Distinguish between direct and indirect channels of distribution. What are the advantages and disadvantages of using indirect channels?
The correct answer and explanation is :
Direct vs Indirect Channels of Distribution
Direct channels of distribution involve the producer selling goods or services directly to the final consumer without intermediaries. Examples include factory outlets, company websites, and direct sales.
Indirect channels of distribution involve one or more intermediaries (wholesalers, retailers, agents) between the producer and the consumer.
Advantages of Using Indirect Channels
- Wider Market Reach: Intermediaries have established networks, helping products reach more customers and geographic areas.
- Cost Efficiency in Logistics: Distributors and retailers handle warehousing, shipping, and retail operations, reducing the producer’s burden.
- Expertise of Intermediaries: They often understand the local market better and can promote and sell effectively.
- Focus on Core Activities: Producers can concentrate on manufacturing and product development while intermediaries manage sales and distribution.
Disadvantages of Using Indirect Channels
- Reduced Profit Margins: Each intermediary takes a cut, reducing the overall profit per unit for the producer.
- Loss of Control: Producers have less control over how the product is marketed, priced, or sold.
- Slower Feedback: Customer feedback is delayed as it passes through several layers.
- Channel Conflicts: Different intermediaries may have conflicting interests, leading to pricing or promotional issues.
