How Product Distribution Works

In order to understand the workings of product distribution, you need to examine the products supply chain. I will focus on consumer products here as some of those facts might not apply to other business to business transactions such as industrial and intermediary goods.

The first link in the supply chain is the product manufacturer. The factory that makes a product is the starting point of the distribution process. Manufacturers utilize different distribution strategies to deliver their products to the market. On one end some manufacturers with exclusive products might give distribution rights to a select group of distributors or dealers. This is usually true for brand name products.

Other manufacturers are more open about who distributes their products. This is a better strategy for generic products, where market saturation is not an issue. Most of those manufacturers will deal with any qualified distributor or wholesaler to get as much market share as they can.

The second link in the supply chain is the distributor or wholesaler. In many cases, a product goes through many distributors before it reaches the consumer. Hence, some of the subsequent links might be just another wholesaler who bought the merchandise from a distribitor above him in the chain.

The last link in this chain before the consumer is the retailer. Usually a retailer will buy his merchandise at bulk from a wholesaler, and adds his markup to the price, and that becomes the retail price for the product.

This is the basic facts about how product distribution works, and if you understand this process well, you will realize that the higher you are in this chain as a retailer the bigger profit margin you will have to work with. The only problem in moving higher the chain for a retailer, especially newer ones, is the fact that in order to deal with a higher level distributor you will have to invest some serious cash in inventory. This is just the nature of the business.

So, as they say, 'Make money when you buy'. As a successful retailer you should do your homework and try to get as close as you can to the source of the product, which is the manufacturer. And if your capital won't allow you to do that, then go for the second best. I recommend going to trade shows and subscribing to trade magazines to find sources for the products you are looking for.

Good luck with your business ventures, and don't forget to speak your mind or ask any questions

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