Every manufacturing company must ask themselves when developing their sales strategy for 2019 whether or not they should sell their products through intermediaries. Basically, two channels can be distinguished, through which sales are handled – direct sales and indirect sales.
First and foremost, companies should be clear about which sales strategy is the right one. There are basically two different types of distribution. In the case of direct distribution, the manufacturer sells his product himself to the end users. It does not matter if it is a company or a private person. Indirect sales, on the other hand, are sold through legally independent intermediaries. This can be wholesalers and retailers, but also so-called processors, so for example craftsmen. If you want to be successful with your company, you should develop a differentiated sales strategy and examine which options are possible to optimize the existing distribution.
Which way is the right one?
Whether start-ups, medium-sized companies or large companies – which form of distribution is the right one, depends on numerous factors such as the character of the product. For example, simple, standardized products are easier to sell via intermediaries than complex goods requiring explanation, which may need to be customized according to the individual needs of the customer. The financial strength of the manufacturer also plays a role that should not be underestimated during the decision-making process. If you want to build your own sales, you must be able to afford them and bring the appropriate capital for the development. Companies that can not do this can not avoid organizing sales at least partially via intermediaries.
Also relevant is how the positioning of the company, the sales and the competitors is structured. If the competition sells its products through intermediaries, it may make sense to position themselves in the opposite direction and to sell their own products directly to the end consumer in order to establish themselves as a premium supplier. Other factors for choosing the right distribution channel may be performance or product related, customer, corporate or competitive.
Advantages and disadvantages of the models
Although distribution via independent agents such as wholesalers or retailers has many positive aspects, it is more difficult to control than sales with one’s own employees. The establishment of a direct sales with own employees binds a lot of capital and resources in administration and logistics. However, since mid-term fees are eliminated, the profit margin is usually higher than for indirect sales. Two factors are particularly relevant to the decision of many companies when it comes to direct sales, at least in sub-segments.
First, in direct sales, sales people are employees of their own company. Their work, ie the contact with the target customers, is therefore easier to influence than is the case with indirect sales and also stays in-house. Thus, a long-term customer relationship can develop, which offers additional cross and upselling opportunities that would otherwise remain reserved for the mediator. Moreover, it is important to leave the right overall image, especially with high-quality products. This does not start with the product, but with the sale.
Secondly: In the case of indirect sales, the company depends on the good will of the intermediaries, as these ultimately have personal contact with the customers. So it is not the power of the manufacturer to show how strong and active the agents are in promoting their products.
Combine distribution channels
In practice, many companies combine the two variants as needed and distribute their products both directly and indirectly. For example, it is possible to differentiate the sales concept according to product and customer groups. Common practice is also to shape the sales concept differently from region to region. Indirect sales is an effective means, especially in the early stages of international expansion, to assess market potential as cost-effectively and as risk-free as possible.
Choosing the right distribution channels requires a comprehensive market analysis. It is particularly relevant to know your own target group and their needs. Manufacturers must conduct a comprehensive analysis, all at the purchase decision, directly and indirectly. involved persons and organizations. Those with whom this information is available can also assess whether it is important for buyers to have direct contact with the supplier and to establish a close bond with the brand, or whether it is more important to be able to react flexibly to the requirements of the consumer – speaking for as little as possible fixed costs. As so often, there is no universally valid answer in this case. The distribution channels differ in each individual case from the individual requirements and goals of the providers.