Sales Channels

What is a sales channel?

A sales channel is how a seller goes to the market through direct or indirect routes. The end goal is to sell the product or solution to an end buyer. Sales channels could include a manufacturer, distributor, supplier, and retailer. 

Shorter sales channels have fewer intermediaries involved in the delivery process, meaning there is a lesser chance that the end consumer will get the product at a higher-than-cost price. That said, it also raises the risk that the items won’t be delivered or sold as promised. Hence, some merchants choose a longer sales channel where they sacrifice some of the profit for less responsibility and risk for each business involved.

How do sales channels work?

The role of a sales channel involves many functions which are handled by one or many intermediaries. The goal is to maximize efficiency in the selling process. People involved in a sales channel handle communication, sales strategy, transportation, and customer expectations to make each delivery a success. Building an efficient process from factory to customer can significantly change how people view your brand.

A retailer typically creates a sales channel strategy. This is to help them source the product they want to sell at a reduced cost, make a profit on sales, and ensure the product reaches the customer in the shortest time.

A business can have more than one sales channel. But they need to be handled well to be effective for their business. This is where building and nurturing relationships with the intermediaries involved in the sales process becomes key. Meanwhile, the seller should find ways to enhance efficiencies in the delivery chain.

Four types of sales channels

There are multiple ways a business can get its products in front of its customers. The most commonly used sales channels are: 

1. Retail
2. Wholesale 
3. Direct-to-consumer (DTC)
4. Business-to-consumer (B2B)

Let’s look at the pros and cons of each and how to decide which channel is best suited to your retail operation.

Retail

Retail is when a business sells products directly to the end customer for profit. Retail sales can be in-store, online, or via phone. Retail shops have been around for years, but online platforms like Shopify have transformed this sales channel more than ever. Some key benefits of retail are:

• You control the process of reaching and selling to your customers
• You learn more and more about your end customers
• You are able to build healthy customer relationships
• You make a higher profit margin than wholesalers
• You can create a brand identity by being the owner of your products

As a retailer, you must be aware of the cons of this sales channel as well.

• You need a hefty marketing budget and constant innovation to receive higher footfall in the store or more traffic on the website
• Retail customers hold higher expectations compared to wholesale customers.
• If you fail to meet the demand customer demand, there could be a backlash
• You’re responsible for customer service

Wholesale

Wholesale is when a brand, reseller, or manufacturer sells their product in bulk to outlets or retailers for sale, who sell it to the end customer.

As you sell in bulk, you will sell the product for a lower unit price. Wholesalers can also be the producers of a product. Moreover, you can also be the wholesaler and retailer at the same time. The benefits of selling through the wholesale channel are:

• You increase the brand awareness for your product
• You can look into dropshipping
• You can build a platform that can grow faster and expand globally.

With the benefits come some drawbacks as well, which are mentioned below:

• It is not easy to maintain a brand identity for your products as they go to many retailers
• You need a lot of capital upfront and a large warehouse to store the products and keep them safe

Direct-to-consumer (DTC)

Direct-to-consumer (DTC) is when either a brand or a manufacturer sells directly to the end consumer and not through retailers. This is a very recent entry into the sales channel mix because it’s a result of noticing buyer behavior. 

Renowned brands are at the forefront of this sales channel. These brands use strategies like social media selling to make direct sales. Key examples of some DTC brands are Nike, Levi’s, and L’Oreal. The benefits of having DTC are:

• You control the entire brand experience
• You get deep insights into the end-users of your products
• You can increase your profit margins

Cons of DTC are:

• Not easy to adapt to the need for faster fulfillment, which can result in troubles
• Managing the entire end-to-end experience is difficult and cannot keep customers happy all the time
• You can upset your retail partners if anything is not handled correctly

Business-to-business (B2B)

Businesses selling to other businesses as their end-users make up the B2B sales channel. B2B is often listed with the wholesale channel, but there is a slight difference. Wholesalers sell to retailers (a business entity), but B2B sells to businesses as the targeted end-user. Some good examples of this channel are tire manufacturers selling to a dealership or coffee machine makers selling to a company. Benefits of B2B are listed below:

• You can establish strong relationships with your clients and build a loyal customer base
• Higher profit points for your products compared to retailers or wholesalers
• You can sell to a niche market and become an expert in your field

Some disadvantages of the B2B channel are:

• The market opportunities are limited or hard to find
• The purchase lead times for B2B are long and tedious

How to choose a sales channel

A sales channel can make or break your sales strategy. Here are some questions you should ask yourself when going for a sales channel: 

1. Do your intermediaries enjoy a reputation or credibility in the market of your choice? Are they approachable, well-known, and good at what they do?
2. Does the sales channel align with your position strategy in the market?
3. Is your Return on Investment (ROI) sustainable? Ask the third party about their margins.
4. How is the shipping process? What delays can be expected? Accept a natural process before locking things.
5. Is your brand image unharmed by every transaction?

Focusing on your business’s value proposition, brand image, corporate social responsibility, and budgets will give you a clear idea about the sales channel most relevant to you. You can always try and innovate as you learn more about the customer and grow.  

Conclusion

Sales channels keep a business up and thriving. While there are pros and cons to the channels from the perspective of different intermediaries, the critical thing is to ensure that deliveries happen smoothly and customer experience is at the forefront of the whole process.