Determining the most effective path to bring products to the end consumer is a challenge for any business. This decision involves weighing factors like customer demographics, the buying journey, and the overall business model. The framework a company builds to manage this process from production to final sale significantly impacts its performance and ability to reach its target audience.
What Is Dual Distribution?
Dual distribution is a business strategy where a company uses more than one channel to get its products to the final customer. This approach combines a direct channel, where the company sells straight to consumers, with an indirect channel involving third-party intermediaries like retailers. By using multiple channels simultaneously, a business can broaden its market presence and connect with a wider array of buyers.
A common example is a clothing brand that operates its own e-commerce website and physical stores, representing a direct channel. In this channel, the brand controls the sales process and customer relationship. Simultaneously, the company might supply its apparel to department stores, which is an indirect channel that leverages the retail partners’ customer base.
This hybrid approach allows a company to engage with different market segments that prefer different purchasing methods. For example, some consumers may be loyal to the brand and buy directly, while others discover the product at a multi-brand retailer.
Common Dual Distribution Models
Manufacturer and Retailer
One form of dual distribution involves a manufacturer selling products through its own branded outlets and independent retail partners. The manufacturer maintains control over its own stores, whether physical or a direct-to-consumer website, allowing it to manage the brand experience and pricing. Apple is a prominent example, selling products in its own stores and online while also supplying authorized resellers.
This structure allows manufacturers to capture different market segments. Some customers prefer the immersive brand experience and expert advice found in a company-owned store. Others value the convenience of purchasing from a multi-brand retailer where they can compare products or use existing loyalty programs.
Franchisor and Company-Owned Outlets
Another model is common in franchising, where a parent company sells rights to operate its business to franchisees while also running its own corporate-owned locations. This is practiced by fast-food chains, hotels, and fitness centers. For instance, a coffee chain might have thousands of franchised cafes run by local entrepreneurs, alongside flagship stores in major cities that are managed directly by the corporation.
This approach serves multiple functions. Company-owned outlets act as testing grounds for new products, operational changes, and marketing initiatives before a system-wide rollout. They also provide a baseline for performance and quality standards, ensuring brand consistency. This model allows for rapid expansion through franchising while maintaining direct market involvement.
Online Direct-to-Consumer (D2C) and Wholesaler
A popular model combines an online direct-to-consumer (D2C) channel with wholesale partnerships. A brand builds its own e-commerce platform to sell directly to customers, fostering a direct relationship and gathering data. For example, a shoemaker might operate its own online store while also expanding its presence in retail stores through wholesale agreements.
Simultaneously, the brand sells products in bulk to wholesalers, who then supply a network of smaller retailers the brand could not reach on its own. This model is effective for new brands looking to scale. The D2C site builds brand equity, while the wholesale channel provides broad market penetration.
Key Advantages of a Dual Distribution Strategy
A dual distribution strategy allows businesses to reach a wider audience and penetrate different market segments. By operating through direct and indirect channels, a company can cater to varied consumer preferences. Some customers prefer the convenience of a large retailer, while others seek the specialized experience of buying directly from the brand’s store or website. This expanded reach increases sales and brand visibility.
A direct channel, like a company-owned website or store, provides greater control over brand messaging and pricing. The company can manage the customer experience to align with its brand image. Direct sales also allow a firm to gather firsthand data on customer behavior and preferences to improve products and marketing.
Direct access to the consumer can result in higher profit margins, as the company bypasses intermediaries and retains the full retail price. Having multiple distribution channels also creates redundancy, making the business more resilient to disruptions. For instance, if a retail partner has difficulties, sales can continue through the direct channel.
Potential Disadvantages and Risks
A primary challenge is the potential for channel conflict, which occurs when different channels compete for the same customers. For example, if a manufacturer sells a product on its website for a lower price than its retail partners can offer, it creates direct competition. This can damage relationships with partners, making them reluctant to promote the manufacturer’s products.
Managing multiple channels introduces logistical and operational complexity. A company must coordinate inventory, marketing, and sales across different platforms, which is resource-intensive. Ensuring consistent product availability and pricing across a direct website and retail stores requires sophisticated supply chain management, leading to higher operational costs for training, technology, and management.
Inconsistent customer experiences across channels can risk brand reputation. A customer may have a positive experience on the company’s website but encounter poor service at a third-party retailer. This fragmentation can dilute the brand’s image and lead to dissatisfaction, requiring continuous effort to maintain uniform standards with intermediaries.
Legal and Antitrust Implications
Dual distribution can attract legal scrutiny from regulators concerned about anticompetitive behavior. When a manufacturer sells directly to consumers while also supplying independent distributors, it operates at two different levels of the supply chain. This can blur the line between a vertical (supplier-to-distributor) and a horizontal (competitor-to-competitor) relationship, raising questions under competition laws.
A specific concern is price discrimination, addressed by the Robinson-Patman Act in the United States. The act prohibits a seller from charging different prices to competing customers for similar goods if the effect lessens competition. If a manufacturer offers better prices to its own direct channel than to its independent retail partners, it could face claims of illegal price discrimination.
Regulators may also examine these structures for vertical price-fixing. This occurs if a manufacturer controls the resale price charged by its independent distribution partners. While suggesting a retail price is permissible, an agreement restricting a retailer’s freedom to set prices can be illegal. The dual distribution model complicates this, as the manufacturer is also a competitor, subjecting pricing arrangements to greater legal review.