Direct distribution channel advantages
The first step toward understanding what a direct channel of distribution offers - also known as a direct marketing channel - is to understand what a channel of distribution is. Simply, a distribution channel is the route a product takes, as it travels from the original producer to the final consumer. Here, there is a lots of room for variation and different distribution channels.
There are direct and indirect distribution channels. Generally, direct channels have the shortest distance and are the simplest distribution channel. Since the internet, a lot of things have been made easier, and direct channels of distribution have become much more common in business.
12 Pros and Cons of Distribution Channels
Usually, a product will pass through a certain number of hands before it gets to the consumer. Such direct chains may involve many types of sales. The only thing you need to define that method as a direct distribution channel is that you are dealing directly with the producer; no middlemen are involved.
It is an indirect chain of distribution. This is one of the most traditional ways to distribute a product. The producer may hire traveling salesmen who go out to the field where the consumer is and try to sell the product to them on the spot. If the product is portable enough, the salesmen will carry it with them and try to sell them directly to consumers.
If it is not a product that the salesmen can travel around with then the producer will have to arrange for its delivery to the customer as soon as a sale is closed. Take a company that is selling vacuum cleaners, for example. It will establish branches at every major consumer center and have a sales force that goes from door to door, selling the vacuum cleaners. Once the customers agree to buy, the producer organizes for their vacuum cleaner to be delivered from the nearest branch.
If, on the other hand, the company were selling simple kitchenware, the salesmen may be able to carry them around and sell them directly to consumers. The largest manufacturing firms can afford to open proprietary retail stores in different regions, so that their products can get to the consumer directly. Here, there are lots of different scales. We have the small producer that has a single chain store in a single area, all the way up to the largest manufacturers that have numerous retail stores in different parts of the world.
The post office method of sales is museo del futbol pachuca of the oldest distribution channels out there, but it is still relevant today, as many companies use both couriers and also the post office to ship their products directly to the consumer. The manufacturer may send sales literature to a select group of consumers. The manufacturer may also advertise to consumers via email or online via social media.
The customers can then place their orders traditionally via mail, fax, or by telephone, or via online orders. The manufacturer will then deliver the product to the customer via a courier or via value payable post. This is the essence of a mail order sale. In this method, the manufacturer will advertise their product on television, getting into the details of the features of the product, its price, uses, and availability. The customers who are interested in it can then place their orders via fax, email or by telephone.
In a way, this method subsumes the other, because the power of the internet is that you can directly market to many consumers, without leaving your office or open a retail store.
Simply advertise online, either via your own website, via Google Ads, or via social media ads. Your customers can then place a direct order on your site or via email, and then you ship the goods to them via post, courier, or via your own vehicles. Direct selling is pretty much the shortest channel of distribution, and it is also the simplest. Direct selling makes it easy to move your goods to the customer pretty quickly to ensure their satisfaction.
You also get to contact consumers directly and build their trust in your brand. Numerous benefits exist that you can have by using a direct channel of distribution to get your product to the consumer. Many customers appreciate the opportunity to deal directly with the manufacturers of a product. They also get the opportunity to be more familiar with your brand, which builds their loyalty.
There are also quite a few disadvantages of direct channels of distribution that you should consider, before you use them for your products.Both methods work, and both have their pros and cons. On the other hand, an indirect distribution channel makes use of intermediaries for your product to ultimately reach the end user.
If you use to use third-party distribution networks to sell your products, your channel options include:. Sure, you can do it yourself, but Including a new location to your distribution map involves a lot of resources - time, money, and human resources.
What Is a Direct Channel of Distribution?
To successfully expand in unfamiliar territory, you need local expertise - a deep understanding of what the people in the area need and want. Wholesalers, retailers, and dealers take care of the nitty-gritty involved in the product distribution process: order and inventory management, management of retailer and customer relationships, customer service initiatives pre- and post-sale, and product shipment to various locations.
Another advantage of distribution channels is the speed at which you can distribute your products in large geographic areas.
Established distributors can readily tap a network of retailers and other distributors to help with market coverage. As such, you don't have to deal with the time, cost, and effort it takes to build those relationships.
