Direct sale or channels sale ?

One of the major challenges of the manufacturers or marketers is how to deliver goods to the target market. In particular, the decision to choose how to distribute the product to the place of purchase, consumption is also an important decision for the marketing manager. According to American economist- Phillip Kotler, place (or distribution) could be interpreted as various companies undertake to making the product accessible and available to reach target customers or to bring the goods to the customer’s hands at the right time and right place.

Manufacturers and consumers are the two key components of the market, intermediaries (wholesalers, retailers, agents, brokers) perform the tasks of eliminating the gap between them. The ways of transferring goods from the manufacturer to the end-customer is called ‘’distribution channels’’ or ‘’marketing channels’’.

A distribution channel is defined as “a network of firms that are interconnected in their quest to provide sellers a means of infusing the marketplace with their goods and buyers a means of purchasing those goods, doing all as efficiently and profitably as possible” (Iacobucci, 2014, p.127)

In view of approaching customer methods, distribution channels can be divided into two types: direct and indirect channels.

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Figure 1. Distribution channels

1. Direct channel (Zero-level channel)

In short, direct sales is a form of  that companies provide goods and services directly to their consumers without any middleman or a merchant. “The shortest distance between two points is a straight line”, then it is considered  the shortest way that manufacturers can apply to distribute products or services.

With this channel type, it ensures tightly communication of the manufacturer, to strengthen responsibility in the market, ensuring the leading of manufacturers in the distribution. The information collected by manufacturers will be more useful and practical, manufacturers  contact direct with customers, capture their needs easily than through the intermediary distribution.

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Figure 2. Examples of direct sales of some brands

The elimination of intermediaries seems like a good idea because of the direct selling means you keep all the profits; no one is taking a piece of your sales. In fact, on further consideration it is not always true. The direct sales is full of hidden costs – staff turnover and overheads.

2. Indirect channel

Distribution is a set of personal or business establishments interdependence involving the process of creating and delivering products or services from producers to consumers.

 Distributors, wholesalers and retailers is the leading channel’s business customers have large numbers scattered everywhere. Since then, leading to the manufacturer cannot meet enough resources to “run” a direct sales operation. But business will not directly control customer relationships, but they can take the form of impact on the level of distributors serving customers.

An indirect channel can be very complicated, with several levels:

  • One-level channel : one intermediate = use retailers or distributors to sell products to consumers
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Figure 3. Distribution of some brands with one-level channel

  • Two-level channel: contains two intermediary levels – a wholesaler and a retailer
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    Figure 4. Two-level channel of some brands

    Direct or Indirect sales?

    The direct sales model is usually suitable for smaller businesses, as it allows a more personal interaction with customers. For new companies, direct sales to help them have the opportunity to answer questions and resolve customer concerns. With collecting valued feedback, you can catch and correct problems in the early stages and prevent customer dissatisfaction.

    Direct sales can be best for fragile products that need to get into the hands of customers sooner and market products at customers. Avon and Dell (in the early business) are two examples using a direct sales model to sell their products through catalogs.

    This is one of Avon catalog campaigns : Avon campaign brochure 2016

    https://www.youtube.com/watch?v=lc1X91qST0Q

If the company has offices in multiple cities or even countries, channel sales model may be ideal. For some reason it cannot be made or produced to open the sales department at multiple locations, large companies often choose to use external retailers. In addition, sales channels may be ideal for companies that sell complex products require a large amount of troubleshooting. Not only is an experienced re-sellers can sell the company’s products, but also the sales team can provide a complete service solution to meet customer needs related to the installation and repair.

A typical example of companies using the indirect sale is Microsoft with its product ‘’ Microsoft software’’. Microsoft sells software through “channel sales” because Microsoft wants to achieve a level of global sales, which is difficult to obtain, if it becomes a retail operation.

Microsoft distributes software through software installed on new PCs, tablets, servers, phones and other smart devices that they sell and supply licensing of software products for other companies Hewlett-Packard computers, Toshiba, Acer, ASUS, Dell, Lenovo, Samsung.

Have a look on Microsoft advertisement about offer to supply Microsoft software products to its partners :

The graph below shows us that Microsoft licenses (Windows 7, Windows 10) occupied the vast majority of the market share in the US market at the present.

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Figure 5. Windows 7 and Windows 10 are the most popular computer software in the US

Some companies like Apple now primarily sells products through its website and retail stores. Apple stores are one of the most successful stores around, generate more revenue per square foot than any other retailer in the US. In 2012, CFO Peter Oppenheimer confirmed that Apple’s 372 stores earned $ 4.1 billion in revenue.

This video show us about one of internal Apple Retail store

In order to massively expand the purchase of products worldwide, such as the iPhone, Apple has allowed re-sellers to sell their products. According to the 2012 Consumer Intelligence Research Partners (CIRP) survey  of 1227 US consumers, while the Apple stores are the most consumed MacBooks and iPads at this period, they did not sell nearly as many iPhone as retailer partners of the company. With 28% and 26% of total Iphone sales, AT&T and Verizon stores sold more than 21% of Apple stores.

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Figure 6. Comparison of Apple’s products sales by retailers

 

 

 

 

 

 

 

 

 

 

 

Both Microsoft and Apple use channel sales for its effectiveness and in different ways. Microsoft wants to reach as many customers as possible, while Apple wants to expand the sale of their popular products. Apple has developed a mixed method to reach customers, allowing it to occupy a market share through retailers, while keeping some control over the number of individual products sold.

Eventually, no distribution model is absolutely perfect, business owners need to weigh the benefits and limitations of both before choosing the best fit for them. In short, businesses want to manage successful distribution channels will need clearly defined the target distribution. Since then, choose the appropriate distribution channels for company size and find the right partner sales channel is crucial to design the distribution system and effective long-term management.

 

References:

TIEN DOAN

ID: 215347081

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