The direct distribution channel represents an arrangement of intermediaries or companies through which the final consumer purchases a product or service directly from the maker. Direct distribution channels include direct wholesalers, manufacturers, distributors, and even the Internet. In a direct distribution channel, the maker sells directly to the customer.
Direct distribution channels include direct wholesalers who directly sell to retailers.
Retailers buy directly from the wholesaler, passing the savings along to the retailer. While some companies allow retailers to order products from their catalogs, others sell directly to customers in retail stores. Direct distribution channels include stores, malls, and outlet centers, as well as websites such as Amazon and eBay.
An indirect channel passes the savings from a manufacturer or wholesaler to a retailer.
In an indirect distribution channel, retailers purchase from the manufacturer or wholesaler, pass the savings on to the retailer, and then the retailer distributes products to the end-user. Examples of indirect distribution channels include wholesaling by manufacturers to retailers, and manufacturers offering retail stores exclusive or first-run offers. In network marketing, direct distribution channels include network marketers directly contacting buyers.
Other examples include media buying, where producers contact buyers and pass on sales information between the producer and buyer; direct mail marketing, in which producers or sellers send electronic or printed advertisements to customers and consumers; telemarketing, where sellers or producers contact potential customers for sales; and referrals, where representatives visit potential customers and ask for business.
Different industries utilize different distribution channels to reach their markets.
The automotive industry, for example, uses direct distribution channels to reach end consumers. A distributor buys directly from the automaker and passes on savings to the retailer. Similarly, manufacturers distribute directly to dealers or directly to end consumers. A network marketing company, on the other hand, would use a multilevel distribution system to attract members to its company.
With respect to pricing, the difference between direct and indirect channels is typically determined by the level of competition between them.
In a direct channel, there is little or no direct competition because the product is widely available and can be sold to end users. Because it is not priced competitively, it tends to attract higher unit values. On the other hand, in an indirect channel competition is common but the benefits are typically lower because the cost of establishing the business and maintaining an inventory are relatively lower.
There are many more advantages of using the direct and indirect distribution channel over a wholesaler or retailer. As the direct channel becomes more competitive, retailers may not have as much room to reduce prices and wholesalers may be unable to provide price discounts to retail customers. The indirect channel provides a flexible means for all businesses to establish their own profit margins. This is why it is increasingly being used by retailers and other types of organizations.