In order to survive in today's business environment, companies must ensure that their products reach the market effectively at minimal cost. One method of distribution of a company's products is direct distribution that entails selling of company's products directly to the final customer without involving middlemen. When a company uses this method of distribution, the company's retail shops, sales staff, website, mail order operations and telephones are used.
Costs associated with selling directly to the consumers are high compared with using intermediaries for the same level of sales. This includes costs of hiring and training salespeople, travel and transportation, telephone and postage costs. In addition, the overheads of opening and maintaining retail outlets and hiring work force to look after such operations are high.
The company using direct distribution covers limited regions due constraints in terms of personnel, funds or licenses to enter some territories. Additionally, since direct distribution is used for the most complex sales opportunities such as highly customised solutions, large customers and complex products, professional account management, deep product knowledge and highly skilled salespeople are required. Consequently, such constraints result in low sales volumes compared to when middlemen are used.
Limited Consumer Choice
When a company is sells directly to the consumers, the consumers will have limited choice on the products to buy. Middlemen have established networks throughout which enables them to avail differentiated products to consumers.
Limited customer focus.
Companies will most likely focus on the sales volume rather than targeting customer needs and their satisfaction. Additionally, the salespeople are driven by the need to earn large bonuses at the expense of customer satisfaction. Customer loyalty and poor brand image will result leading to declining sales in the long run.
Researching on new customers and visiting them to sell the products consumes much time. The salespeople spend most of their time haggling with customers over the price. Additionally, time is also spent following up on the existing customers to ensure repeated buying in future.
Minimal After-sales Services
Salespersons usually travel from one location to another distributing the firm's products to customers. This mobility means the business might have a risk of not offering after-sales services to its customers. After-sales services are provisions and benefits offered to the consumer after the product is sold. They include advice and training on how to use the product, warranties, routine maintenance and repairs in event of breakdown. They are beneficial for the purposes of retaining the customers and survival of business.