25 May 2025
How does distribution work in Australia?
Much text on distribution strategy is based on USA & European countries: it's not that different here in Australia, but there are several key differences based on our geography, population size, and relatively recent history. Selecting the optimum distribution strategy is a critical decision for marketers and commercial leaders. It influences everything from pricing power and brand perception to reach and profitability. For suppliers operating in Australia, whether they are importers, manufacturers, or service providers, this article describes the main distribution channel options.
Introduction to the distribution scenarios schematic
First, a little bit of context...
Industries and product and service categories:
"Distribution" in the marketing sense explains how products or services are "distributed" (i..e. delivered or made-available) to end-users (customers).
Distribution scenarios are dependent on the type of service or product...
An accounting firm (for example) deals DIRECT with its clients. This would be called "direct distribution." Greater market reach would be achieved by opening branch offices to make it more convenient for customers to deal with the firm. A building company similarly deals direct with its customers.
However, manufacturers who produce many hundreds or thousands of the same product would tend to rely on retail outlets (shops) to ensure their products are freely available to the largest number of people possible. This type of distribution is termed "Indirect Distribution" because the manufacturer relies on "intermediaries" (distributors, wholesalers, retailers, sales agents, dealers etc.) to stock their products and handle sales to the end-user.
This latter scenario is mostly what is understood by the term "distribution."
In reference to the schematic above...
SUPPLIER TYPES:
The source of goods or services can be:
Offshore Manufacturer: Products arrive in Australia via an import distributor.
Australian Manufacturer: Goods are produced locally and distributed through direct or indirect channels.
Service Provider: Offers locally delivered services, potentially bundled with product-based solutions.
Each of these supplier types can utilize the distribution pathways shown in the schematic.
PATHS TO MARKET (Channels)
The schematic maps out three major "Path to Market" classifications, categorizing distribution options by the level of intermediary involvement:
Direct – No intermediaries: the supplier owns the customer relationship.
Semi-Indirect – An intermediary facilitates the sale without owning the product.
Indirect – The product and customer ownership are passed through one or more layers.
Each path represents a level of intermediary involvement, from none (Direct) to multiple layers (Indirect). These are driven by the type of supplier (offshore manufacturer, domestic manufacturer, or service provider) and the intended level of control, scalability, and customer engagement, depending on market segment, capability, and strategic goals.
The important role of INTERMEDIARIES in the supply chain and their cost of doing business
Intermediaries are referred to by various names
In marketing parlance and in particular, the language used to talk about indirect distribution, Intermediaries are third-party entities that operate between the supplier and the end customer to help move, promote, or sell products and services.
Intermediaries are often refereed to by alternative names such as "re-sellers", "middle men", "channel partners" or by their proper names - agent, wholesaler, retailer, dealer etc.
Intermediaries are buying and selling businesses
All intermediaries (except agents), such as wholesalers, retailers, dealers, and distributors, take legal ownership of the goods and manage the customer relationship.
It is important to note that "take ownership" means paying the supplier for the product, receiving the goods into a warehouse, and then on-selling (re-selling) the product to the next intermediary in the supply chain or direct to the end-user.
Intermediaries have significant business costs
Holding inventory in stock means financing that inventory (a cost) and incurring storage expense.
There is also some risk as failure to sell the stock in a timely manner, and/or not being able to sell the stock at sufficient margin is not unusual. In some cases the intermediary may have to "quit" the stock at a loss.
The exception is agents (such as sales agents), who act on behalf of the supplier without taking ownership of the product or controlling the customer relationship. Intermediaries play a vital role in creating distribution efficiency by consolidating demand, extending market reach, managing logistics, or providing technical and sales expertise that the supplier may not possess in-house.
Other intermediary business expenses are employing and managing a sales force, warehouse logistics (often requiring automation and IT expenses) , and normal general and administrative expenses.
Thus intermediaries have significant costs that must be covered and usually mark-up the price for resale by a large margin (typically +50% or roughly 33% GP. This varies by industry and product type).
The cost of filling the pipeline
"The pipeline" refers to the chain of finished goods sitting at the supplier waiting to be shipped, goods sitting on trucks during transport, sitting in warehouses, and on shelves at retailers. Until the pipeline is full (to a level necessary to maintain continuous supply) no goods can be sold to end -users. Intermediaries finance all of this stock. This is a significant cost that the supplier would need to bear in a direct to market model that services a wide geographic spread.
