The selected sales channel is of great importance for every company, because after all, its own products or services must be sold in a suitable form. It is therefore important to choose the right channels and thus build efficient sales.
Definition – sales channel
The “sales channel” refers to the steps that explain how a company’s product ultimately ends up with customers, whereby the term focuses on sales, not on the spatial component (logistics, etc.).
In this article we will now go into more detail about which sales channels there are, what differentiates them and how you can find the right sales channel for your company.
Vertical paragraph structure
In the vertical sales structure, a distinction is made between direct and indirect sales channels.
Direct sales channels
Direct sales means that companies take the sales of their products into their own hands.
The big advantage in this case is that there are no sales intermediaries. It is not sold to wholesalers, who then continue to sell the products with their profit margin, but directly to customers. Accordingly, direct sales have the potential to keep their own margins higher than indirect sales.
Correspondingly, however, direct sales often involve greater effort. Instead of having a few wholesalers as customers, the company faces the challenge of selling directly. This may require more sales, marketing, and support staff. Thus, it must always be assessed individually whether the higher margins of direct sales are worthwhile for the company at the end of the day.
Examples of direct sales opportunities are:
- Own online shop
- Own flagship stores or other own sales outlets
- Own sales force
- Telephone sales
- Factory sale
It is always crucial that no other dealers stand between the company and the customers.
Indirect sales channels
Other sales channels that are built up indirectly have the opposite advantages and disadvantages.
The great advantage of indirect sales channels is that the overall structure of the company can typically be kept leaner. Let us think, for example, of a manufacturing company that subsequently sells its products to a few wholesalers. Accordingly, there are comparatively few contact persons for sales.
Marketing measures are hardly required, or at least to a much lesser extent, since, after all, more personal contact is easier with a small number of customers. Even with problems that require support of any kind, there are again fewer contact persons.
The disadvantage is that retailers and wholesalers are always trying to improve their own margins. Those who have few buyers are also exposed to greater bargaining power on the part of their trading partners and must expect that the price will usually be a critical point of discussion.
Options for indirect sales channels are, for example:
- Sale to wholesalers
- Selling to retailers
- Sale to independent sales partners
This shows that both sales channels have advantages and disadvantages and it cannot be said in general which option is the better choice. This decision depends heavily on the individual situation of the company, the market situation and the industry.
Horizontal paragraph structure
After the vertical paragraph structure, we now come to the horizontal perspective. We also present three different options here.
Intensive sales means that as many sales points as possible should be built up at great expense. An example of this is if you imagine how many places Coca Cola can be bought in – from the large supermarket to the small tobacco shop. The goal here is clearly to address the broad masses and to create high availability of the products on the market.
It is different with selective distribution. The aim here is to find the best sales outlets for your own products. Let us think, for example, of very expensive branded clothing that is certainly not supposed to be sold in discount department stores, but is only available in selected boutiques.
Selective distribution thus ensures that the sales experience is optimal for customers, although this also means that the products are offered at fewer points of sale. This shortage serves the clear positioning in the market and the formation of a coherent brand.
In the case of exclusive sales, the products are typically always handed over to a specific sales partner for a specific region. This partner is therefore the only company that is allowed to sell the products in the agreed region. If such exclusive sales partnerships are entered into, this often serves to open up new markets quickly. Conversely, minimum sales quantities and precise targets are usually defined to ensure that the award of exclusivity is really worthwhile.
To a certain extent, the supreme discipline of sales is multi-channel sales. Various options are combined in order to be as broad as possible. The market coverage increases and some cost items, for example in the area of marketing, can be divided up better. In this way, savings in the form of economies of scale can be achieved.
With multi-channel sales, the company is therefore taking several paths. It is conceivable, for example, that products are delivered to retailers, but at the same time that their own flagship stores are operated and that there is the possibility of buying products directly from the factory.
This broad range ensures that the products are readily available to customers and at the same time the company frees itself from its dependency on retail – or at least can reduce this dependency somewhat.
Distribution channel policy: Which factors determine the choice of distribution channel?
How can you decide which sales channel is the right way to go? That depends on a few factors. The focus is on the very basic positioning of the company. In addition, the target group must be brought into focus. For example, ask yourself the following questions:
- Where would my target group look for comparable products?
- How is retail positioned in my industry?
- In what ambience should my products be sold?
- What does my brand stand for?
- How is my company set up internally? Where are our own strengths and weaknesses ?
In principle, various aspects must be carefully examined in order to choose the right sales channels. This applies in particular to:
- Product à Which distribution suits our products? How can it be sold?
- Target group à What can our target group expect? Where can we contact you?
- Own market position à Are we able to set up direct sales? How is our bargaining power with wholesalers and middlemen?
- Competition à How do other providers sell their products and what can we do better?
Conclusion – sales channels
Even the best product can fail in the market if sales or positioning are poor. It is therefore important to build structures that enable the product to be presented to the target group in a suitable form in a suitable environment. This can be done directly or indirectly, with both sales channels having obvious advantages and disadvantages. Alternatively, a multi-channel approach can also be aimed for.
The choice of distribution channels is a very fundamental, strategic decision that cannot be quickly corrected or changed later. That is why it is particularly important to plan your own sales strategy precisely, to consider how, to whom and through which channels you want to sell and subsequently also to adapt other areas of the company such as marketing and support to the selected sales channels.
A holistic approach with a view that goes far beyond the pure sales perspective is therefore absolutely necessary.