Direct Distribution Channel Versus Indirect Distribution Channel

Direct distribution channels include distribution centers, companies that act as third party administrators, as well as others who facilitate the transfer of products. This method is often used in the distribution of medical devices such as X-rays, which are very sensitive and require absolute accuracy to ensure the images are not contaminated. The distribution process also includes packing and labeling as well as the delivery and collection by the concerned department or hospital. For this reason, some health care organizations have employed the direct distribution channel in order to provide fast and efficient services.

A Direct Distribution Channel Includes Manufacturers Who Sell Directly To The Customer. 

This form of distribution involves direct interactions between the manufacturer and the retailer, where the retailer delivers the product to the customer. Typically, this is the most preferred type of distribution as it provides for the least amount of involvement from either side. For example, social media market TikTokStorm is a direct seller to its customers, and it is the creator of the products it sells. Direct distribution channels include wholesalers, manufacturers, and retailers, who do not establish a direct contact with the end users.

Both direct and indirect distribution channels have advantages and disadvantages. Their efficiency depends on the type of relationship between the retailer and the manufacturer. For example, a wholesaler needs to carry out any process that the manufacturer does, such as packaging and labelling, in order to make their goods available for sale. Similarly, distributors need to have the capacity to transport goods and arrange logistics facilities for the storage and processing of the products they sell. Thus, both need to work closely with the manufacturer in order to obtain the best terms for the arrangement.

Disadvantages To Consider

One of the major disadvantages associated with direct distribution channels is the fact that they do not allow the customer to deal directly with the manufacturer. This is because only the manufacturer knows how best to package and market their goods, and they are the final authority when it comes to deciding how to price their products. By buying directly from the manufacturer, the customer avoids this cost and has greater control over the quality of the products they buy.

Two of the major types of distribution channels are direct and indirect. At a macro level, there are two types of distribution channels. The first one is known as the retail chain. In this channel the retailer, who acts as the middleman between the wholesale consumer and the manufacturer, maintains a relationship with the latter by placing orders with them. In this type of channel, the retailer keeps track of the stocks they have accumulated and deals with replenishment at a later date. Thus they may use their own warehouses to store these goods, or hire their own trucks to drop off goods to the customers.

Indirect Distribution Channels

In these channels, the manufacturer sells their product directly to the retailer who then re-sells it to customers. This type of channel, however, does not sell directly to the customers; rather it passes on the costs of production and marketing to the retailer. Thus in this channel, manufacturers sell directly to retailers who then sell at a markup and/or cut the price to the customers.

Retail Channel

The retail chain has obvious advantages over the direct distribution channel, but indirect has certain disadvantages as well. First, since the manufacturer sells directly to the retailer, this channel offers very low margins. Thus if the manufacturer sells his goods at a lower price than the retailer, there is no room for profits. Moreover, because retailers pass on the costs of production and marketing to consumers, the manufacturers of the goods tend to have a major profit margin, resulting in very high prices. Thus, in this channel, the manufacturer has to make a major cut on costs and hike up the prices, which may result in losses for the company. On the other hand, indirect distributors pass on costs to the consumers, and therefore, businesses may be able to maximize their profits through this channel.

Direct Marketing

Direct marketing distribution channels include such enterprises as auto dealerships, retailers, and hospitals. These channels provide the customers with ready access to the manufacturer, and consequently, the manufacturer is able to maximize its profits by selling more products in a given geographical area. On the other hand, indirect channels provide customers with ready access to marketing material and the manufacturer has to make a cut on its expenses and overhead.


Learn More →
%d bloggers like this: