What Is an Ecommerce Distribution Channel?

E-commerce distribution channels are paths through which goods and services flow from producers to consumers. 

The primary purpose of a distribution channel is to make goods and services available to consumers most efficiently and effectively as possible. Your chances of getting a 5-star customer reviews increase as your distribution improves.

For example, suppose a manufacturer produces different types of chocolate products but doesn’t sell them directly to customers. In that case, he can work with distributors to get his product to the final customers. In this case, distributors can either be wholesalers, retailers, or both. 

You might’ve seen people unloading goods at your local grocery store someday but never thought much of it, but that’s distribution in action.

Components of a Successful E-commerce Distribution Channel

  1. Logistics and Fulfillment

Efficient logistics and fulfillment are the backbone of a successful e-commerce distribution channel. This includes using automated warehouses to manage inventory in real time and employing advanced fulfillment strategies like same-day or next-day delivery.

Streamlining these processes can reduce operational costs and improve delivery speed, enhancing customer satisfaction. Also, the supply chain must be well-coordinated to ensure timely deliveries of products directly to customers.

  1. Technology Integration

Leveraging technology is crucial for optimizing e-commerce operations. Implementing robust e-commerce platforms, order management systems (OMS), and customer relationship management (CRM) tools can streamline order processing, inventory management, and customer interactions.

For example, an OMS can automatically update inventory levels across all sales channels, preventing overselling and ensuring accurate stock availability.

Technology helps manage multiple distribution channels efficiently, enhancing overall productivity.

  1. Service Quality

High service quality is vital for customer retention in e-commerce. This involves ensuring prompt order processing, accurate and timely deliveries, and responsive customer support. Providing real-time order tracking, clear communication regarding order status, and a hassle-free returns process can significantly enhance the customer experience.

  1. Strategic Partnerships

Building strong relationships with third-party logistics (3PL) providers and other e-commerce service partners can enhance distribution efficiency. These partners can offer specialized services such as expedited shipping, international logistics, and warehousing solutions, allowing businesses to focus on their core competencies while ensuring efficient product delivery.

  1. Flexibility and Scalability

You should know that utilizing a direct distribution channel can provide better control and flexibility in meeting customer demands.

Also, adapting to changing market conditions and scale operations is essential for e-commerce success. This includes handling demand fluctuations during holiday seasons or promotional events without compromising service quality.

Investing in scalable e-commerce infrastructure, such as cloud-based systems, can help businesses expand their operations seamlessly.

How to Build an Effective E-commerce Distribution Channel

  1. Define Your E-commerce Strategy

Start by clearly defining your distribution strategy. Decide whether to use direct channels, like selling through your own website, or indirect channels, such as online marketplaces and dropshipping.

Align your strategy with your business goals and target market to ensure it meets their needs and expectations. This decision will affect your marketing strategies and overall operational approach.

  1. Select the Right E-commerce Partners

Choose reliable partners, including e-commerce platforms, payment gateways, and logistics providers. Evaluate them based on their reliability, service quality, and compatibility with your business model.

Strong partnerships can provide better terms, faster deliveries, and access to additional resources. Partners should support both direct and indirect distribution channels.

  1. Invest in E-commerce Technology

Implement advanced e-commerce technologies to streamline your distribution processes. This includes robust e-commerce platforms for managing your online store, OMS for efficient order processing, and CRM tools for maintaining customer relationships.

Technology integration can improve efficiency, reduce errors, and enhance customer satisfaction.

  1. Optimize E-commerce Inventory Management

Efficient inventory management is crucial for preventing stockouts and overstocking. Use data analytics to forecast demand accurately and maintain optimal stock levels.

Automated inventory systems can update stock levels in real time, ensuring accurate availability across all sales channels. This optimization helps manage the supply chain more effectively.

  1. Enhance Customer Service

Providing exceptional customer service is key to building customer loyalty. Ensure clear communication, easy returns, and quick resolution of issues. Offering multiple customer service channels, such as live chat, email, and phone support, can cater to different customer preferences and improve overall satisfaction.

  1. Monitor and Improve

Continuously monitor the performance of your distribution channel using key performance indicators (KPIs) like order accuracy, delivery times, and customer feedback.

