distribution channel definition

Contributor(s): John Moore & Ivy Wigmore

A distribution channel is the network of individuals and organizations involved in getting a product or service from the producer to the customer. Distribution channels are also known as marketing channels or marketing distribution channels.

The two primary channels are direct and indirect, but there are different sub-channels within those categories. With the direct channel, the vendor of a product or service sells directly to the customer. The vendor may maintain its own sales force to close deals with clients or sell its products or services through an e-commercewebsite. The direct sales approach requires vendors to take on the expense of hiring and training a sales team or building and hosting an e-commerce operation.

The indirect channel, in contrast, offloads sales activities to individuals and organizations known as intermediaries. Examples of intermediaries include value-added resellers (VARs), consultants, systems integrators (SIs), managed service providers (MSPs), original equipment manufacturers (OEMs>), independent software vendors ISV wholesalers distributors. Each type of intermediary represents a channel, with its own distinct characteristics. VARs, for example, are often local companies that sell horizontal (accounting) or vertical (manufacturing) IT solutions to the businesses in its geographic region. Systems integrators may be large, national companies that work on highly complex, multi-vendor IT projects. Consultants may not resell solutions at all, but influence sales through product recommendations to customers. A vendor develops a channel strategy to determine what types of intermediaries to target and how to optimize partner relationships to increase sales and improve distribution.

Indirect channels may be configured in different ways. Single-tier distribution is a channel design in which vendors develop direct relationships with channel partners that sell to the end customer. In the two-tier distribution model, the vendor sells to distributors, which provide products to channel partners such as VARs and SIs, which, in turn, package solutions for the end customer.

This was first published in April 2015

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