Business owners might think that cutting out the middleman will hurt sales or benefit the company by reducing costs, but it’s not that simple.
If you build it, people won't necessarily come. Choosing the right distribution channel is just as important for selling products as setting your price correctly or creating catchy advertising. Distribution channels not only determine where customers can find you, but also how they see your brand. One distribution channel is direct distribution. This occurs when a manufacturer or marketer of a product sells directly to the end user, rather than using an intermediary like a retailer or second-party website. Business owners might think that cutting out the middleman will benefit the company by reducing costs, but it’s not that simple.
Advantage: Eliminates Intermediary Expenses
Using direct distribution eliminates the expense of using the middleman. Not only must you pay a commission when you partner with an intermediary, you also have service costs. Service costs can include shipping to the intermediary, training the intermediaries who sell your products, providing marketing support materials and handling returns.
Advantage: Increases Direct Customer Contact
When you use direct distribution, you interact directly with your customers beyond making a sale. You have a more vested interest in their happiness than a middleman does, so you can provide better customer support, including decreased wait times for customers to get an answer, better product knowledge, and more sympathetic responses to complaints.
Advantage: Provides More Control
When you sell direct to customers, you have more control over how products are displayed, promoted, delivered and returned. If you put your product in a retail store, you are at the mercy of the retailer, which has hundreds or thousands of other products to manage, promote and sell.
Disadvantage: Reduces Distribution Channel Options
One of the problems of selling direct is that you lose the other distribution channels offered by intermediaries. The more places you can sell, the more convenient it is for your customers. With this increased reach and ease of customer access comes more sales.
Disadvantage: Increases Internal Workload
Just because you are expert at making a product doesn’t mean you are prepared to promote and physically sell it. When you sell direct, you take on all of the work that an intermediary would otherwise handle. This include taking orders, processing payments, fulfilling orders, chasing down late-paying or defaulting customers, marketing tasks and customer service.
Disadvantage: Raises Fulfillment Costs
Direct selling can increase your expenses to deliver a product to customers. You not only take on the workload associated with fulfilling orders, but you also absorb expenses such as order-taking staff, credit-card processing fees, postage and shipping expenses, software, website maintenance, phone charges, fleet maintenance, billing and order tracking.