One-Stage (Direct) Distribution: The producer sells directly to the end consumer. This is common in service industries, e-commerce, and factory outlets, allowing for higher control and direct customer feedback.
Two-Stage Distribution: This involves one intermediary, typically a large retailer. National supermarket chains often buy directly from manufacturers, utilizing their own massive warehousing and logistics networks to reach consumers.
Three-Stage Distribution: This traditional model includes both a wholesaler and a retailer. It is highly effective for reaching a mass market with small-ticket items where the manufacturer cannot practically manage thousands of individual retail accounts.
| Feature | Direct Distribution | Indirect Distribution |
|---|---|---|
| Intermediaries | None (Producer to Consumer) | One or more (Wholesalers/Retailers) |
| Control | High control over branding and price | Lower control; relies on partners |
| Profit Margin | Higher per unit (no middleman fees) | Lower per unit (shared with partners) |
| Market Reach | Often limited or niche | Wide, mass-market reach |
| Complexity | High operational burden for producer | Lower operational burden for producer |
Physical vs. Digital Distribution: Physical distribution involves the movement of tangible goods through transport and storage, whereas digital distribution delivers intangible products (software, media) instantly via the internet, eliminating traditional logistics costs.
Analyze Product Characteristics: When asked to recommend a channel, consider the product's nature. Perishable or high-value items often favor shorter (direct) channels, while standardized, low-cost goods benefit from long (indirect) channels.
Evaluate Market Size: If the target market is geographically dispersed and large, intermediaries are almost always necessary to achieve the required 'Place' utility efficiently.
Check the Margin: Always consider if the product's profit margin can sustain multiple intermediaries. Low-margin products require high-volume distribution, often necessitating wholesalers to manage the scale.
Verify the 'Why': In exam answers, don't just name a channel; explain the benefit (e.g., 'Using a wholesaler allows the producer to break bulk and reduce the number of individual transactions').
The 'Cheaper Direct' Fallacy: Students often assume direct selling is always cheaper. In reality, the producer must then absorb all costs of storage, delivery, and marketing, which may be more expensive than the fees charged by efficient intermediaries.
Ignoring Digital Shifts: Failing to recognize how e-commerce has blurred the lines between direct and indirect distribution can lead to outdated analysis. Many firms now use 'omnichannel' strategies, combining both methods.
Confusing Wholesalers and Retailers: Remember that wholesalers sell to other businesses (B2B), while retailers sell to the final consumer (B2C). Their roles in the supply chain are distinct and serve different purposes.