The primary purpose of distribution
Distribution stocks the product closer to the end-user making it more convenient to purchase. Greater convenience is a competitive advantage.
This should be self evident, but to explain it further. If a consumer seeks to buy a product and competitor-A stocks it 10 minutes drive away, and competitor-B needs to ship it overnight - all other things being equal, then the consumer will buy A. Of course, all other things are rarely equal.
Convenience is a big advantage. If you are running a business and production has stopped and you need a spare part to get back online, you would not wait for overnight delivery to buy the cheaper option. But that's just one example.
When developing a distribution strategy there is no such thing as a perfect solution only compromises. For example: what you gain through using intermediaries to achieve wider market reach you lose on margin squeeze and the cost of channel management.
Developing a distribution strategy is about optimizing this reality - no perfect solution, but one option may be clearly better than the other.
Before explaining the various distribution methods (paths to market) as depicted in the schematic above, the reader should appreciate the true picture. In the interests of simplicity, the schematic (above) fails to depict the geographic reach that distribution is intended to achieve. The following diagram illustrates the point.
It's called "DISTRIBUTION" for a reason...
Distribution seeks to achieve wider geographic coverage. This can be achieved using DIRECT distribution, but only if an organization has very deep pockets to establish its own retail outlets (or has built them organically over many years). Even then, for many products even this would not achieve effective distribution.
Can you imagine only buying Uncle Toby's Oats from a dedicated Uncle Toby's Store that sold little else? Most packaged goods benefit from being on shelves alongside commonly bought products in similar categories.
However, distribution scenarios vary considerably by product and industry. Car dealerships can sells cars from dedicated outlets that specialize in only one brand.
Key distribution paths explained
Direct Distribution
Direct-to-consumer (D2C) strategies involve the supplier selling straight to the end user. Common channels include:
- Owned retail stores
- In-house sales force (for B2B)
- Branded eCommerce websites
Benefits:
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Full control over pricing: When an intermediary (wholesaler, retailer etc.) buys the product, the supplier cannot dictate the price they can sell it for. This is one reason for why a supplier would choose owned retail outlets over distributing through third party retailers.
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Full control of the customer experience
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Highest possible margin retention
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Direct access to customer insights and data
Trade-offs:
- Higher operational complexity and cost
- Difficult to scale geographically without large investment
- Less opportunity to leverage the synergistic effect of being sold alongside similar products (supermarket, hardware, or auto products stores for example).
Semi-Indirect Distribution
This path involves intermediaries who represent but do not buy the product. These players may be involved in lead generation, promotion, or transaction execution.
Sales Agent
- Acts on behalf of the supplier, typically for complex B2B products
- Paid commission-based fees
- Suitable for niche or high-value markets
Benefits:
- Sales representation closer to end-user markets increasing market reach.
- Full price control. The agent sells at the price specified by the supplier.
- Higher margins: Agent commissions are significantly lower than wholesaler/retailer mark-ups ( a few percent vs. 50% for example. Noting there is wide variation).
- Negligible sales force cost: agents are self-funding.
- Greater visibility of the end-user relationship. Often agents step-away from the relationship and leave the supplier to deliver the product or service direct.
Trade-offs:
- Agents have less obligations to perform than direct employees, they are measured mainly on their results not their activities.
- Often difficult to find and retain committed and reliable agents.
Note: Some would consider Franchise should be considered in the semi-direct category, however it is classified as Indirect because the franchisee owns both the product (bought for stock) and the customer relationship.
Indirect Distribution
This is the most common route to market for physical goods. It involves selling to intermediaries who take legal and financial ownership of the product and sell it on.
Retail Chains
Large-format retailers (e.g., Bunnings, Woolworths, JB Hi-Fi) buy directly from the supplier without the use of a wholesaler.
Why?
- These retailers operate centralised distribution centres (DCs) and manage national supply logistics internally.
- Their high volume purchases and dominant market position give them pricing leverage. They refuse to pay wholesaler mark-ups and instead demand direct supply to maximise margin efficiency.
