Why do people use indirect distribution?

We talk a lot about channel sales theory in this post, but it’s important to remember that indirect sales are a fast-growing area of business. Every day, more companies are investigating at least the possibility of moving to an indirect-sales channel model, if not actively taking steps to grow an ecosystem.

With that in mind, we’ve decided to publish a series of blogs intended to be a complete resource on the basics of indirect sales and the formation of indirect-sale ecosystems. 

Why become an indirect sales focused vendor in the first place?

Embracing indirect sales channels can be a big leap. You’re no longer selling to the public directly, instead selling to authorized third-parties who are working on your behalf to provide your goods and services. The key distinction is that these sales and distribution partners don’t work for you directly. Instead, you’re building a network of such partners regionally, nationally, or even globally.

The Benefits:

• Faster expansion: When you’re almost exclusively working with established outlets, that drastically cuts the costs and time involved with expanding your operations, compared to setting up your own outlets.
• Leveraging brand recognition: Maybe few in the public have heard of your brand, but if you’re selling through a major retailer plenty of people are going to hear about your brand.
• Streamlining operations: Having a huge operation with hundreds or thousands (or more!) employees creates considerable drag and can become a logistical burden. You might think of this as “outsourcing” your sales outlets! Your focus as a vendor becomes much more narrow, dealing almost solely with improving your product or service.
• Cost of lead acquisition and sales: You're going to slash your operational overhead when you move to an indirect sales model. Overhead will grow more slowly in proportion to your overall reach, compared to owning your own outlets.
• Customer access: Many local sales partners makes it easier for customers to connect with your brand, and receiving the training or other information they need to make the most of it.
• Experimentation: Whether it’s trying out new marketing campaigns or testing out new products, there will always be a sales partner willing to help you test the waters.

Of course, there are disadvantages as well – although most can be mostly mitigated through smart management and technology investments that support your sales network.

The Drawbacks:

• Loss of control: While it’s now easier to manage your sales partners thanks to online connections, you will never have the same level of direct managerial control as you would owning your own outlets.
• Lower per-unit profits: Obviously, with new middlemen in place, your raw profits will be lower. However, in a well-managed ecosystem, this should be mitigated by the overall lower costs.
• Competition for channels: Top sales outlets can be courted just as heavily as any other business partner. You’ll need to put in work maintaining mindshare and engagement across your sales channels.
• Difficulty coordinating: Efforts such as simultaneous product rollouts can be extra-challenging when your sales channels are independent. However, even global rollouts are still possible!
• Slower feedback cycles: Having retailers between you and your end-customers can create challenges maintaining proper feedback. This too can be mitigated with good communication.

So, moving to indirect sales isn’t entirely without risk – but plenty of companies are finding that the benefits, particularly the lower costs, are worth that risk.

LogicBay Can Put You On The Path Forward

Interested in becoming a channel sales vendor? LogicBay’s proprietary methodology and technologies can get you off to the best possible start. Contact us today to learn more!

As marketers, we constantly have to be thinking about how a good or service gets from one place to another. Most of the time, we think of campaigns and strategies on how to give our product the best shot at success. But what about literally getting a product or service from one place to another? That’s where distribution channels come in. Through this article, you will learn what indirect distribution channels and direct distribution channels are, as well as what they can do for your business!

Table of Contents

What is a Distribution Channel?

Simply put, a distribution channel is the path your product takes to get to a consumer. This can include other businesses, wholesalers, the internet, and so on. It basically tracks the steps it takes to get your good or service from its production point to the consumer’s hands. There are two main types of distribution channels, with each fitting a specific business model.

Direct Distribution Channels

The first type we will cover is a direct distribution channel. This form of channel is specific to manufacturers who sell straight to the consumer. Companies with a direct distribution model do not outsource at all when selling their products and are responsible for all aspects of transporting them. This includes having a warehouse, delivery service, logistics & delivery teams, and so on. Direct distribution requires more work from a company, but it also comes with specific benefits!

Indirect Distribution Channels

The other model of distribution is referred to as indirect distribution channels. Through this set up, companies can rely on outside experts to handle their distribution needs. This leaves more time on their hands for other parts of running the business, but takes away from the amount of control the company possesses. Just like direct distribution channels, indirect distribution has pros and cons of its own.

Which Distribution Type is Right for Me?

Deciding which distribution type is right can be a critical part of determining your business’ success. Choosing the wrong option can lead to the loss of capital, resources, and even sales. Luckily, we are here to help you weight out the variables and decide which model will help your business bloom!

Pros and Cons of Indirect Distribution Channels

Indirect distribution allows for additional time and focus on your core business. With one less aspect to handle on your own, you may work more efficiently as a whole. Outsourcing distribution also erases the start-up costs a business would incur if it were to handle this process alone. Between a shipping warehouse, vehicles, and additional workers & services, this is no small investment to make. One less responsibility and some money saved early on can make a big difference for the right business.

While you may be saving money early on, chances are you’ll end up pay more in the later stages. Start-up costs can be expensive, but outsourcing and multiple layers of distribution tend to require good payment as well. These costs don’t dissipate as well either, as they stay relatively constant over time. Indirect distribution also means placing your merchandise and consumer interactions in another’s hands. This applies to your level of control as a whole, whether it be with price, shipping speed, handling, and so on. Make sure you trust your business partners, especially with a responsibility like this!

