Channels in the Business Model Canvas For Distribution
Published: 26 December, 2023
Table of Contents
We may have the greatest product or service in the history of humankind, but without the necessary sales channels to make customers aware of our business and deliver value, we are doomed to failure. Reaching potential customers is a lynchpin for every company’s success, and in Digital Leadership’s terms, efforts to reach customers should encompass some of every company’s key resources.
The importance of customer acquisition is reflected in the Business Model Canvas, and a significant element of innovation is sorting out the best channels to use for newly developed value propositions. Distribution channels play a key role in innovation. Using them well, and making opportunities where you can, are some of a business’s key activities. In this article, we unpack some of the ideas behind the channels section of the canvas, what it means to your overall business model, and how changes to distribution channels impact new and previously developed products and services.
To enhance the efficiency of your overall strategy, “The UNITE eXtended Business Model Canvas” proves to be an invaluable asset. It empowers you to identify pivotal partners, meticulously assess your cost structure, and elevate the value proposition your distribution channels extend, thereby propelling your enterprise to the forefront of success. You can download “The UNITE eXtended Business Model Canvas” now.
What are Distribution Channels in Business Model Canvas?
The innovation process is simple at its core: you start with one Business Model component and cover all of its available alternatives. With every iteration of this one component, you reassess whether you have made progress. For example, you could consider using the same Business Model but selling through a different distribution channel. With every iteration of this one component, you reassess whether you have made progress by testing with external and internal customers and gaining quantitative validation before moving forward. Do not forget to then think about how changing this element of the Business Model Canvas affects the other elements. This will require iterations of those as well. A change in one area can often create a ripple effect on other areas, so consider the effects of changes carefully.
In the UNITE Business Model Canvas, Distribution Channels appear as part of the Experience Model. There, they create value through the way of delivery. Because they represent how a company communicates and builds customer relationships, they are directly connected to your Operating Model section of the canvas.
The channels act as the essential points of contact that facilitate a business in conveying its capabilities and value propositions to both potential and existing customer segments. They serve as the means through which the company interacts with the market, facilitates sales, and shapes the overall customer experience.
In the context of the Business Model Canvas, Distribution Channels play a vital role in the success of a business as they determine how products or services are delivered to customers. At Digital Leadership, our specialized Business Model Strategy and Marketing Strategy Consulting services ensure that the chosen channels effectively reach the target market. Through evaluating competitors’ distribution strategies and identifying innovative approaches, businesses can gain a competitive edge in the market with the integration of our innovation blueprint.
Channels of distribution
Distribution channels play a pivotal role in how an organization interacts with its pre-identified customer segments and delivers its value propositions. They form the backbone of the customer experience, as they determine how products or services reach their intended audience.
The range of distribution channels has expanded significantly from the traditional brick-and-mortar stores of the past. With the advent of the internet and e-commerce, businesses now have a wealth of promising options to engage with customers. These channels can vary greatly, and different strategies may be employed for distinct customer segments.
The evolving landscape of distribution channels has also opened up new avenues for innovation. Companies can explore creative approaches to engage customers, such as direct-to-consumer (D2C) models, subscription services, and influencer marketing, to name a few.
Types of Distribution Channels With Examples
(1) Direct Distribution Channels
In a direct distribution strategy also called owned distribution channels, companies skip traditional retail channels and connect directly with customers. Usually, products and services are sold through a producer’s website or their own retail store. For instance, customers who walk into a bakery and purchase a cake made in-house are using a direct channel. Another example is Amazon, which manufactures the Kindle and sells it directly through its own e-commerce platform.
Direct Distribution Channel Examples
- Direct Selling: In direct selling, the manufacturer directly sells products to consumers through its own sales team or website. This model is also known as Direct-to-Consumer (D2C) selling. It offers personalized demonstrations, and home delivery, and fosters strong customer relationships, ensuring attractive profit margins. However, it may be challenging for large organizations as it can limit their reach without incurring high costs.
- Internet Sales: Internet sales provide an alternative to direct selling, offering a low-cost way to reach a wide customer base. It shares conveniences with personal selling, including immediate access, ease of use, and customization. Additionally, it allows 24/7 availability and facilitates consumer feedback. Nonetheless, the lack of human contact in this impersonal channel can affect after-sales service, reducing customer loyalty and bonding.