- Suppliers must meet strict compliance requirements, ranging from logistics and barcoding to marketing support, which smaller manufacturers may struggle to achieve.
Implication: Suppliers must often absorb the logistical burden and reduced margins to access shelf space in major retail chains — but the sales volume can justify the loss of margin and the management and administrative overhead.
Wholesaler to Small Retailer
To serve the long tail of smaller retail outlets, wholesalers play a crucial role:
- They aggregate demand from hundreds of dispersed outlets.
- Provide logistics, warehousing, and in some cases credit and merchandising support.
- Allow suppliers to achieve “intensive distribution” — ensuring product is available everywhere the customer shops.
Dealer / System Integrator / VAR
These specialized intermediaries are particularly relevant in B2B, industrial, and tech markets. They add value through bundling, configuration, consulting, or service — often creating a stickier customer relationship.
While all three operate as intermediaries in B2B or technical markets, Dealers, System Integrators, and Value-Added Resellers (VARs) perform distinct roles.
Dealer: typically purchases finished products from a supplier and resells them to end customers, often providing installation, support, or servicing — common in sectors like automotive, equipment, and industrial tools.
System Integrator: combines multiple products, technologies, or services — potentially from different suppliers — into a cohesive solution tailored to a client’s operational needs, frequently seen in IT, automation, or infrastructure projects.
Value Added Reseller (VAR): resells a supplier’s product but adds customized features, software, support, or bundled services that create additional value, particularly in software, telecommunications, and hardware sectors. The key difference lies in the level and type of value added: dealers focus on resale and service, system integrators deliver complex engineered solutions, and VARs enhance or adapt the core product to better fit the customer's use case.
Digital distribution channels
Though not shown in the schematic to preserve clarity, digital channels are now central to many distribution strategies. They often blend direct and indirect models and may include:
Branded eCommerce (Direct)
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Selling via your own online store (e.g., Shopify, WooCommerce etc. or a custom built e-commerce platform)
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Full control over pricing, branding, and customer data
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Suited to niche or high-margin products
Marketplaces (Indirect)
Platforms like Amazon AU, eBay, Catch.com.au
Sellers either:
- Sell direct via marketplace storefronts (semi-indirect model)
- Use platform logistics like Fulfilled by Amazon (more indirect)
- Can drive high volume but often come with platform fees and less brand control
Digital Resellers and SaaS Distribution
- Especially in software, apps, and digital services
- App stores (Apple, Google), SaaS marketplaces, and subscription platforms may serve as modern equivalents of retailers or wholesalers
Key Consideration: Digital channels offer scalability but often impose pricing pressure and reduce differentiation.
Disintermediation, margin squeeze, and channel economics
One of the most important dynamics for suppliers is the margin trade-off between retail chains and small retail via wholesalers:
Retail Chains:
Negotiate aggressively due to buying power
- Demand lower wholesale pricing
- May extract rebates, slotting fees, charge backs for stock or packaging problems, penalties for late deliveries, low-margin promotional stock, and marketing contributions
- Offer volume and reach in exchange for margin compression
Small Retail via Wholesalers:
- Higher total channel mark-up (supplier to wholesaler to retailer)
- Yet often less pricing pressure per unit
- Lower volumes, but may offer brand-building and category breadth
Implication: It’s difficult for small retailers to match big box stores on price because:
- They pay more per unit (wholesaler mark-up)
- Lack the scale to negotiate special deals
- Carry higher per-unit logistics and promotional costs
Forced disintermediation occurs when powerful retail chains demand to deal directly with manufacturers or suppliers, effectively bypassing traditional intermediaries like wholesalers.
This shift is not necessarily initiated by the supplier as a strategic move, but rather imposed by the retailer as a condition of doing business. Large retail chains — especially those with national distribution centres, strong buying power, and high sales volumes — often refuse to engage with middlemen, insisting on direct supply relationships to minimise procurement costs and increase margin.
As a result, suppliers are compelled to absorb the logistical complexity and operational costs that wholesalers previously handled. While this direct route can offer access to large-scale sales opportunities, it also squeezes supplier margins and shifts the risk burden upstream. Forced disintermediation is now a defining feature of many modern B2C categories, particularly in grocery, hardware, consumer electronics, and home improvement retail.
