Distribution Systems: Indirect and Multichannel (Hybrid)

Indirect Distribution System

With an indirect distribution system, the marketer reaches the intended final user with the help of others. These resellers usually take ownership of the product, though in some cases they may sell products on a consignment basis (i.e., only pay the supplying company if the product is sold). Under this system, intermediaries may be expected to assume many responsibilities to help sell the product. Indirect methods include:

  • Single-Party Selling System – Under this system, the marketer engages another party who sells and distributes directly to the final customer. This is most likely to occur when the product is sold through large store-based retail chains or through online retailers.
  • Multiple-Party Selling System – This indirect distribution system has the product passing through two or more distributors before reaching the final customer. The most likely scenario is when a wholesaler purchases from the manufacturer and sells the product to retailers.

Multichannel or Hybrid System

In cases where a marketer utilizes more than one distribution design, the marketer is following a multichannel or hybrid distribution system. Starbucks follows this approach as its distribution design not only includes using a direct retail system by selling their products in company-owned stores, they also utilize several other distribution systems, including a single-party selling system by selling through grocery stores and a direct marketing system as they sell product via an online store.

By using a multichannel approach, a marketer can expands distribution and reach a wider market, however, as we discussed under Channel Relationships, the marketer must be careful with this approach due to the potential for channel conflict.