- Telephone Sales: Using the telephone is a cost-effective method to directly engage with customers, particularly in remote areas. However, telemarketing has earned a reputation for being intrusive and disturbing to customers, impacting its effectiveness as a distribution channel.
- Traditional and Electronic Mail: Traditional and electronic mail offer inexpensive and easily customizable ways to reach different customer segments. They create brand awareness and communicate innovations and updates. However, customers often delete emails or discard printed materials without examining their content, resulting in a relatively low Return on Investment (ROI).
Life Examples for Direct Distribution Channel:
Dell: Dell, a renowned computer manufacturer, adopts a direct distribution strategy by selling its products directly to customers through its website. This approach enables Dell to offer a wide range of customizable options and competitive prices while fostering a direct and personalized relationship with its customers.
Tesla: Tesla, the pioneering electric vehicle manufacturer, employs a direct distribution model by selling its cars through company-owned stores and its website. By doing so, Tesla maintains complete control over the customer experience, providing a personalized and seamless buying process that aligns with their brand vision.
Customers who walk into a bakery: Customers who visit a bakery and purchase a cake made in-house are experiencing a direct channel of distribution.
Amazon: Similarly, Amazon manufactures the Kindle and sells it directly through its own e-commerce platform, showcasing the effectiveness of direct distribution in various industries.
(2) Indirect Distribution Channels
In a direct distribution strategy, also known as owned distribution channels, companies bypass traditional retail channels and establish direct connections with customers. Typically, products and services are sold through the producer’s website or their own retail store. For example, customers who visit a bakery and purchase a cake made in-house are utilizing a direct distribution channel. Another prominent example is Amazon, which manufactures the Kindle and sells it directly through its own e-commerce platform. In this way, direct distribution enables businesses to have more control over their sales process and customer interactions.
Indirect Distribution Channel Examples
- Retailers: Retailers operate established infrastructures, such as physical stores or online platforms, with strong marketing strategies to reinforce brand visibility. They offer customer support and after-sales services. However, partnering with retailers may involve lower profit margins and loss of control over the customer relationship.
- Representatives: Agents, brokers, and representatives establish personal connections with customers and have extensive networks to promote products. They are cost-effective and responsible for product dissemination. Yet, representatives may sell competing brands, affecting brand image and customer relations, and can be sensitive to price changes.
- Distributors: Distributors have a broad customer base and assume the risk associated with inventory. They are technically trained and can expand product reach. However, working with distributors may involve competition between brands, influence on the final product price, and a lack of control over customer relationships.
Life Examples for Direct Distribution Channel:
Procter & Gamble (P&G): a renowned consumer goods company, effectively reaches its broad customer base through an indirect distribution strategy. Offering a diverse range of products, such as shampoo and detergent, P&G ensures convenient accessibility to consumers through various retail channels like supermarkets and pharmacies.
Nike: a globally acclaimed sportswear brand, successfully distributes its products via an extensive network of retailers. With athletic footwear and apparel readily available to customers through a diverse array of outlets, including sporting goods stores, department stores, and online retail platforms, Nike maximizes its market reach.
Sony: a leading electronics manufacturer, also employs an indirect distribution strategy. Through a wide range of authorized dealers, online retailers, and electronics stores, Sony ensures easy access to its product range, featuring televisions, cameras, and audio devices.
(3) Hybrid Distribution Channels
Hybrid distribution channels use methods from both direct and indirect models. Manufacturers have relationships with a sales force or distributors, but also sell directly to customers themselves. A prime example of a company following the hybrid model is Apple. Customers can purchase Apple products either directly from their stores or through third-party retailers. Moreover, many multi-level marketing companies employ hybrid distribution channels to reach a broader audience and leverage both direct selling and indirect reselling approaches.
Hybrid Distribution Channel Examples
Microsoft: It employs a hybrid distribution model, effectively combining two key approaches to reach its customers. They engage in direct sales through their website and physical stores, providing consumers with the opportunity to purchase software products directly from Microsoft. Additionally, they establish partnerships with various third-party retailers who offer Microsoft products, such as computers pre-installed with Windows operating systems. This strategic approach allows Microsoft to cater to a broader customer base and ensures the widespread availability of its software solutions.
