When should companies use direct distribution?
What is Direct Distribution?Direct distribution is the sale and transfer of a product directly from us as a producer to our customer or the consumer. In this case, we have no intermediaries (or what we sometimes refer to as middlemen). For example, we're not going to use a wholesaler or a retailer to move our product to the customer. We're going to take care of all of that ourselves. Show Another aspect of direct distribution is that it allows us as a producer to have more control over the price that the final consumer pays - as well as how the product is promoted. Think about if we put our product on the shelf in a retail outlet. Because the customer is going to interact with some person or representative of that outlet - that person may promote our product well or may say less positive things. That's out of our control. If we use intermediaries with direct distribution we don't have to worry about that. The other aspect or another aspect of direct distribution is that sometimes without those retailers or wholesalers we can collect more of the margin on our products. In other words, we can make more money for each item that we produce by not using these intermediaries. One last aspect of direct distribution, which is maybe not so positive, is that by selling direct to consumers our product may be less available to those consumers. In other words, getting our product may be less convenient for the customer and that's not such a positive thing.
What is Indirect Distribution?
Indirect distribution is just the sale and transfer of product from producer to wholesaler and or retailer and then to the consumer. In other words, we're using what we call intermediaries between us as the producer and our final customer or the final consumer. Indirect distribution
allows us as a producer to reach more customers because we don't have to have stores or ship directly to each individual customer who wants to buy our product. That can also help us to share the cost of our inventory. If we sell product to the retailer, it's sitting on that shelf ready for somebody to buy, but we've already collected money on it. So, the retailer then is bearing the cost of that inventory. Related Topics
The question posed above depends on several factors, such as; 1) volume; 2) channels / regions; 3) current assets being deployed for distribution; and 4) current cash flow and ability to sustain future distribution costs. Green Mountain Coffee Roasters, one of the largest specialty coffee roasters, owns their own fleet of trucks to distribute their fresh coffee. Rick Peyser, Director of Public Relations, said, “We have always
distributed directly and, as the company grows, we will probably maintain direct distribution.” Starbucks, conversely, uses 3rd party logistics providers to distribute its roasted coffee. Cost of Direct DistributionThis customer data and control over your distribution channels
comes at a price, however. Arguably, a small manufacturer that delivers tiny quantities to multiple customers throughout a wide region will be less efficient than a large distributor with limited distribution points. Your customers may not be willing to pay for this inefficiency, preferring instead to purchase larger quantities if they receive substantial cost savings. Why do some companies use direct distribution?Using direct distribution, companies can eliminate the high markups and costs associated with hiring intermediaries to distribute their products. Companies that sell directly to their customers enjoy higher profit margins on their products.
Why do manufacturers prefer direct distribution?To maintain control of the marketing mix. A producer that wish to have control of the marketing mix of his products will consider using a direct distribution channel. Also, the producer will enjoy better profits then when using intermediaries who will require to be offered the goods at a discounted rate.
What is a company that uses direct distribution?Companies Using Direct Selling as a Primary Distribution Strategy. Amway broad range of consumer products (skin care and cosmetics, nutrition, home living, etc.) Dell computers. Gateway computers. Mary Kay beauty and personal care products.
What is an example of direct distribution?Direct distribution channels are those that allow the manufacturer or service provider to deal directly with its end customer. For example, a company that manufactures clothes and sells them directly to its customers using an e-commerce platform would be utilizing a direct distribution channel.
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