Distributors and retailers have to efficiently manage their stocks and are generally good at it. They can fulfill orders daily and know when to request large shipments from manufacturers. And in case a fulfillment error occurs, the distributor or retail chain takes care of resolving any issues.
Retail chains know which products sell well in their specific areas of coverage. Their feedback can prove valuable in making a product that more customers need and want. If you plan to introduce your products to a global audience, international agents specialize in distributing products in various areas of the world.
The above are just some of the advantages of an indirect distribution channel for manufacturers. Keep in mind that this method of product distribution also has accompanying disadvantages, such as:.
If you choose to sell direct, be sure to read our ebook to help, or check out the top consumer goods strategies. The Advantages of a Distribution Channel for Manufacturers. Should you sell directly to end users direct distribution? Or should you use an established distribution network indirect distribution to help you reach more potential customers? Direct vs. An online course builder may make use of affiliate sites, reseller programs, or online learning marketplaces like Udemy to sell their products.
Insurance companies pay agents and independent sales representatives a commission based on the revenue they generate. Reduced costs Sure, you can do it yourself, but Including a new location to your distribution map involves a lot of resources - time, money, and human resources.
A tighter focus on your core competencies To successfully expand in unfamiliar territory, you need local expertise - a deep understanding of what the people in the area need and want. Wider customer reach Another advantage of distribution channels is the speed at which you can distribute your products in large geographic areas. Logistic support Distributors and retailers have to efficiently manage their stocks and are generally good at it.
Easily available feedback Retail chains know which products sell well in their specific areas of coverage. Faster growth If you plan to introduce your products to a global audience, international agents specialize in distributing products in various areas of the world. They can even help you improve your product and make it more appealing to global consumers. Final word The above are just some of the advantages of an indirect distribution channel for manufacturers.The service marketer derives the following advantages by employing direct distribution.
Direct channels are owned by the company itself. The major benefit of company-owned channels of distribution is that the company has complete control over its outlets.
This direct control enables the company to maintain consistency in service provision. Control over hiring, training and motivating employees is also a benefit of company owned channels.
In direct channels, the skilled workers or professionals develop individual relationships with customers. Therefore, the customers develop loyalty for the individual service employee or for the company. For example, most men are loyal to certain hairstylists. Direct channels are suited for local service providers such as doctors, dry cleaners, consultants, interior decorators, etc. Companies are able to obtain direct feedback from customers on their existing needs.
Thus, they can also understand how the perceptions of the customers towards offerings are changing. Greater confidentiality can be maintained with information relating to the customer. For example, maintenance of secrecy of customer accounts is very important in banking services. Direct channels enable the bankers to enjoy the trust and confidence of their customers. Direct channels eliminate the role of middlemen and hence the consequent cost of commission, brokerage etc.
This leads to lower distribution costs thereby enhancing the profitability of the organization. As the service provider is in regular and direct contact with customers, two way communication becomes effective.
Direct sale is accomplished by the customer going to the service provider hairstylists, tourist information centre or by the provider going to the customer plumbing, house cleaning, building repair etc. Thus, many personal as well as business services benefit from direct sale. Personal and business services like beauty parlors, photographic studios, shoe repair shops, funeral service firms, consultancy, services, car rentals etc.
In spite of the advantages discussed above, several disadvantages arise out of company-owned channels. Probably, the largest impediment to most service chains is that the company must bear all the financial risks.
While expanding, the company must mobilize all the capital required for store proliferation, advertising, service quality or new service developments.
Companies rarely enjoy expertise in local markets. When companies expand into other unfamiliar regions or other countries, they are not able to adapt their business formats to suit local needs.
In such situations, joint venturing is preferable. When two or more companies want to offer a service and neither has the full financial capability and expertise, they undertake service partnerships.
Partnerships are common in areas such as telecommunication, high-technology areas, internet-based services and entrepreneurial services. This site uses Akismet to reduce spam. Learn how your comment data is processed. Services Marketing. Related Posts. Tags: marketingservices marketing. Leave a Reply Cancel reply.One of the big questions entrepreneurs face when launching a new consumer product is how to get it to market.