Pros and Cons of Direct Distribution Channels

Taking on distribution yourself as a business owner can be daunting, but it can also come with rewards. The main benefit of direct distribution channels comes from the amount of control you retain over the process. Handling your own distribution ensures that your business runs exactly how you want, without any disconnect you may experience while utilizing a partner. This is especially important with speed and price. Making sure your customer gets the best experience possible is what is most important, and elevated costs and shipping time can create issues with their experience (like you may see through indirect distribution). Lastly, while costs may be high at first, direct distribution usually ends up being more cost effective over time as you don’t have to continuously pay others to do it.

There are many benefits to this form of distribution, but benefits always come with downsides. As we mentioned earlier, start-up prices can be quite high if you are planning your own operation. These elevated costs can prove problematic, especially for companies still trying to establish themselves in the market. There is also a list of responsibilities that go along with the list of costs, adding multiple new things to take care of as a business owner.

Indirect vs. Direct

So, which channel type should you pick? Listing out the pros and cons of each kind helps us differentiate the options, but it still may not tell the whole story. When deciding which distribution channel to use, make sure to consider these aspects too:

• Know your product– Does your product lose value with time? Is it perishable? How is it best transported and cared for? These are all require answers and should align with the type of channel you choose to use.
• Know your consumers– Where do your consumers shop most? Are they tech-savvy, or do they visit retail stores more? How highly do they value quick shipping and service? Answering these questions can point you in the right direction.
• Consider competitors– Observing companies with the same target market as you can prove to be very informational. However, don’t only look to competitors for what they are doing, but look deeper into why they are doing it that way. How can you capitalize on better knowing and serving your market?
• Explore the options– Before making your final decision on which channel to choose, gather some real life experience. Look into direct distribution costs and requirements, as well as indirect. What distribution companies or services are available around me? Give yourself the best shot at making the right choice!

Types of Indirect Distribution Channels

Direct and indirect distribution channels are separated by the way the differing models are structured. However, there are more specific categories to consider, especially on the indirect side. In order to provide a holistic view, we will cover two of the main forms of indirect distribution and what they are built to do.

Retailers

The first major kind of indirect distribution is done through retailers. A retailer is an individual or group that purchases/produces goods and sells them directly to a customer. Retail shops are seen all over the place, including your local Target, CVS, convenience store, and so on. If you are selling your product through retailers, this usually means it will only pop up at certain stores. However, this could be either a good or bad thing for your brand, which we will get back to shortly.

Wholesalers

The second major form of indirect distribution refers to wholesalers. Wholesale differs from retail through the fact that this process distributes bulk quantities of a product to multiple different sources of distribution. These sources usually end up being retailers, but through wholesale, you are able to reach multiple different outlets with different target audiences. This process can be carried out by the manufacturer, which would imply direct distribution, but many times it is done through outsourcing.

Which is Right for Me?

Now that you have a good understanding of retailers, wholesalers, and the differences between them, it is important to consider which may be right for your brand. In order to decide this, we first have to cover the benefits and downsides each possess.

Wholesale Ups and Downs

Utilizing wholesale is one of the best ways to increase your brand awareness. Wholesale allows you to spread your product across multiple channels of distribution, reaching people in different locations, cultures, and demographics. This can help grow your business and expand your reach, offering promising results in return. Distributing your product across numerous channels can also set up future business endeavors that retail may not help with. It can be much easier to penetrate global and non-local markets through marketing when consumers in these areas are already familiar with your product.

While wholesale sounds promising as a way of indirect distribution, it also has its downsides. The first and most prominent issue pertains to your brand identity. Utilizing a wholesaler can take away from your connection to the product, leaving consumers confused about who actually produced it. This can also create a problem with your brand consistency, as you are providing your product to many different outlets with different mindsets.

Retail Ups and Downs

Retail, on the other hand, allows you to control most aspects of your brand with ease. When selecting specific retailers, you can control what audience you are trying to reach, as well as how you will reach them. This all stems from being more connected with your product and consumer. Knowing that your investment is going towards targeting the right consumers in the right way can be the key to success for a specific brand.

While you have a higher degree of control through this model, retail offers much less visibility. Targeting a specific audience through a specific retailer can lead to issues with your product and its growth, especially if you do not have a large reach to begin with. Prices are likely to be higher and sales are likely to be lower through retail too, solely based off of the fact that you are dealing with lower quantities

Which Should I Pick?

Picking between retail and wholesale eventually comes down to your business and marketing objectives. If you value creating and upholding an image for your brand, retail might be the way to go. However, if you are still relatively unknown and are producing large quantities of product, wholesale may give you the best shot at success. Whichever direction you decide to go in, make sure you weigh your options carefully and consider all aspects of your business operation.

Still Need Help?

Indirect and direct distribution channels may be new concepts to you. They may also be familiar as concepts to you, but not in practice. Whatever the case may be, if you are still struggling with this topic, don’t worry! Our professional marketers here at SEO Design Chicago are always ready and available to help. Make sure to contact us if you would like further guidance regarding this topic.

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