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What Is A 'Distribution Channel'?

A Distribution Channel describes how your offer will be delivered to the end user. There are two primary types of distribution channels: direct-to-user and intermediary distribution.

If you work with multiple channels, you need to make sure that they are representing your business well.

Josh Kaufman Explains 'Distribution Channels'

Once a sale is made, you must deliver what you promised to your customer. A Distribution Channel describes how your form of value is actually delivered to the end user.

There are two basic types of distribution channels: direct-to-user and intermediary distribution.

Direct-To-User Distribution

Direct-to-user distribution works across a single channel: from the business directly to the end user. Services are a classic example: when you get a haircut, the value is provided by the business itself directly to you, with no intermediary.

Direct-to-user distribution is simple and effective, but it has limitations — you have full control of the entire process, but you can only serve as many customers as your time and energy allow. Once demand for your offer outpaces your ability to deliver it, you’re risking disappointing your customers and diminishing your reputation.

Intermediary Distribution

Intermediary distribution works across multiple channels. When you purchase a product from a store, that store is acting as a Reseller. The store (in most cases) doesn’t manufacture the products — it purchases them from another business.

The business that created the product can sell it to as many stores as it wants, a process typically called “securing distribution.” The more distribution a product has, the more sales the business is likely to make — the more stores selling the product, the more opportunities for sales.

Intermediary distribution can increase sales, but it requires giving up a certain amount of control over your value-delivery process. Trusting another business to deliver your offer to your customers frees up your limited time and energy, but it also increases Counterparty Risk — the risk that your partner will screw up and diminish your Reputation.

Imagine you’re in the business of selling cookies, and you secure distribution at a local supermarket. The supermarket purchases cookies from you, places them on their shelves, and sells them to their shoppers at a premium. Instead of buying cookies from you directly, shoppers purchase them via the supermarket: classic intermediary distribution.

It’s easy to see the benefits of this approach, but there are drawbacks. Let’s say the cookies are damaged in transit to the store: they break, crumble, and the box they’re delivered in is crushed. The supermarket’s shoppers won’t know exactly what happened, but if it happens often, they’ll assume that you create a low-quality product, damaging your reputation.

Securing distribution can be valuable, but keep an eye on your intermediaries. Distribution isn’t a “set-it-and-forget-it” strategy — if you’re working with multiple distribution channels, make sure you plan to devote time and energy to making sure they’re representing your business well.

Questions About 'Distribution Channels'

• What distribution channels may be available for your offering?
• How can you maximize your distribution options without risking your reputation?

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"Unless a person is a clam digger, a trapper, or an old-style pick-and-shovel prospector, it's virtually impossible these days to be a success all by oneself."

Benjamin F. Fairless, former head of U.S. Steel

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