What Is a Direct Channel of Distribution?
A direct channel of distribution is the means by which a company gets its product straight to the consumer without using any intermediaries. Some businesses may utilize structures that involve middlemen to handle the distribution of their goods. However, a company that is responsible for the sale, transportation and delivery of its products directly to the customer is using a direct channel of distribution.
Small businesses in particular may find it more cost effective to use a direct channel of distribution, since they may not have the financial resources to hire others to take care of their marketing, sales, shipping or delivery needs. Consider an artist who specialized in making handmade pottery. She may set up a website to market and sell her wares. She may also promote and sell her work by attending craft fairs and artisan markets within their region. Utilizing these consumer-focused, relational avenues of distribution, she is able to limit her expenses. Expenses could be limited to website hosting, show entrance fees and display space, transportation and perhaps some shipping costs.
Direct channels of distribution also allow owners to maintain control over certain aspects of their business. They can create and direct the branding for their products as well as establish personal relationships with customers. They also eliminate in-store competition with others who sell similar products. When a consumer is viewing their product in person or online, he is the only one on the stage, and hopefully, the one-on-one engagement can win the sale.
There are several issues to consider, however, when deciding to distribute your product to consumers directly. Although you save money by not paying someone else to distribute your goods, you still need to make an investment in getting your product into the market, especially for larger scale companies, in particular. That may mean purchasing delivery trucks, acquiring warehouse space for inventory or hiring employees to help with shipping. The expense will be proportional to the scale of your business, but the process becomes more complex, as the business grows. At some point, it may become more cost effective to involve a middleman to handle the distribution aspects of the company, rather than make large capital investments.
Secondly, there are tax issues that can complicate the distribution process. For a business that is handling the sale of products through a website, tracking sales and reporting sales tax for items sold to customers within their state becomes a time consuming accounting detail. Rather than recording a few sales to distributors or retail stores, the business must now add extra accounting responsibilities to their workload. For some owners, getting others involved may be a way to keep themselves focused on production rather than distribution.