Distribution Policy 2

Meaning of Distribution Policy Part 2


Basic sales strategy

When choosing the preferred sales strategy, you can choose between direct and indirect sales, although mixed forms are not uncommon. Both approaches have advantages and disadvantages, so there is no clearly better or worse form of distribution.

Direct sales

In direct sales, the goods or services are sold by the producer to the end customer . The manufacturer usually incurs storage and personnel costs. Classic forms of sales that count towards direct sales are, for example:

  • Warehouse or factory outlet
  • Selling products in your own online shop
  • Sales through market stalls
  • Doorstep Selling
  • Mail order

According to psyknowhow.com, direct sales are particularly suitable for products that require high quality advice. In addition, the producer in direct sales has control over the presentation of the products and customer communication, which can contribute to customer loyalty. Damage to reputation, which can occur due to problems with middlemen, is also excluded with direct sales. Direct distribution can be costly, depending on the product or service. The establishment of a regional or supra-regional sales network also usually takes a lot of money and time.

Indirect distribution

In the case of direct sales, one or more intermediaries are involved who resell the product to the end customer. Depending on the organization, a distinction is made between single-level or multi-level sales channels. If the product is sold directly to a retailer or sales agent, it is referred to as a one-step channel .

Conversely, if the product is sold to a wholesaler who in turn resells it to retailers, it is a two-tier channel . This principle can be scaled as required, whereby the profit for the manufacturer decreases with each additional middleman.

However, indirect sales have the great advantage that middlemen usually already have a large reach and an existing customer base, which in turn is beneficial for marketing. Indirect sales are generally associated with high costs and have the threshold that in the first step suitable wholesalers and retailers have to be convinced to include the desired product in their range.

Mixed distribution form franchising

The Franchising is a special form of distribution that is not suitable for all products. The advantage of the system is that a new sales network can be set up relatively quickly. The initial costs of this business model are undoubtedly high for the manufacturer. First of all, the necessary legal framework conditions have to be evaluated and appropriate contracts drawn up. Then you have to find franchisees who are willing to pay the franchise fee and adhere to the guidelines.

As a manufacturer, how do you find the right sales channel?

When choosing the right sales channel, the key question is how the product can best be offered to the customer.

New online sales channels offer manufacturers undreamt-of opportunities that can only be fully exploited if they become part of the corporate strategy. Traditional sales channels, in turn, offer the advantage that the manufacturer can fall back on established processes and existing networks. This enables cost savings.

Ultimately, the product, the target group, the desired trade and sales volumes and the vision that the company has for the product determine the distribution channel.

Online distribution channels

Products and services can be sold online either via the company’s own web shop or via partner networks. Your own web shop has the advantage of direct customer communication, but requires a well-founded logistics and warehousing process in the background.

In contrast, the use of online marketplaces such as eBay or Amazon is an interesting alternative. These portals have an almost immense range, with Amazon even taking over storage and complaint processing for a surcharge for manufacturers. Trading platforms on the Internet, however, harbor the risk that competing products are just a click away for the customer. Bad reviews or non-competitive pricing can therefore have a negative impact on sales.

Warehouse sale

The warehouse sale counts as a direct sale and has the advantage that no fee has to be paid to intermediaries and the last mile to the customer can be kept short. The producer bears the costs for storage and logistics. In addition, your own staff is required to take over the sales. The big bonus of stock sales is direct customer contact, which enables feedback from customers. This feedback can later be incorporated into product development, which enables competitive advantages.

Mail order

While mail order business was en vogue 20 to 30 years ago, nowadays hardly any mail order company can do without an online presence. Classic catalog stores are still in demand, but the trend is falling sharply. In particular, the constant availability of new offers and promotions and the speed of the Internet are advantages that hardly any customer today would want to be without.

Mail order can make sense as an additional sales channel for certain products. From a strategic point of view, however, it is not advisable to focus on the mail order business, which only works with printed catalogs.

Retail and specialist trade

Retail and specialty shops are suitable for a wide variety of products, and the products must be sold to dealers at competitive prices. Often there are also fees for the retailer to include the product in their range. In addition, there is always a reputational risk in this context, which means that mistakes by the retailer can fall back on the producer. Depending on the product type, it is also possible to conclude exclusive contracts and partnerships. With this approach, advice-intensive products can also be successfully sold through dealers.

Commercial agent

Commercial agents work independently and are only bound to the manufacturer via a contract. Commercial agents can also sell products from several manufacturers. Whether it is worth selling through a commercial agent depends on their network, the design of the contract and the nature of the product. The alternative of handling sales through a commercial agent can therefore be a very good or very risky option, depending on the general conditions.

Distribution Policy 2