DISTRIBUTION CHANNELS: Definition, Types, and Impact on Prices
Definition
A distribution channel is the path a product or service takes from the producer to the end consumer. Distribution channels are classified as direct (no intermediaries), short (one intermediary), and long (multiple intermediaries), both in-store and online.
For a retailer, the channels are stores, the website, and online marketplaces. For a manufacturer, they are its own retail locations and the retailers that carry its products. The choice of channels is part of the distribution strategy within the marketing mix, and it also determines how prices are set.
What are the different types of distribution channels?
Channels are classified based on the number of intermediaries between the producer and the customer. The more intermediaries there are, the less control the producer has over the final price.
| Channel | Intermediaries | Examples in Retail | Final Price Verification |
|---|---|---|---|
| Live | None | Brand-owned store, brand e-commerce site | Strong |
| Short | Just one (retailer) | A manufacturer that sells to a retailer, which sells to the customer | Average |
| Long | Several (wholesaler, distribution center, retailer) | Manufacturer, wholesaler, distributor, retail store | Low |
| Online | Variable (none or platform) | Brand website, marketplace, price comparison site | Variable |
Control over the final price depends on the contract with each intermediary: a supplier may recommend a price, but in principle cannot impose it on its distributor.
Intensive, selective, or exclusive distribution
- Intensive: The product is available at as many retail locations as possible to reach the largest number of customers. This approach is suitable for mass-market products.
- Selective distribution: The manufacturer selects a limited number of distributors based on specific criteria (brand image, service, expertise). This protects the brand's positioning.
- Exclusive: only one distributor per geographic region. This provides strong control over the brand's image, at the cost of limited coverage.
A manufacturer that also sells directly to consumers (through a store or website) engages in vertical integration and may compete with its own distributors, which makes pricing rules all the more important.
Distribution Channels and Pricing: What's Changing in Pricing
Each channel has its own pricing constraints. Ignoring them leads to discrepancies that customers notice before you do.
- Different service costs: intermediary’s margin, logistics, marketplace commission. The minimum price therefore varies depending on the channel.
- A different kind of transparency: Online, prices can be compared with just a few clicks. Any price discrepancy between your website and a marketplace is immediately apparent and affectsyour price image. Price comparison has become a standard part of the shopping process.
- A different role: one channel focuses on visibility, another on volume, and yet another on margin. It’s normal for their prices to differ, provided that the difference is intentional and understandable. This is the principle of cross-channel pricing consistency.
- Pricing flexibility for retailers: A supplier can recommend a price, but cannot impose it. See the article on the suggested retail price.
On marketplaces, this has become a strategic issue: how to manage prices without losing control of your price image. In an omnichannel environment, dynamic pricing must remain consistent across all channels, as explained in our article on omnichannel consistency.
How to Choose the Right Distribution Channels?
- Start with the product: a technical product requires advice (short or selective channel), while a consumer product requires a strong market presence (intensive or long channel).
- Start with the target: Where do your customers already shop—in stores, online, or on a marketplace?
- Calculate the margin by channel: After deducting commission, logistics costs, and the intermediary’s margin, what is the minimum price that supports the desired pricing strategy?
- Decide on the level of control: the longer the distribution channel, the less control you have over the final price and the brand's image.
- Set pricing rules before opening: acceptable pricedifferences across channels, frequency of price updates, and the person responsible for making decisions. See also price segmentation to sell at multiple prices without cannibalizing your product lineup.
Common pitfalls
- Open a channel without price rules: each channel then sets its own prices, and the discrepancies become apparent.
- Forget about commissions: an identical price across all channels does not result in the same margin, since service costs differ.
- Failing to monitor discrepancies: Without regular checks, inconsistencies are often discovered only after a customer complaint. A price monitoring system allows you to detect them beforehand.
Do you want to maintain consistent pricing across all your channels?
Booper tracks your prices and market prices by channel, then helps you determine where the price difference is intentional and where it's eating into your profit margin.
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A distribution channel is the path a product or service takes from the producer to the end consumer. Distribution channels are classified as direct (no intermediaries), short (one intermediary), and long (multiple intermediaries), both in-store and online.
There are three types of distribution channels, classified by the number of intermediaries: the direct channel (none), the short channel (one retailer), and the long channel (wholesaler, distribution center, retailer). The online channel (brand website, marketplace) is an additional category and can be direct or go through a platform. See the comparison table.
The distribution channel describes the product’s entire journey to the customer. The sales channel refers to the point of contact where the customer makes a purchase: store, website, marketplace, or phone. In retail, the two overlap, but a single distribution channel can supply multiple sales channels.
In common usage, the two terms are often used interchangeably. More specifically, a "channel" refers to a path (whether direct, short, or long), while a "distribution channel" refers to the set of channels a company uses for a product.
Each channel has its own service costs (intermediary margin, logistics, marketplace commission) and its own level of price transparency. These two factors determine the floor price and the risk of visible price discrepancies across channels. Consistency rather than uniformity: it is the discrepancy that needs to be explained, not necessarily eliminated.
Yes, this is the case for most retailers (stores, websites, marketplaces). The key is to set pricing rules for each channel and monitor price discrepancies. Without rules, each channel sets its own prices, and the brand’s price image suffers.
First, we define the role of each channel (visibility, volume, margin), then establish acceptable price variances between them, and monitor prices through regular data collection. Price monitoring and tracking price variances make this management possible on a large scale.
Generally speaking, no: the manufacturer can recommend a price, but the retailer is free to set its own. That is the purpose of the suggested retail price, as explained in our article on the SRP.
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