This reality contributes to the retail consolidation trend and underlines why many brands must strategically segment product lines or channels (e.g., “retail exclusive SKUs”).
Comparing distribution paths to market
Key Notes
This table references the role of intermediaries in the designated distribution scenario.
- "Owns product": implies the intermediary takes ownership of the product by purchasing it from the supplier. With Direct Distribution and when using agents, this is NOT the case. Using Direct Distribution, the supplier retains title until the end user purchases the product. This means the supplier must fund the product or service cost until the end-user pays for it.
- "Owns Customer": implies the intermediary is the seller of record and handles post-sale relationships. Intermediaries value their customer relationships not just because it drives future business but also makes them more valuable to suppliers. Naturally, they do not readily reveal their customer list to their suppliers for fear they might go direct or no longer need them. In reality, this fear is mostly over stated because the intermediaries provide more than just access to customers - they also fund inventory, stock the product closer to the end-user, and service them.
- Scalability: refers to how easily the distribution model can grow with increased demand or geographic coverage. Remembering that the primary purpose of indirect distribution is to achieve greater and more intense geographic coverage.
- Margin Retention: is assessed from the supplier’s perspective — higher intermediary layers usually reduce supplier margin because to achieve a competitive final end-user price point, often the supplier has to accept lower profits to enable intermediaries to add their mark-up. The supplier's trade-off is reduced cost of direct distribution infrastructure and sales force cost.
- Supplier Control: includes control over branding, pricing, positioning, and customer engagement. Careful distribution agreements are needed to ensure adherence to brand standards but also providing continued training, and marketing support. However, this becomes increasingly challenging as channels become more complex.
Hybrid and omni-channel distribution strategies
While the schematic presents distinct paths to market for clarity, in practice many suppliers adopt hybrid or omni-channel distribution strategies to maximise reach, manage risk, and align with diverse customer preferences.
Hybrid distribution involves using multiple distribution models simultaneously — for example, supplying a retail chain directly while also servicing independent retailers through a wholesaler. This approach allows suppliers to penetrate both large-volume and niche segments without being overly reliant on one channel. However, hybrid strategies require careful channel management to avoid conflict between partners, such as pricing tension or territorial overlap.
Omni-channel distribution goes a step further by integrating multiple channels into a seamless customer experience. This includes blending physical and digital pathways — for instance, selling through a company-owned eCommerce store, third-party marketplaces (e.g., Amazon AU), and retail chains — while ensuring consistency in pricing, product availability, and brand messaging. In the Australian context, where geography can limit physical retail presence, omni-channel strategies are especially effective for extending reach into regional areas and enabling customer choice.
Successfully executing a hybrid or omni-channel strategy often involves:
- Segmenting product ranges by channel to reduce overlap and manage price positioning
- Relationship management: Investing in channel partner relationships to ensure clarity and cooperation
- Synchronizing inventory and marketing systems across platforms for consistency
Ultimately, hybrid and omni-channel models offer flexibility, but demand greater coordination, channel discipline, and a clear understanding of the distinct value each channel contributes to the customer journey.
Split-Distribution: balancing strategic accounts and broad market reach
A common and highly practical variation of hybrid distribution is known as split-distribution — where a company uses different distribution methods for different customer segments, based primarily on account size, complexity, and margin sensitivity.
In a split-distribution model, the supplier typically:
- Services large customers directly, often through an internal salesforce or dedicated account managers.
- Serves smaller customers via intermediaries, such as distributors, dealers, or wholesalers.
This model is particularly effective when servicing large customers requires high-touch engagement, technical expertise, tailored pricing, or contractual arrangements — justifying the investment in direct sales even if margins are thinner. These strategic accounts may also represent a significant portion of revenue, making it worth managing them in-house despite tighter profitability.
At the same time, the cost-to-serve smaller customers individually would be inefficient, and the transaction volumes don’t justify deploying a direct salesforce. Distributors and other channel partners are well suited to reach these fragmented markets, especially when scale, logistics, and transactional support are needed.
Advantages of split-distribution include:
- Efficient allocation of internal sales resources where they have the highest commercial impact
- Preservation of margin by offloading low-revenue customers to intermediaries
- Greater flexibility to tailor go-to-market approaches to customer needs and buying behaviour
However, as with all hybrid strategies, split-distribution requires clear channel segmentation, well-defined rules of engagement, and coordination to avoid customer confusion or internal channel conflict — especially around pricing and territory management.
