech product distribution, compared to 5% in 2000. Wholesalers dropped from 65% to only 25% share in that span. Omnichannel models blending online and specialized local partners are growing fastest.
Distribution Channel Spectrum
Each main channel approach has unique tradeoffs across reach, cost and control. This framework helps visualize strategic positioning:
Now let‘s explore specifics of the 9 distribution models, starting from the most direct…
1. Direct Sales
Selling directly without any middlemen lets companies control messaging and customer data.
Examples
- Dell built computers to order via customer customization
- Apple owns 500+ US retail stores
By the Numbers
- Avg 30% higher margin vs. wholesale channels
- 62% of consumers prefer buying direct from brand websites
When It Works
Direct sales are optimal for customized orders, supporting premium pricing, and controlling brand experience. It requires major upfront infrastructure investment however.
Considerations
- Huge startup costs for sales, service and fulfillment
- Need significant working capital and infrastructure
So in summary…
2. Retail Channels
Retail outlets feature third-party storefronts driving distribution.
Examples
- Apple placing iPhones in Verizon stores
- HP printers sold at Best Buy locations
By the Numbers
- Tech products available in 800+ Best Buy locations as of 2022
- Avg 10-25% sales commission paid to retailers
When It Works
Retail channels provide established foot traffic to demonstration products benefits. It trades margin for outsized reach.
Considerations
- Managing myriad partners complex
- Promotional priorities may not align
To compare profit outcomes…
3. Independent Distributors
Distributors purchase, warehouse and sell products wholesale to resellers.
Examples
- Tech Data distributes HP servers to VAR‘s
- Ingram Micro offers storage/supply chain solutions
By the Numbers
- 27% of tech goods flowed through distributors in 2021
- Distributors take 5-15% margin on average
When It Works
Leveraging experienced distributor infrastructure minimizes operations overhead. This route scales efficiently.
Considerations
- Little control over customer experience
- Lower profit margins per sale
Now let‘s look at another model…
4. Intensive Distribution
Intensive distribution focuses on maximizing sales channels and customer exposure.
Examples
- Acer PCs are available at all major electronics retailers
- Logitech computer accessories distributed widely
By the Numbers
Intensive distribution correlated to:
- 11% higher brand awareness
- 14% more new customer sales
When It Works
Categories like PC peripherals often warrant intensive models to drive ubiquity-based convenience purchasing.
Considerations
- Difficult to customize marketing per channel
- Race to the bottom on pricing
Whereas selective distribution takes the opposite approach…
5. Selective Distribution
Strictly limiting and controlling sales channels maintains air of exclusivity.
Examples
- Bose limits showcase outlets to 500 locations globally
- Bang & Olufsen creates aura via scarcity
By the Numbers
- Selective brands retain 15% higher margins
- Limited global store counts:
- Bose – 500
- Bang & Olufsen – 230
- Apple – 510
When It Works
Luxury products like high-end speakers/headphones thrive on premium experiences facilitated through exclusivity.
Considerations
- Constrains overall market potential
- Partnership conflicts more damaging
Now let‘s take exclusivity to its extreme…
6. Exclusive Distribution
Granting sole regional selling rights reinforces positioning.
Examples
- Rolex utilizes authorized local dealers
- Hi-fi companies assign national retailers
By the Numbers
- $8 billion in Rolex sales through elite monopolies
- Single partner per metro area model
When It Works
Categories like luxury watches lean wholly into craftsmanship messaging. Exclusivity partnerships align.
Considerations
- Maximizes risk concentration
- Least brand visibility potential
7. Dual Distribution
Mixing direct flagship stores with external retail partners provides balanced reach.
Examples
- Apple sells iPhones in own stores + cell carriers
- Microsoft leverages branded stores alongside Best Buy partnership
By the Numbers
Companies utilizing dual distribution average:
- 8% higher sales than selective-only approaches
- 12% increased brand awareness metrics
When It Works
Dual models optimize coverage and customization opportunities. However, it also multiplies complexity.
Considerations
- Double the channel relationships to manage
- Risk of intra-channel conflicts
8. Wholesaler
Wholesalers consolidate supply chain efficiencies in B2B distribution.
Examples
- Tech Data, Ingram Micro supply VAR network
- Synnex offers scalable logistics capabilities
By the Numbers
- 27% tech goods distribution share in 2021
- $60 billion in annual tech wholesaler market size
When it Works
Mission is pure volume throughput. Model built for uniform SKUs and enterprise sales.
Considerations
- Little control over user experience
- Race to bottom on pricing
While VAR‘s add service layers on top…
9. Channel Partners / VAR‘s
Value-added resellers (VAR‘s) customize solutions for clients.
Examples
- IBM partners tailor cloud offerings
- Accenture implements SAP modules by industry
By the Numbers
- 78% of businesses utilize IT solution partners
- $282 billion VAR industry size in 2018
When It Works
Hardware/software often requires complex integrating and customization where VAR‘s excel.
Considerations
- Partners may steer product decisions
- Margins split with channel
Key Takeaways
- Analyze product and company factors to inform channel decisions
- Consider blending models over time. Apple leverages retail partnerships while expanding direct stores.
- Continually assess channel performance using data to guide strategy.
I hope this overview has provided a helpful starting point for optimizing your distribution relationships! Please reach out if you have any other questions.
