Types of Distribution Channels: Indirect Channels (One-Level, Two-Level, Three-Level)

Where a manufacturer wants to reach a large number of buyers spread over a wide area without building and staffing every point of sale itself, it brings in one or more independent middlemen. These are called indirect channels, and they are further classified by how many separate layers of middlemen the goods pass through before reaching the consumer.

A one-level channel has exactly one middleman between the manufacturer and the consumer: Manufacturer to Retailer to Consumer. Here the manufacturer sells in relatively large quantities directly to retailers (or to large retail chains that can buy in bulk), and the retailer in turn sells smaller quantities to individual consumers. This suits manufacturers who deal with a manageable number of big retailers rather than millions of individual consumers, and it is common where large organised retail chains or big departmental stores buy straight from the factory.

A two-level channel adds a second middleman: Manufacturer to Wholesaler to Retailer to Consumer. This is the most widely used channel for a great many everyday consumer goods — packaged food, soap, stationery, and similar items. The manufacturer sells in bulk to wholesalers; each wholesaler breaks that bulk into smaller lots and supplies a large number of retailers spread across a town or region; and each retailer, in turn, sells small quantities to individual consumers. This channel lets a manufacturer reach thousands of small retail shops and, through them, a very large number of consumers, without ever having to deal with each retailer or consumer directly.

A three-level channel adds a third layer — an agent (also called a broker) — ahead of the wholesaler: Manufacturer to Agent to Wholesaler to Retailer to Consumer. An agent does not usually take ownership of the goods; instead, working on a commission basis, the agent's job is to find and manage a network of wholesalers on the manufacturer's behalf, especially when the manufacturer's own market is very large, very scattered, or unfamiliar to it (for example, when entering a new geographic region). This is the longest of the four common channels and is typically used only where the wider market genuinely cannot be efficiently reached any other way.

The table below summarises the four types side by side:

| Channel type | Levels of middlemen | Route | Typical use |

|---|---|---|

| Direct (Zero-level) | 0 | Manufacturer to Consumer | Specialised, made-to-order, or highly perishable goods; door-to-door and own outlets |

| One-level | 1 | Manufacturer to Retailer to Consumer | Large retail chains/big retailers buying directly in bulk |

| Two-level | 2 | Manufacturer to Wholesaler to Retailer to Consumer | Most common consumer goods sold through many small retail shops | …