Split-distribution is commonly used in sectors like industrial equipment, building products, business software, and specialty manufacturing — particularly in the Australian market where large enterprise clients often demand direct engagement, while regional and SME segments are best reached via channel partners.
The digital imperative: Integrating eCommerce with traditional distribution
One of the defining challenges in modern distribution strategy is navigating the growing pressure to implement digital channels — particularly eCommerce platforms — alongside long-established, traditional distribution models. This dynamic is reshaping how suppliers approach both B2B and B2C markets, and sits at the heart of hybrid and omni-channel strategy development.
For many suppliers, particularly manufacturers and wholesalers, launching a direct-to-customer eCommerce channel offers a clear set of benefits:
Expanded geographic reach (especially in regional Australia)
Higher margins by bypassing intermediaries
24/7 accessibility and lower cost of sale
Control over brand, messaging, and customer data
However, these advantages can sit in tension with existing distribution partners — such as dealers, retailers, and wholesalers — who may perceive a direct digital channel as competitive or undermining their role. This creates a channel conflict risk, especially if pricing, product access, or promotions are not aligned across channels.
A successful hybrid or omni-channel strategy that integrates eCommerce must navigate the following:
- Strategic positioning of digital
- The eCommerce channel must be positioned carefully — is it meant to serve end customers directly, support the long tail of small accounts, or simply act as a configurator or lead-gen tool for partners?
Channel communication & collaboration
Transparent communication with existing channel partners is essential. In some cases, suppliers can offer programs where dealers or resellers are looped into the eCommerce process (e.g., customer selects a product online but fulfillment is routed through a local distributor).
Product or segment differentiation
Suppliers may offer exclusive product lines, bundles, or configurations through the eCommerce channel to reduce overlap with partner offerings and preserve partner value.
Digital enablement for partners
Rather than displacing partners, some suppliers use eCommerce to digitally empower them — offering co-branded microsites, online ordering portals, or fulfillment automation that reduces friction while keeping the channel intact.
This dual-channel world reflects a broader trend: eCommerce is no longer optional, but its integration must be strategic. In the Australian market, where B2B buying behaviours are increasingly shaped by B2C digital experiences, ignoring digital puts suppliers at risk — but deploying it clumsily risks alienating valuable partners.
Hybrid and omni-channel models that harmonise digital and traditional distribution — rather than treating them as competing silos — will be best positioned to grow, scale, and adapt as customer expectations evolve.
Channel conflict: types, causes, and management strategies
Channel conflict arises when actions by one distribution partner adversely affect the performance or objectives of another. This friction can lead to diminished sales, strained relationships, and brand dilution if not proactively managed. Understanding the types of channel conflict is essential for developing effective distribution strategies.
Types of channel conflict
- Vertical Channel Conflict: Occurs between entities at different levels of the distribution channel, such as a manufacturer and a retailer. For example, if a manufacturer begins selling directly to consumers, bypassing retailers, it can create tension due to perceived competition.
- Horizontal Channel Conflict: Happens between entities at the same level, like two retailers or two distributors. This often results from overlapping territories or price undercutting, leading to competition among partners who are supposed to be collaborators.
- Multi-Channel Conflict: Arises when a company employs multiple distribution channels that compete for the same customer base. For instance, a brand selling products both online and through physical stores may face conflict if pricing or promotions are not aligned across channels.
- Inter-Type Channel Conflict: Occurs between different types of intermediaries, such as a wholesaler and a retailer, especially when their roles overlap or when one channel feels disadvantaged by the actions of another.
Common causes of channel conflict
- Goal Incompatibility: Differing objectives among channel members, such as a manufacturer aiming for market penetration while a retailer focuses on high margins.
- Territorial Encroachment: When one channel member sells outside their designated area, infringing on another's territory.
- Pricing Discrepancies: Inconsistent pricing strategies across channels can lead to perceptions of unfairness and competition.
- Lack of Communication: Poor information sharing can result in misunderstandings and misaligned strategies.
- Resource Imbalances: Unequal allocation of marketing support, inventory, or other resources can breed resentment among channel partners.
