The pros and cons of direct and indirect product distribution
One of the big questions entrepreneurs face when launching a new consumer product is how to get it to market. Basically, there are two distribution channels to choose from:
1. Direct – The consumer buys the product from you online, in a store, at a trade show or by mail order.
2. Indirect – The consumer buys your product from a wholesaler, retailer, dealership or some other intermediary.
Is your product better suited to direct or indirect distribution?
Your first job when choosing your best distribution option is to consider your product. For example, if the item is perishable, you may need to invest in refrigerated storage facilities and trucks to handle its distribution properly. If this is too costly, you might be better off distributing through a wholesaler who already has this equipment. You may want to invest in some market research to better understand your customers and your competitors’ approach to distribution.
If you are still on the fence after looking at your product and market data, your next step is to weigh the options against one another.
The pros and cons of direct distribution
There are several advantages to going direct, especially when you’re just beginning and your market is easily covered. By interacting with your customers directly, you retain a lot of control over your product and its performance.
Direct distribution allows you to:
- collect valuable data on customer buying habits
- distinguish yourself from the competition
- respond to product performance and customer feedback
- get your products to consumers faster
- avoid sharing profits with a third-party distributor
- build relationships with your customers
Despite the positives, direct distribution also has some potential drawbacks.
One of the biggest challenges is the sizeable costs that can come with direct distribution. For example, you may need to purchase trucks, hire drivers and rent storage space. You may also find it harder to reach potential customers without the network an established distributor provides.
The pros and cons of indirect distribution
Going through external sales channels has its own benefits. Indirect distribution allows you to:
- share shipping and storage costs
- make it easier for customers to find your products
- benefit from your third-party’s experience, infrastructure and salesforce
- avoid the complexity of managing distribution logistics
The main challenge with indirect distribution is the distance it puts between you and your customers. By adding an intermediary, you are also increasing the amount of time it takes for your product to reach the buyer.
It’s also harder to establish brand loyalty when you are not interacting directly with your customer. Still, it is a good way of bringing your product to market without burdening yourself with the start-up costs of establishing your own distribution channels.
If you decide to go the indirect route, it’s important to clearly define the terms of your agreement with your partner from the beginning. You should agree on roles and responsibilities, training and customer support, reporting and performance monitoring, among other issues.