Basically, there are two distribution channels to choose from:. Direct — The consumer buys the product from you online, in a store, at a trade show or by mail order. Indirect — The consumer buys your product from a wholesalerretailer, dealership or some other intermediary. Your first job when choosing your best distribution option is to consider your product. For example, if the item is perishable, you may need to invest in refrigerated storage facilities and trucks to handle its distribution properly.
If this is too costly, you might be better off distributing through a wholesaler who already has this equipment.
If you are still on the fence after looking at your product and market data, your next step is to weigh the options against one another. By interacting with your customers directly, you retain a lot of control over your product and its performance. One of the biggest challenges is the sizeable costs that can come with direct distribution. For example, you may need to purchase trucks, hire drivers and rent storage space.
You may also find it harder to reach potential customers without the network an established distributor provides. The main challenge with indirect distribution is the distance it puts between you and your customers. By adding an intermediary, you are also increasing the amount of time it takes for your product to reach the buyer. Still, it is a good way of bringing your product to market without burdening yourself with the start-up costs of establishing your own distribution channels.
You should agree on roles and responsibilities, training and customer support, reporting and performance monitoring, among other issues. Search articles and tools. The pros and cons of direct and indirect product distribution. Basically, there are two distribution channels to choose from: 1.
Is your product better suited to direct or indirect distribution? Direct distribution allows you to: collect valuable data on customer buying habits distinguish yourself from the competition respond to product performance and customer feedback get your products to consumers faster avoid sharing profits with a third-party distributor build relationships with your customers Despite the positives, direct distribution also has some potential drawbacks.
The pros and cons of indirect distribution Going through external sales channels has its own benefits.Distribution is the process of getting your product into your target markets. You might handle the distribution process directly at the outset whether digitally or in person, but as your business grows, it may be more efficient to enlist a distributor to get your product to retailers who sell on your behalf. On a micro scale, a jewelry maker, selling small collections, may choose to set up a website and sell directly to the public.
On a larger scale, Apple sells directly to consumers through their Apple stores. Keep in mind that while direct distribution may offer advantages, there are also pitfalls when not using middlemen including:. For a manufacturer, indirect distribution means selling wholesale to agents or retailers so that they can distribute the product for you.
They store it, display it, and employ the sales force to put it into the hands of customers. Some considerations:. However, retailers know their local markets and how best to sell your product there. So even though your products may face competition for shelf space, you may ultimately see higher sales. Read up on your options and how to leverage distribution for your next business phase. In which case, direct distribution may be best. If you do partner with distributors, do some vetting to ensure that they are capable of selling your products and finding the right market opportunities for them.
Prioritize developing a long lasting relationship. Lastly, the decision may not be whether to go direct or indirect, but when to favor one over the other to find your optimal mix. Make an appointment or call us now at Wells Fargo makes no warranties as to accuracy or completeness of information, including but not limited to information provided by third parties; does not endorse any non-Wells Fargo companies, products, or services described here; and takes no liability for your use of this information.
Please contact your own legal, tax, or financial advisors regarding your specific business needs before taking any action based upon this information. Wells Fargo Advisors is not a tax or legal advisor. Please see your tax advisor to determine how this information may apply to your own situation.We are living in an age of convenience —a time where just about anything can be ordered online and delivered straight to your doorstep. As more consumers choose the convenience of online outlets over instore retailers, manufacturers are flocking toward selling their products on an easy-to-use online platform.
Aside from ditching the storefront, there are some important things to consider when moving your distribution channels to the internet. While distribution channels have not largely changed over time, the demand of consumers to have fast and convenient delivery has become the norm. Even the fresh food industry has been shook by Amazon Fresh and meal distribution companies like Blue Apron.
How does this affect your distribution strategy? There are two types of distribution channels: direct and indirect. As the names would imply, direct distribution is a direct sale between the manufacturer and the consumer, and indirect distribution is when a manufacturer utilizes a wholesaler or retailer to sell their products. There are pros and cons associated with either method, and deciding the right choice for a business heavily depends on the trends and preferences of the consumers.