Strategies for managing channel conflict
- Clear Channel Design: Define roles, responsibilities, and territories for each channel member to minimize overlap and competition.
- Consistent Pricing Policies: Establish uniform pricing structures across channels to prevent undercutting and maintain fairness.
- Open Communication: Foster regular dialogue among channel partners to address concerns and align strategies.
- Conflict Resolution Mechanisms: Implement processes for addressing disputes promptly, such as mediation or arbitration clauses in agreements.
- Performance Monitoring: Regularly assess channel performance to identify and address potential conflicts proactively.
By recognizing the potential for channel conflict and implementing strategic measures to manage it, companies can maintain healthy relationships with their distribution partners, ensuring a cohesive approach to market coverage and customer satisfaction.
The limits of price control in Australia: Legal constraints on channel management
One of the most complex aspects of managing channel conflict — especially horizontal conflict between competing resellers — is pricing. While it may seem logical for a supplier to enforce consistent retail pricing across its channels to avoid undercutting and preserve brand value, Australian competition law significantly restricts this ability.
Under the Competition and Consumer Act 2010 (CCA), enforced by the Australian Competition and Consumer Commission (ACCC), it is illegal for suppliers to engage in "resale price maintenance". This means a supplier cannot set minimum resale prices for goods or services sold by its channel partners. Any attempt to dictate pricing — even indirectly, through agreement or coercion — is likely to be considered a breach of the law.
What suppliers can do:
- Recommend Retail Prices (RRPs): Suppliers can publish recommended prices, but they cannot penalise or pressure a reseller for pricing above or below those levels.
- Control Wholesale Pricing: While they can’t fix the end price, suppliers are free to set their own pricing when selling to intermediaries.
- Withdraw Support Strategically: Suppliers may choose how and where to offer marketing or co-op support, provided this is not linked directly to resale pricing compliance.
- Segment Products or Channels: Differentiating SKUs or bundling offers for different channels can reduce direct comparability and ease margin pressure.
Implication for channel strategy:
The inability to control resale pricing limits the tools suppliers can use to manage channel conflict, especially in omni-channel or multi-reseller environments. If one partner aggressively undercuts others (e.g., online discounters), the supplier's legal options are limited, and conflict can quickly escalate — damaging partner relationships, brand positioning, and long-term channel health.
Proactive communication, clear value propositions, and channel segmentation strategies become crucial in managing this legal constraint while maintaining a balanced distribution ecosystem.
Final Words: Building a channel strategy that works
Designing an effective distribution strategy is no longer a matter of simply choosing between “direct” or “indirect” — today’s marketers must navigate a far more complex landscape shaped by digital disruption, shifting buyer behaviours, powerful retail partners, and legal constraints on channel control.
As this article has explored, the Australian distribution environment offers a wide variety of go-to-market options — from traditional wholesale models and franchising to hybrid, split-distribution, and omni-channel configurations that blend eCommerce with physical supply chains. Each path to market presents its own trade-offs in control, reach, margin retention, scalability, and operational complexity.
The choice of distribution model should be driven not by habit or industry convention, but by clear-eyed strategic thinking:
- Who are your customers, and how do they prefer to buy?
- Where can your internal capabilities be leveraged most effectively?
- What role do partners play in expanding your reach or adding value?
- How can pricing integrity, brand positioning, and customer experience be maintained across channels?
Importantly, as channel structures become more layered and interdependent, so too does the risk of channel conflict — whether it’s between retailers, between digital and physical routes, or even within your own salesforce. Australian suppliers also operate within a legal framework that limits their ability to control pricing downstream, requiring careful and proactive management of partner expectations and incentives.
There is no one-size-fits-all solution. The most successful suppliers are those who treat channel strategy as a living part of their commercial architecture — regularly revisited, deliberately segmented, and aligned to business objectives. They use data to understand how different customer segments behave, deploy technology to integrate digital with traditional routes, and build long-term relationships with channel partners based on clarity, fairness, and shared success.
At JWPM, we help businesses evaluate their current distribution structure, model alternative scenarios, and design intelligent, sustainable channel strategies that support long-term growth. Whether you're scaling nationally, launching new products, or navigating disruption, getting your path to market right is one of the most important strategic decisions you’ll make.
