The best method for getting your product to consumers can change over time.
Choosing the right distribution strategy is essential to move your products efficiently to customers. So how do you determine the right distribution strategy? The first step is understanding the key difference between direct and indirect distribution:
- Direct distribution means you take responsibility for delivering your goods into the hands of consumers. Many small business owners who are just launching their business use this method.
- Indirect distribution means enlisting a distributor to get your products to a retailer, who can sell on your behalf. As your business grows, this option may be more efficient and effective.
What’s right for your business? Compare the options:
Pros and cons of direct distribution
Direct distribution channels sell products or services directly to customers. Some examples of direct distribution channels include an e-commerce website, a company-owned retail store, or a direct sales force. On a micro scale, a jewelry maker selling small collections may choose to set up a website and sell directly to the public. On a larger scale, Apple sells directly to consumers through their online store. Keep in mind that while direct distribution channels may offer advantages, there are also potential pitfalls when not using an intermediary.
- Pros: You have total control over how the product is marketed and sold, and there is no fighting with competitors for shelf space at retailers.
- Cons: Going it alone may be more time-consuming and expensive for some business owners, and you may have more limited market coverage.
Pros and cons of indirect distribution
With indirect distribution, your small business sells wholesale to agents or retailers so that they can distribute the product for you. They store it, display it, and employ a sales force to market the product and ultimately get it into the hands of customers. Examples of indirect distribution methods include partnering with retailers, using wholesalers or distributors, or selling through online marketplaces. As with direct distribution, though, there are positives and negatives.
- Pros: Distribution agents specialize in getting products into as many markets as possible, and retailers know their local markets and how best to sell your product there.
- Cons: Distribution agents and retailers will share in your profits, and retailers may sell your competitors’ products alongside yours.
Choosing a distribution strategy
Determining the most effective distribution channel for getting your product to the consumer depends on what you’re selling, how much you’re willing to invest in distribution, and customer preference. In many cases, businesses use a blend of direct and indirect distribution channels that matches their needs and strategy. New small businesses generally don’t have the capital to pursue multiple distribution channels at the outset, so they need to choose one that fits, and stick with it while the business grows.
Generally, if your product is perishable or if you’re selling B2B, it’s helpful to have fewer distribution channels between your point of manufacturing and your customer. In such cases, direct distribution may be best. If, however, you’re aiming for a wider market with hopes of getting your products in front of as many consumers as possible, you may need to sell to distributors and let them handle this side of the business while you focus on making the product better or expanding your product line.
If you do partner with distributors, do some vetting to ensure that you align your small business with a company that can serve your needs. The goal is to develop a long-lasting relationship. You’re the product expert, but you’re leveraging their sales expertise.
Whatever your distribution strategy, it’s smart to stay flexible and adjust your approach as your small business changes.
As you make big decisions about your small business, make an appointment with a Wells Fargo banker who can provide products and services designed for your needs.
