What are some advantages of indirect distribution and direct distribution?

What are the advantages and disadvantages of direct versus indirect distribution channels?

Steve Johnson Posted on February 17, 2017 Posted in MRKT 230 Introduction to International Marketing, Multinational

What are the advantages and disadvantages of direct versus indirect distribution channels? Discuss and give some examples of brands using one of the two channels or both.

Distribution channel plays an important role to have an effective, profitable business. There are two different types of distribution channels that are direct distribution and indirect distribution. Bothe have their advantages and disadvantages. Direct distribution involves personal selling, the internet, mail, telephones, etc. On the other hand, indirect distribution involves, retailers, distributors, agents broker, etc. advantages of direct distribution includes, personal CRM, effective relationship with customers, control of the brand image, low cost, easy to use, direct contact with the customers, etc. Disadvantages of direct distribution channel involve limited coverage, limited audience, fear of fraud, etc. on the other hand, indirect distribution channel advantages involves, wide distribution, a large range of customers, brand network, establishment of a channel, focused customer base and it helps to cover more geography (wordpress.com, 2013).  The most common examples are McDonalds and Wal-Mart they are using direct distribution channel that is the internet and Wal-Mart is one of the biggest retailers that is using indirect distribution channel. Moreover, McDonald’s have an express version of restaurants at Wal-Mart stores (Shareef, Dwivedi, & Kumar, 2016).

Nowadays, indirect sales channels are under pressure in various industries because of fierce competition and because online sales are here to stay.

That’s why, in recent years, many companies have started to look more critically at indirect sales channels.

They wonder whether they should start an indirect sales channel or whether they should cut back or expand their existing indirect sales channels.

Do you ever question the benefits of an indirect sales channel for your business? You’re in good company. In this article, you will find 4 unmistakable benefits of indirect sales. Pitfalls to avoid and tips to fully leverage the benefits of an indirect sales channel.

4 benefits of having an indirect sales channel:

1. You are tapping into an existing customer base

It takes a lot of time and effort to build trust with your end clients. Trust can vanish in a flash. When you work with resellers, however, you can build on the relationships your resellers already have with their customers. So, by using an indirect sales channel, you can reach more customers and you can leverage your partners’ brand recognition.

Evidently, using an indirect sales channel also implies there is an intermediary between you and your customer. Often, this means you don’t take part in the sales process. You also have little or no influence on the outcome of sales opportunities.

Moreover, external sales partners are often less passionate about your products and services than your own internal sales staff. And there may be conflicts between your sales partners due to territorial overlap for example. Or due to competition in the product and services portfolio they represent.

This is why you should be extremely selective about the intermediaries you partner with, to align business goals properly, to use incentive programs to keep your sales partners motivated and to provide regular training to enforce a common way of selling.

Tip: try to establish some kind of feedback loop with your end customers to gain insights to improve your offerings and to ensure your indirect sales partners deliver great service.

2. Indirect sales are cost-efficient

Resellers or indirect sales agents can often rely on their own sales and marketing teams and networks. They will probably have all the necessary procedures in place to deliver results in the most efficient way.

This offers great potential for expense sharing and cost-efficient measures. Leveraging established systems, processes and logistics drastically cuts the costs and time involved with expanding your operations, compared to setting up your own outlets.

Despite these benefits though, working with intermediaries can also come at a price. Depending on the type of partners and the value they provide you will need to share your revenues and be mindful of additional expenses.

Factor in these costs and ultimately weigh them with the benefits. Evaluate all costs of indirect sales partnerships along with the promise of revenues. In a well-managed indirect sales system, the efficiency gains will always outweigh the expenses.

3. Indirect sales increase speed to market

If you don’t have your own sales force or if you enter a new region or market where your brand doesn’t have a strong presence yet, indirect sales channels allow you to enter new markets quickly and easily, often at low initial risk and cost.

So, do you want to test a new product or service or do you want to increase your geographic footprint, indirect sales may be a good way to test the waters.

Bear in mind though that you have to select indirect sales partners that are on the same page regarding the way you want to enter and develop new markets. Otherwise, you may end up drawing the wrong conclusions.

4. Established logistics allow you to streamline, scale and focus

More often than not, resellers already have a certain level of logistical infrastructure you don’t need to worry about anymore. This offers incredible opportunities to streamline and scale your operations fast and easily.

Starting-up your own logistics, marketing and staff creates considerable drag and can become a burden. Leveraging the established logistics of your partners, on the other hand, allows you to focus almost solely on improving your products or services.

Of course, when your sales channels are independent, launching or having several campaigns, operations or rollouts can be difficult to coordinate. You need to think strategically about what is already working and what gaps in the process need to be filled.

Evaluate the success factors of your existing channels and channel partners and use those to build on. Make sure to have the proper plans and business relationship management tools in place to get your new partners up to speed quickly.

Conclusion

The dynamics of indirect sales have changed considerably in recent years, so it is important to apply a methodical approach when it comes to indirect sales.

Indirect sales can be a giant accelerator for your business because you are tapping into a new customer base in a cost-efficient, quick and scalable way.

To establish a successful indirect sales channel though, you should be careful to avoid channel conflicts, excessive costs and coordination issues. Moreover, you will have to adapt to the new reality of well-informed and critical end customers.

Those who manage to grasp the way customers engage with each sales channel and adjust their distribution accordingly are the winners of the future.

Learn more benefits of an Indirect Sales Channel and get access to the BRM Academy movies

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Written by : Frie Pétré

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