Coca-Cola: Similarly, It adopts a hybrid distribution approach to optimize the distribution of its beverages. They directly sell their products to retailers, forging direct relationships to ensure seamless supply to various outlets. Additionally, Coca-Cola collaborates with distributors, allowing their products to be efficiently distributed and readily available in stores, restaurants, and vending machines worldwide. By adopting this comprehensive strategy, Coca-Cola enhances its market presence and accessibility, making its beverages easily accessible to consumers globally.
Importance of Distribution channels
In the context of the Business Model Canvas, distribution channels are an essential element that directly influences how businesses interact with their customer segments. These channels serve as the conduits through which products and services are delivered to customers. They play a pivotal role in connecting companies with their target audience and facilitating the exchange of value propositions. Let’s delve into the significance of distribution channels through the following points:
- Connection with Customers: Distribution channels are crucial for the success of any business as they connect the company with its customers and serve as the means through which customers gain awareness and knowledge about the products and services offered.
- Delivering Value Proposition: These channels play a significant role in delivering the company’s value proposition effectively, ensuring that customers understand the unique benefits and advantages of choosing their offerings.
- Facilitating Evaluation: Distribution channels facilitate the evaluation process for customers, enabling them to access information, compare products, and make informed decisions about their purchases. This evaluation phase is essential for building trust and confidence in the brand.
- Post-Purchase Support: Beyond the initial purchase phase, distribution channels continue to be important as they help customers acquire specific products and services conveniently, contributing to customer satisfaction and brand loyalty.
- After-Sales Service: Distribution channels are instrumental in providing post-purchase support and assistance, addressing customer inquiries, handling returns or exchanges, and ensuring overall customer satisfaction. A robust after-sales service strengthens customer relationships and encourages repeat business.
- Adaptation and Competitiveness: The effective management and continuous adaptation of distribution channels to meet evolving customer needs are essential for staying competitive and thriving in today’s dynamic business environment.
- Seamless Customer Experience: Well-organized distribution channels contribute to a seamless customer experience, ultimately leading to increased customer retention and positive word-of-mouth referrals.
- Alignment with Business Objectives: Distribution channels should align with the company’s marketing and business objectives to maximize their effectiveness in reaching and engaging with customers.
- Monitoring and Analysis: Companies should continuously monitor and analyze the performance of their distribution channels to identify areas for improvement and ensure optimal customer experiences.
To attain a comprehensive understanding of your enterprise’s distribution channels and delve deeper into the intricacies of the Business Model Canvas (BMC), we invite you to download our comprehensive book, How to Create Innovation. Through this insightful guide, you will gain in-depth knowledge and practical insights that will enable you to optimize your distribution strategies and propel your business toward sustained success. Don’t miss out on the opportunity to equip yourself with the knowledge and tools necessary for achieving unparalleled growth and prosperity.
Distribution Channels Phases
There are several phases through which a distribution channel passes as it is utilized by a company, and often, it can be present in more than one phase simultaneously. These distribution channel stages play a pivotal role in ensuring a successful product journey, from production to the hands of satisfied customers. Effective management of each phase is essential to deliver a seamless and delightful customer experience, fostering long-lasting relationships with buyers. It is important to note that distribution channel phases are not strictly linear, and there may be instances where repeating phases proves beneficial for the overall process.
|Through advertising and marketing, build customer awareness of your services and products. Communication channels must be established so our message reaches potential customers.
|The customer decides if your value proposition meets their needs, compared to other options currently on the market. When all information is taken into account, customers decide which value propositions make the most sense for them.
|The customer takes the plunge. This phase should be as frictionless as possible. Ease of access is an important contributing factor to customer satisfaction.
|The customer receives our services and products. In the event of self-service or automated service value propositions, we must ensure that directions are clear. Ensure your business models have properly invested in this portion of the customer journey.
|Providing the proper care after the purchase helps in customer retention. Customers whose needs are met become advocates for our work and are more likely to make repeat purchases. Use the post-purchase phase as an opportunity to continue cultivating positive emotions for you and your products.