Identify areas for improvement and implement necessary changes to enhance efficiency and customer satisfaction. Regular evaluation helps refine both direct and indirect distribution channels.

What Are The Two Methods Commonly Used to Distribute E-commerce Purchases to Customers

There are two main ecommerce distribution channels: direct and indirect. 

Direct distribution channels involve selling products directly to consumers through brick-and-mortar stores or online via a website designed by a professional web design company.

Indirect distribution channels involve selling products to intermediaries, such as wholesalers or retailers, who then sell the products to consumers.

Direct vs. indirect marketing channel

These two ecommerce distribution channels have their advantages and disadvantages, and companies must carefully choose the best channel for their products.

So, what are the advantages and disadvantages of each ecommerce distribution channel? Let’s take a look at that now.

Advantages Of Direct Ecommerce Distribution Channels

  • Avoid Sharing Profits

One of the most significant advantages of direct channels is that you don’t have to give a dime to anyone.

Because you’re not relying on intermediaries, you get to keep 100% of the profit you get directly from your customers.

That’s why we see more and more companies encouraging customers to buy from them directly, not through intermediaries.

But direct channels have their disadvantages also, and they can be pretty major for some companies.

  • Have Total Control Over Your Products

Some companies don’t want to sell to everyone; selling directly to your customers gives you control over where your products are sold.

You control who buys your products and from where precisely because you control the whole sales process from A to Z.

Companies like Rolex, for example, never sell their products through a 3rd party. They choose where they sell their products to always be associated with luxury.

  • Build Relationships with your customers.

Delivering directly to your customers can give you a highly competitive advantage: building a relationship with your customers.

If your customers know you and your brand and always buy from you directly, they’re more likely to be loyal to you.

Disadvantages Of Direct Ecommerce Distribution Channels

  • It costs more to sell your products

Companies that use direct distribution channels must build up their sales and marketing teams to reach their customers.

Not having a partner handling sales and marketing could be challenging and sometimes not doable from a financial point of view.

If you look at Cocacola for an example of a giant multinational corporation, you’ll find them selling their products through intermediaries.

Although Cocacola has the sales and marketing team infrastructure, they know it makes financial sense to distribute directly and indirectly, or as you might call it, hybrid.

Advantages Of Indirect E-commerce Distribution Channels

  • Cost efficiency 

Unsurprisingly, cost efficiency would be the first advantage in indirect selling. That’s why a lot of companies resort to it.

You don’t have to build your marketing or sales teams to sell your product because wholesalers and retailers will do that for you.

If you have the option to get someone else to run marketing and sales for your product without your paying them anything, wouldn’t you sell to them?

  • Tap into existing customers’ databases

This is one of the most significant advantages when selling your products indirectly because you eliminate the need to build a customer base from the ground up.

Wholesalers and retailers have spent years, if not decades building up their brands and stores, they’re located everywhere, and people buy from them regularly.

They generate profits in the billions of dollars and invest them in marketing themselves even more.

So, when you have the opportunity to sell your products through a retailer that has millions of visitors each day, why wouldn’t you?

  • Sell your products faster

While delivering to your customers is an excellent way to build a relationship, it certainly won’t be the fastest way to get to them.

Selling your products through a distribution channel like a wholesaler or a retailer will speed up the selling of your products to your customers.

Because a customer would be able to go in, grab your product, and get out faster than you can ever deliver it to them.

Some consumer goods, like consumables, rely on being sold as fast as possible.

Disadvantages Of Indirect Ecommerce Distribution Channels

  • Costs more

One of the main issues with indirect distribution channels has to be the inevitable increase in operations costs.

When you sell through a retailer or a wholesaler, you have to share a percentage of your overall revenue per product with the retailer or wholesaler.

And while that might not be an issue for most businesses, it’s a cost many companies pay.

  • It can be a bit complex

Managing a supply chain is hard enough; imagine running a supply chain with hundreds of retailers and wholesalers.

The bigger the company and the more products it sells, the more skilled people are needed to manage that kind of relationship between all parties involved.

Types & Examples of Ecommerce Distribution Channels

Companies use two types of e-commerce distribution channels to sell their products. Some common examples include:

System Integrators (SIs)

System integrators (SIs) are organizations that provide end-to-end solutions by combining products and services from multiple vendors. 

