As a manufacturer, two of the most important questions on your mind are:
– Would it be more profitable to sell your products directly to end-users?
– Or would you have more to gain by establishing a distribution network, thus also reaching more potential clients?
Both options come with a myriad of advantages and disadvantages. But which one makes the most sense for your company? Well, it depends on how quickly the option you choose can help you deliver goods to customers in a society where instant gratification has become the go-to marketing strategy. It also depends on your industry, products, and goals.
For example, creating your own distribution network will give you more control over processes. However, considering the large investments and high costs your own distribution network would require, perhaps partnering up with dealers would yield greater profit.
Let’s compare both solutions below so that you can make a truly informed decision.
The risks and benefits of creating your own distribution channel
If you want to sell directly to your customers, either online, in stores, or at trade shows, you have to be prepared to invest a lot of time, money, and human resources into this initiative. However, if you already have an existing distribution network, it would be a lot easier to simply extend your company’s geographical reach.
The best thing about interacting with your customers directly is that you retain a lot of control over how your products perform. This is because the direct distribution model allows you to collect valuable data on customer buying habits and behaviors.
Gaining such insights into your customers’ buying patterns will help you adjust your products to meet the specific needs of your clients. And this will set you apart from your competitors. It will also help you respond to customer feedback more efficiently, thus building stronger relationships with your users.
On top of that, you can have more control over how quickly your consumers receive your products without having to share profits with a third-party distributor or dealer.
But for all of its benefits, a direct distribution channel can also attract potential risks—with the biggest one regarding the start-up costs of investing in trucks, hiring drivers, and renting or buying storage spaces. Plus, it might take longer to build an audience and reach potential customers without the help of a well-established dealer.
The risks and benefits of partnering up with an established distributor
Indirect distribution or external sales channels come with their own users that may be converted into customers for your business. However, this intermediary model puts distance between you and your clients, making it a bit difficult to nurture brand loyalty. And it also increases the amount of time it takes to deliver your goods to consumers.
But the good part about this is that you can still bring your products to the table without the burden of start-up costs. So, if you want to share shipping and storage costs, make it easier for customers to find your products, avoid the complexity of managing distribution logistics, and leverage a dealer’s experience, infrastructure, and salesforce, then you might want to consider partnering up from the get-go.
You should only keep in mind that a successful partnership with a third-party distributor starts with a beneficial agreement regarding responsibilities, customer support, monitoring, and more—from the very beginning.
Which one should you choose?
Now that you’ve perused this quick overview of both direct and indirect distribution models, you might have already sensed which of the two matches your specific objectives the most. So, let’s take a moment to put things into perspective and have a side-by-side comparison of the advantages and disadvantages of each distribution model.
|Direct Distribution VS. Indirect Distribution|
|✔ Direct access to valuable customer data||✔ Access to a third-party salesforce|
|✔ Better responses to product performance||✔ Wider customer reach|
|✔ Faster delivery times||✘ Slower delivery times|
|✔ Non-sharable profits||✔ Shared shipping and storage costs|
|✔ Brand loyalty support||✘ Less focus on brand loyalty|
|✘ Expensive start-up costs||✔ Logistics support|
There’s no question about it—you can do it yourself.
The truth is that selling directly to your customers without the involvement of an intermediary is incredibly potent for brand loyalty, consumer trust, and customer relationships.
But intermediaries, such as dealers or other indirect distribution channels, can take care of delivering your products to your end users, so that you can focus on your manufacturing processes.
Besides, if you’re new to the market or if you’re a small or midsize business, you might not have the budget it takes to invest in start-up implementations. Simply adding a new location to your distribution map can cost you a lot of resources. However, a dealer can take the burden off of you, helping you extend your geographical reach more easily and quickly.
You can also rely on a competent dealer with local expertise to help you expand into unfamiliar territories. They will know exactly what people in a certain location want and need, so you can create and deliver products that satisfy them.
So, why not leave the nitty-gritty to wholesalers, retailers, and dealers? They can easily take care of the distribution process—from order and inventory management to product shipment and customer service initiatives.
It’s also worth mentioning that established dealers can rapidly tap into a network of retailers to provide extensive market coverage. So, you don’t need to build those retailer relationships yourself. You also don’t need to burden yourself with logistics issues, as both distributors and retailers can efficiently manage their stocks and fulfill orders daily.
Do you plan to introduce your products to a global audience?
If yes, then international agents, dealers, and other intermediaries can help a lot, especially if you’re a small manufacturing business. Their expertise will help display your products to a customer base you would otherwise not be able to reach on your own.
But, if you are not ready to sacrifice a little of your profit margins, brand loyalty, and customer relationships, then you might want to invest the time and effort it takes to do it on your own.