Selecting Your Distribution Channels in the Business Model Canvas
The effective delivery of your value proposition is intricately tied to your constant relationship with your customer segment. Different customer segments have distinct expectations for how they want to receive products or services, underscoring the importance of consistently re-evaluating the customer journey and overall experience you provide.
The decisions surrounding how to deliver to customers, whether through physical channels, virtual channels, direct methods, indirect approaches, hybrid models, and more, are influenced by a multitude of factors. Each approach presents its own set of challenges and opportunities, contingent on the unique requirements of your company and the preferences of your customers. Therefore, it is essential to carefully consider these factors when devising your delivery strategy to best meet your customer’s needs and expectations. Regularly reassessing and adapting your delivery methods will enable your business to stay responsive to changing market dynamics and maintain a competitive edge.
1- Customer Segments and Market Size
Customer Segments are likely the best places to concentrate your efforts in exploring future innovations. Remember, however, that it is not necessarily the biggest gap that will be the easiest or best fit for your company, as we will discuss next. You may also uncover different clusters of opportunities fit for different customer segments. Make sure to group gaps into logical categories before you move to the next step.
Use what you know about your customers to drive your decisions about various channels. If you’re a new business, developing strong customer relationships will play a critical role in your success going forward. Don’t offer your products and services in the way you think is right; meet your customers where they are.
2- Investment Required in each of the Distribution Channels
At a basic level, the key resources you have available will drive the decisions you make about the channel and market you choose to target.
Some channel types require minimal investment: a website or YouTube channel that funnels customers into an online store wouldn’t cost much, and depending on your expertise might only require an investment of your time. Knowledge of search engine optimization is a must if you’re focused on online distribution.
A direct sales force can work on commission. Most of us know someone or have been someone, who worked solely on commission. This can create lower margins on the profit side of things, but an informed and dedicated sales staff can go a long way to raise awareness of your product and develop a strong relationship between you and your customers. We at Digital Leadership believe in treating salespeople well; make sure your expectations for your direct sales force are reasonable and their compensation appropriate.
Trade shows can be expensive propositions, and aren’t appropriate for a company on a shoestring budget. On the other hand, there may be no other opportunity to reach so many high-value potential customers at once. In the event of a small budget, you’ll need to decide if attendance at one of your industry’s trade shows is the one channel worth such a highly proportional investment.
3- Product or Service Characteristics
Some forms of business just don’t translate to every form of distribution. You can’t give someone’s car an oil change over email (though you can give directions if that’s your value proposition).
As you work on your business model canvas channels portions, give significant thought to the service you offer. There may be an opportunity to reach customers and conduct business without being in the same space until the very last minute when the service is actually delivered.
4- Control Over Distribution Channels
As many businesses learned during the COVID-19 pandemic, we can’t control everything. Perhaps that’s inspiring companies worldwide to attempt to exert more control over what they can, including the channels we use to reach customers.
5- Competitive Advantage
And thinking about competitive advantage further, some distribution channels are more beneficial than others depending on the specific goods and services being offered by your company.
Where will you find a competitive advantage? Again, it will depend on the specific value proposition you’re offering customers. Most importantly, be aware and watch for opportunities to distinguish yourself from competing enterprises.
The Importance of Distribution Channels Building Block of the Business Model Canva
The Business Model Canvas is a valuable tool in understanding and visualizing the various components of a business model. It allows businesses to identify key elements, such as customer segments, value propositions, distribution channels, and revenue streams, in a structured and coherent manner. By using the Business Model Canvas, organizations can gain insights into their current business model, assess the potential impact of changes in the distribution channel, and develop a comprehensive strategy for successful transformation. You can download it now.
A change in the distribution channel of a business can have significant and far-reaching effects on the current Business Model. This change will not only impact the specific component being transformed but also affect the overall system. It requires careful iteration and testing of the entire business model to ensure all parts realign and work together seamlessly.
The challenge in a (digital) transformation. lies in correctly configuring the step change in the distribution channel. Failing to understand the implications of systemic changes and not properly aligning the required adjustments across the entire business system can lead to the failure of the transformation process.