SIs typically have expertise in a specific industry or domain, such as healthcare or finance.

They use this knowledge to help their clients select, implement, and integrate the best-suited technology for their needs.

 In many cases, SIs also offer managed services, which means they take on responsibility for ongoing operations and maintenance of the system once it is up and running.

An example of a system integrator (SIs) is Deloitte.

Managed Service Providers (MSPs)

Managed service providers (MSPs) are third-party organizations that provide IT services and management on behalf of businesses. 

MSPs typically offer a suite of services that can include everything from 24/7 monitoring and help desk support to data backup and disaster recovery. 

Some MSPs offer more specialized services, such as application development and web hosting. 

Outsourcing IT functions to an MSP allows businesses to free up internal resources to focus on their core competencies. 

In addition, MSPs can provide expertise and scale that may be difficult for businesses to achieve independently.

An Example of an MSP is Lenovo.

Value-added retailers (VARs)

Value-added retailers (VARs) are retail businesses that offer something extra to their customers. This could be in customer service, product knowledge, or even a unique shopping experience.

VARs typically charge a premium for their services, but their customers are willing to pay because they know they will receive added value. 

VARs are often found in niche markets, where they can use their expertise to attract and retain customers.

Value-added resellers usually include technology service companies, auto dealerships, and furniture companies. 

Original Equipment Manufacturers (OEMs)

An original equipment manufacturer (OEM) is a company that produces parts and equipment that may be used in another company’s end product. 

For example, a company that makes automobile engines would be an OEM for a car manufacturer. 

Many large companies have their in-house OEMs, while others outsource production to external companies.

An example of an OEM would be Apple.


A wholesaler is an intermediary that buys products from manufacturers and sells them to retailers.

Wholesalers typically sell products in bulk at a discounted price. This type of channel is often used when the manufacturer wants to reach many retailers quickly and efficiently.

Examples of wholesalers are Walmart and Amazon.


A retailer is an intermediary that sells products he doesn’t produce himself, which he usually gets from a wholesaler or the manufacturer himself.

This channel is often used when the manufacturer does not have its retail outlets or when the product is unsuitable for consumers’ direct sales.

Retailers are also used to reach consumers in different geographic areas from the manufacturer.

An example of a retailer would be Best Buy.


Consultants are one type of indirect channel of distribution. They are professional advisers who provide expert advice to businesses in a particular area. 

This could be in marketing, finance, human resources, or any other business area.

Consultants typically have a lot of experience and knowledge in their field and can offer valuable insights and advice to businesses.

An excellent example of a consulting firm is McKinsey.


Distributors are businesses that purchase products from manufacturers and then resell them to retailers or other companies.

The advantage of using distributors is that they can provide a wide range of services, including storage, transportation, and marketing support. 

The disadvantage is that they can add significant costs to the product’s price.

An excellent example of a distributor would be Fastenal.

Challenges Businesses Face in E-commerce Distribution

  1. Inventory Management

Balancing inventory levels is a constant challenge. Overstocking leads to high storage costs, while stockouts result in missed sales opportunities and dissatisfied customers.

  1. Shipping and Delivery

Managing timely and cost-effective deliveries is complex. Fast demands can increase shipping costs, and delays can harm customer satisfaction. The complexities of managing multiple distribution channels further complicate this challenge.

  1. Returns Management

Handling returns efficiently can be logistically and financially burdensome. High return rates can disrupt inventory management and increase operational costs. Retail outlets often face similar challenges in managing returned products.

  1. Customer Expectations

Customers expect fast, accurate, and reliable service. Meeting these high expectations consistently is demanding and requires robust systems and processes.

Consistently providing high-quality service across direct and indirect distribution channels requires robust systems and processes.

  1. Scalability

Scaling distribution operations to match business growth can be challenging. It requires significant investment in infrastructure, technology, and logistics capabilities.

Ensuring that both direct distribution channels and indirect distribution channels can scale effectively is vital for sustained growth.

  1. Compliance and Regulations

Navigating different regulations and compliance requirements, especially in international markets, can be complex and time-consuming. Non-compliance can result in penalties and delays.