A big decision that business people have to make when introducing an item to the market is regarding the way to deliver it there. After all, there has to be a way for manufactured products to arrive at the end-user. There are basically two distribution channels businesses can pick from: ‘direct’ and ‘indirect’. As the name implies, these are different.
For an uninitiated, the term ‘distribution channel’ refers to a set of entities or middlemen through which an item goes through before reaching the customer. Note that a distribution channel applies to an intangible product or service as well. However, to make this comparison easier, we will focus only on tangible product distribution channels.
A direct channel of distribution allows people to purchase products from the producer, whereas the indirect one moves an item through different entities to take it to you. Companies using the former channel should have their own fleet of vehicles and logistics team. On the other hand, businesses using the latter channels have to establish relations with third-party vendors.
The whole point of having company distribution channels is to deliver products in an efficient way. Goods can be delivered directly to customers or be passed onto them through a retail outlet.
The producer organizes this channel of distribution and manages it. Setting up a direct product distribution channel is often a costly affair, one that occasionally needs considerable capital investment. Logistics systems, warehouses, delivery vehicles and delivery people should be there in place. When they are set up, it will possibly be a shorter, less expensive channel of distribution compared to the indirect one.
It is not easy to handle direct selling on a big scale, but this tends to allow the producer for having a better link to their customers. As a producer, do you control every aspect of this channel? If yes, you have much more influence over the way in which products are delivered, plus the processes of reducing inefficiencies, adding services and fixing rates.
There are intermediaries or middlemen in an indirect product distribution channel, unlike the direct one. These third-parties do almost every function of product distribution. When it comes to an indirect channel of distribution, you have to entrust a third-party with the task of getting your products to customers. Besides, that another company has to interact on your behalf with your customers.
Nevertheless, almost every effective logistics company is good at delivering assets in a manner that most producers cannot do.
An indirect channel frees the producer from startup expenses. With the appropriate relation, it is much easier to handle compared to a direct channel. It has layers of vendors, red tape and cost, which can make the customer cost go up, reduce the delivery speed, plus take control away from the producer. A producer is no shipping company. A business may be good at producing something, but it takes a different level of expertise to ship it in an efficient way. That company may be able to pay more attention to the core competency of it while outsourcing the shipping task to another entity that specializes in it.
|Point Of Difference||Direct Distribution||Indirect Distribution|
|People Involved||Producer and customer||Manufacturer, intermediary(s) and customer|
|Control||Producer has more influence over all distribution aspects||Producer has less control over aspects of distribution|
|Distribution Cost||More for producer||Less for manufacturer|
|Manufacturer’s ability to focus on core business||Potentially less||Potentially more|
Advantages And Disadvantages Of Direct Product Distribution
Interacting with consumers directly means you keep much control over the item and the performance of it. This form of distribution enables a company to:
- Gather valuable information about people’s purchasing habits
- Set itself apart from competitors
- React to consumer feedback and product-related performance issues
- Get goods to customers quicker
- Not share returns with another company, such as a distributor;
- Build relations with consumers
Direct product distribution has a few downsides too. A big challenge is the considerable expenses involved in it. For instance, you may have to buy trucking vehicles, recruit truckers to drive those rigs, and rent warehouses. You may find reaching potential consumers trickier when there is no network that an established product distributor offers.
Positives And Downsides Of Indirect Product Distribution
Indirect distribution enables a producer to share both storage and distribution expenses. Besides, it avoids the hassle of handling logistics. As a producer, you will be able to take advantage of your intermediary’s workforce, infrastructure, and experience. The biggest plus is that you can concentrate more on the main activity of your operation.
That said, there are challenges with this form of distribution. The biggest challenge is the amount of distance between a producer and consumers. By working with a middleman or a series of middlemen, you will increase the duration needed for your item to arrive at your potential purchasers’ custody.
Establishing brand loyalty is also much trickier when you do not interact directly with customers. Nevertheless, it is an excellent way to bring your products to the market without having to bear all the expense of setting up your own company distribution channels.