It’s essential for organizations to recognize that their current business model has been optimized and aligned over time, and rethinking it will take considerable effort and time. Successfully navigating a step-change transformation involves comprehending the interconnectedness of all components and ensuring a coherent and well-aligned system.
Mastering the distribution channels building block is pivotal for business success, enabling organizations to reach their target markets, deliver value to customers, and stay ahead in an ever-evolving business environment. By embracing a customer-centric approach and continuously refining distribution strategies, businesses can position themselves for growth, customer loyalty, and sustainable success.
Frequently Asked Questions
1. What Is the Difference Between Direct and Indirect Distribution Channels?
Direct distribution channels involve selling products or services directly to customers without intermediaries, such as through a company’s website or retail stores. In contrast, indirect distribution channels use intermediaries like retailers, wholesalers, or distributors to deliver products to end consumers.
2. What are the Three Methods for Distribution Channels?
The three methods for distribution channels are:
- Direct Selling: Selling products or services directly to consumers through the company’s sales team or website.
- Indirect Selling: Utilizing intermediaries like wholesalers, retailers, or distributors to reach end customers.
- Hybrid Approach: Combining both direct and indirect distribution methods to leverage their respective benefits.
3. How Do Distribution Channels Impact Your Marketing using BMC?
In the Business Model Canvas (BMC), distribution channels significantly influence marketing efforts. The choice of channels determines how the company’s value propositions reach customers. A well-structured distribution strategy can enhance market reach, customer experience, and overall business success.
4. What Considerations Should I Keep in Mind When Developing a Distribution Strategy?
When developing a distribution strategy, consider factors such as:
- Target Customer Segments: Identify the preferences and behaviors of your target customers.
- Product Characteristics: Evaluate how your product or service can best be delivered to meet customer needs.
- Control Over Channels: Assess the level of control and influence you desire over the distribution process.
- Competitive Advantage: Determine how your distribution channels can differentiate your business from competitors.
5. How Can I Ensure My Distribution Channels Work Effectively for My Business?
To get the most out of your distribution channels:
- Regularly Evaluate Performance: Monitor the effectiveness of each channel in reaching the target audience and delivering value.
- Optimize Customer Experience: Ensure seamless and satisfying interactions with customers at every touchpoint.
- Stay Agile and Adaptable: Continuously assess market trends and customer preferences, adapting the channels as needed.
6. How Have Distribution Channels Evolved in the Digital Era?
In the digital era, distribution channels have expanded significantly with the rise of e-commerce, social media, and online platforms. Businesses now have access to global markets and can reach customers more efficiently through virtual channels.
7. Why Is Placement Important in a Distribution Channel?
Placement in a distribution channel refers to how and where products are available to customers. Strategic placement ensures products are accessible and visible to the target audience, influencing purchasing decisions and creating convenience for customers.
8. What are the 4 channels of distribution business?
The four main channels of distribution in business are:
- Direct Selling: In this channel, the company sells its products or services directly to customers without involving intermediaries. Examples include selling through the company’s website, retail stores owned by the company, or direct sales representatives.
- Indirect Selling: This channel involves using intermediaries to reach customers. Intermediaries may include wholesalers, retailers, distributors, agents, or brokers who facilitate the distribution process and deliver products to the end consumers.
- Hybrid Approach: Some businesses use a combination of both direct and indirect channels, known as a hybrid approach. They may have their own retail stores or website for direct sales while also collaborating with wholesalers or retailers for wider market reach.
- Online Distribution: With the advent of the internet, online distribution has become a prominent channel. Companies sell their products and services through e-commerce platforms, digital marketplaces, and online retailers to reach a global customer base.
9. What is distribution channel strategy?
Distribution channel strategy is a plan to deliver products or services to customers effectively and efficiently. Key components include:
- Channel selection: Choosing the best distribution channels (direct or indirect).
- Channel partnerships: Establishing relationships with intermediaries like wholesalers or retailers.
- Geographic coverage: Deciding where to distribute products to meet customer demand.
- Inventory management: Ensuring products are available without excessive stock.
- Pricing and margins: Setting profitable pricing strategies for both manufacturer and intermediaries.
- Customer service: Providing excellent service to enhance customer satisfaction.
- Integration with marketing and sales: Aligning the strategy with overall marketing efforts.