Meaning
Channel structures define the path products take from the manufacturer to the point of sale. A distribution tier represents a specific layer of intermediaries, such as wholesalers or regional agents, who possess defined rights to sell in a territory. This arrangement dictates the pricing levels and service duties expected at each stage of the supply chain.
Supply Level
Contractual agreements set the percentage of profit allowed for each participant within the hierarchy. The distribution tier determines the discount off the suggested retail price that a partner receives in exchange for holding inventory. Higher levels in the chain often receive larger margins because they take on the risk of bulk purchasing and storage.
Margin Structure
Exclusivity clauses often bind a partner to a specific geographic area to prevent competition between different layers of the network. If a distribution tier becomes too crowded with resellers, the resulting price wars can damage the reputation of the brand. Manufacturers manage these layers to ensure that support and repair services are available to every customer.
Channel Authority
Eligibility for a specific rank depends on the volume of annual purchases and the ability to maintain a certified warehouse. Every distribution tier requires a separate agreement to clarify the transfer of legal title for the goods.