March 18, 2022
The Differences Between Channel and Distribution Partners
This blog post was originally published by Deliverr, which is now Flexport. The content has been adjusted to fit the Flexport brand voice and tone, but all other information remains unchanged. With the merging of Deliverr’s services (DTC fulfillment, B2B distribution, and Last Mile delivery) into Flexport’s existing international freight and technology services, we’re now able to provide merchants with true end-to-end logistics solutions spanning from the factory floor to the customer’s door.
Implementing the right partner strategy can make all the difference to your business. But choosing the right type of partner can be a confusing process, and you want one that makes the most sense for your business size, audience, and particular vertical, as choosing the wrong partner could result in a decline in sales and a decrease in profitability.
Two common terms that often come up in partnership research are “channel partners” and “distribution partners.” Sometimes they’re used interchangeably, but there are a few key differences to be aware of. Read on to learn how to distinguish between the two partner types and how to choose the one for your business.
What is a channel partner?
According to Gartner, a channel partner is a company that partners with another organization to market or sell their services, products, or technologies. This service usually manifests as a co-branding relationship between you and the dedicated channel partner(s). Co-branding uses multiple brand names, and it contributes to an alliance with a unique identity. For example, these co-branded partnerships often have their own logos, brand identifiers, and color schemes.
Co-branding is beneficial because it combines marketing efforts, brand recognition, and the audiences of both organizations in the partnership.
Channel partners may be:
- Distributors: We’ll explain these in the next section.
- Vendors: A supplier selling products.
- Retailers: Similarly, retailers sell their own products.
- Service delivery partners: These partners enhance your product’s value by providing services to fit customers’ unique needs (e.g., pre-sales, consulting, and management of your product).
- Systems integrators (SI): They build computing systems combining hardware, software, networking, and storage products. These channel partners help you break into a lucrative market.
- Technology alliance partners: These partners offer technology that compliments your products.
- Value-added resellers (VARs): They take your product, add profit margin, and deliver it to end-users. VARs can significantly increase your sales by using their existing audience.
Now that you have a better understanding of channel partners, let’s take a look at distribution partners:
What is a distribution partner?
A distribution partner, or “distributor,” is a company or individual that purchases products from you and resells them. The distributor is the “in-between” when it comes to your products and your customers. Distributors often handle the product shipments and work with multiple companies at once.
The benefit of distributors is that they may have more brand awareness than your brand does. If they’re a more well-known name and have a loyal following, they can help shine a light on your products to drive more sales.
Another benefit of distributors is that they often have very specialized markets. They have a specific audience that is interested in their particular products (for example, technology distributors).
Here are some different types of distributors:
- Direct: Distributor sells directly to the consumer.
- Indirect: Distributor uses other channels, sometimes in conjunction with direct methods.
- Exclusive: Distributor limits sales to exclusive audiences (e.g., one specific location).
- Intensive: This distribution method aims to sell in as many sales outlets as possible.
- Selective: A good middle ground between exclusive and intensive. It values selecting certain outlets based on goals.
- Dual: This type of distribution partner combines both direct and selective methods.
- Reverse: This flows from a customer back to a company (in reverse). For example, when companies want old technology to help them produce new technology.
Differences between channel partners and distribution partners
The main difference between the two is that channel partners utilize co-branding and combined marketing, whereas distribution partners do not combine their marketing efforts with yours. They simply sell your products. There is no marketing collaboration between eCommerce retailers and distribution partners.
So while a channel partner can be a distributor as well, a distributor cannot be a channel partner.
Which is the right choice for your business?
There’s no blanket right or wrong answer to this question. When choosing between a channel partner and a distribution partner, it’s going to depend on your specific circumstances and the needs of your business. Keep in mind that just because you decide on one partner for your brand initially doesn’t mean that it has to be a permanent decision. As your business evolves over time, you might end up changing your mind and going in a different direction, and that’s ok. Just choose what’s right for your company at the moment.
Here are some fundamental factors to consider before making a decision:
1. How quickly do you want to scale?
How quickly you want to scale will influence your decision when choosing between a channel partner or a distributor. If you want to scale extremely quickly, choose a channel partner. If scaling isn’t the main goal (or you don’t have the bandwidth to scale quickly), a distribution partner is a better option.
2. Is your goal to optimize sales processes?
If your goal is to optimize sales processes, try a distributor to resell your products. In the meantime, focus on optimizing your sales processes to meet your volume goals. Once you have the right sales processes in place to facilitate enough direct sales, switch to a channel partner.
At this point, channel partners will help you boost the return on your sales investment without scaling your sales team.
Your goals should influence your final decision
When it comes to choosing between a channel partner and a distribution partner, remember to place your specific goals at the center of your decision. There’s no right or wrong answer that applies in every scenario and as your business grows, your goals and needs may change.
Even if you’ve been working with the same type of partner for years, it’s always worth reevaluating from time to time to ensure your partner really is the best fit. Transitioning partners isn’t simple, but it may very well be worth it in terms of helping you meet your business goals.
The contents of this blog are made available for informational purposes only and should not be relied upon for any legal, business, or financial decisions. We do not guarantee, represent, or warrant the accuracy or reliability of any of the contents of this blog because they are based on Flexport’s current beliefs, expectations, and assumptions, about which there can be no assurance due to various anticipated and unanticipated events that may occur. This blog has been prepared to the best of Flexport’s knowledge and research; however, the information presented in this blog herein may not reflect the most current regulatory or industry developments. Neither Flexport nor its advisors or affiliates shall be liable for any losses that arise in any way due to the reliance on the contents contained in this blog.