This relationship-driven model gives companies complete control of the overall consumer process. They control the consumer experience, the brand image as well as have the added benefit of direct interaction and relationship building with the consumer. This control also eliminates intermediaries, thus reducing outside fees like commissions, broker fees, and reduces allowances such as advertising and promotional expenses.
On the downside, with great control comes great responsibility — and risk. In a direct distribution setting, the company bears percent of the financial risks. Selling directly to consumers requires impeccable documentation and tax records due to the increased likelihood of an audit. The startup cost for direct distribution will also be much higher depending on the necessity to purchase delivery trucks, equipment, warehouses, etc.
This cost generally pays off down the road, but requires significant capital upfront.
Final prices must also consider individual state taxes and exemptions. For this reason, many direct distributors purchase technology to automate their operational and financial processes to reduce error and labor costs. With indirect distribution, companies gain a significant competitive advantage. They gain access to an increased consumer base without the challenge of getting the customer through the door.
This grants them more time to focus on their product, their customer base and increasing the range of their target consumer. The startup cost will be lower, and the relationship generally makes the process much simpler for the distributer.
Additionally, since sales tax is only required to be paid once, selling to third-party distributers will likely lead to an exemption of sales tax under the resale exemption. Outside costs like commissions, broker fees and allowances can greatly affect the bottom line.One of the biggest challenges that faces the modern business is the creation of distribution channels.
When the decision is made to sell through them, there must be a balance in place which allows the organization to meet the needs of their customers while still maintaining a level of profitability. When these channels are successfully created, then the possibility of growing more opportunities becomes accessible.
Should your business be selling through distribution channels? Here are some of the key pros and cons to consider on the subject. It provides businesses with a greater level of cost efficiency. Because sales are handled through the distribution channel instead of directly to the end customer, then the ability to sell becomes easier and more efficient. Instead of an individualized approach, the distribution channel can reach multiple end users simultaneously with a consistent message.
This creates fewer expenses in return. There are options available which allow for rapid distribution. Mass deliveries are much easier to accomplish with a good distribution channel. Because the channels are automatically in contact with the end users, implementing a contact to a targeted demographic is easy and delivering wanted products is even easier. Distribution channels still offer some level of end user knowledge.
Although there are fewer opportunities to interact with specific end users, an organization that uses distribution channels can be aware of regional influences. No customers feel left out when distribution channels are used appropriately.
Discord always leads to lost profits. Because there are such broad levels of coverage through an effective distribution channel, the organization can reach a vast majority of those within their targeted demographics so very few individual end users feel left out.
The average organization can take advantage of existing channels that exist within each region they wish to target. Because there is no need to create a new channel, the actual expenditures to reach a targeted demographic are often quite small.
Instead of a large upfront investment, all that is typically required is a small, manageable ongoing investment whenever communication or product distribution needs to happen.
Specialization of the regional process creates better overall effectiveness. The problem with a mass marketing strategy is that unless the brand awareness is fully saturated, there is no real loyalty that is created in the engagement with the distribution channel. End users are only loyal to the lowest possible price that is available. With specialization in place, this issue may not always be eliminated, but it does give end users a point of contact with the organization and this can become the foundation of a relationship.
The ability to interact with the end user is completely eliminated. When distribution channels are used, then contact with the end users are sacrificed for the ability to reach multiple end users simultaneously. Some distribution channels can be extremely complex. When distribution channels are simple, then they are effective. Point A connects with Point B and this lets everyone experience satisfaction.
When a distribution is forced to add Points C, D, E, and F to the equation, then this creates a time delay within the channel. The end result is a decrease in efficiency, which ultimately creates individualized dissatisfaction at the end user level.
Distribution channels may require multiple intermediaries. Whenever there are intermediaries between an organization and its end users, then there are going to be added costs involved. An organization needs to make a certain amount of profit in order to survive. If that organization needs to pay intermediaries for their actions, then this adds to the cost of the final profit so that everyone can get their needed share.