3.3.6: Place & Distribution Channels
The Margin vs Reach Strategic Trade-off
THE STRATEGIC QUESTION:
Do you sell DIRECT (high margin, low reach), through RETAILERS (medium margin, high reach), or via WHOLESALERS (low margin, maximum reach)? There is no "always correct" answer—it depends on your product, brand positioning, and growth objectives.
Distribution Channel Strategy
Direct
Structure:
Producer → Consumer
Examples:
Farm shop, company website, factory outlet
Advantages:
- • Maximum margin (keep full price)
- • Full brand control
- • Direct customer data
Disadvantages:
- • Limited reach
- • High marketing costs
- • Logistics burden
Via Retailer
Structure:
Producer → Retailer → Consumer
Examples:
Sony → Best Buy → Customer
Advantages:
- • Wide reach (multiple locations)
- • Retailer handles logistics
- • Instant availability
Disadvantages:
- • Lower margin (split with retailer)
- • Less brand control
- • Retailer has pricing power
Via Wholesaler
Structure:
Producer → Wholesaler → Retailer → Consumer
Key Function:
"Breaking bulk" for small retailers
Advantages:
- • Maximum reach (national/global)
- • Fewer transactions for producer
- • Wholesaler holds stock
Disadvantages:
- • Lowest margin (split 3 ways)
- • Minimal brand control
- • Slow to reach customer
Digital Distribution: The Game Changer
Products:
Software, music, movies, banking, education, consulting
Strategic Advantages:
- • Zero transport cost
- • Instant delivery
- • Global reach with no inventory
- • 70-90% margins (vs 30-50% physical)
Example: Spotify pays artists $0.003 per stream but has 500M users globally. Physical CD distribution would require factories, warehouses, trucks, and retail shelf space. Digital platforms eliminated 4 layers of intermediaries.
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