What is a direct distribution channel? Main components in the channel
Distribution channels play an important role in determining the path a product takes from the manufacturer to the final consumer. In the article below, let's learn more deeply about the concept of a direct distribution channel as well as the main components in the channel with 1C Vietnam.
1. What is a direct distribution channel?
A direct distribution channel is a form of organizing and managing the transfer of products from the manufacturer to the final consumer without going through any intermediary channels. In a direct distribution channel, manufacturing or service providing businesses interact directly with customers, ensuring a strong connection between steps in the distribution process.
The use of this type of distribution rarely involves wholesalers or other distributors, as the companies typically process and sell the products themselves. This can help companies increase sales and save on marketing costs because they can promote an item through their own website and in-store flyers.
2. Components in the direct distribution channel
Direct distribution channels often have the following main components:
- Manufacturer: A business that creates/provides/manufactures products or services using its own resources to bring to the market.
- Distribution agents: These are the units that will be responsible for promoting, storing and transporting products to final customers. The distribution agent here is the manufacturer's agent, under the management of the manufacturer.
- Final customers: Are consumers who will use products or services from the manufacturer.
In the direct distribution channel, the product will be brought from the manufacturer through the distribution agent and then directly to the final customer without going through any third party. This form will have the advantage of optimizing costs, improving management efficiency, helping businesses ensure product quality as well as establish monitoring processes more easily.
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3. How does direct distribution channel work?
Direct distribution channel activities include a series of steps that bring products from the manufacturer to the final consumer without going through intermediaries. Here's how a direct distribution channel basically works:
- Production: The first step is to produce the product. Manufacturers are responsible for creating products of appropriate quality and quantity to meet market demand.
- Warehouse: Finished products will be stored at the manufacturer's warehouse or at their storage facilities. This warehouse holds products in reserve to serve market demand.
- Ordering: Consumers or agents or other business partners will place orders directly from the manufacturer. Orders may be submitted via website, telephone, fax or other means of transaction.
- Order processing: The manufacturer processes the order, checks order information, selects products from inventory, and confirms delivery.
- Delivery: Products are packaged and shipped from the manufacturer's warehouse to consumers or other retail locations. The manufacturer is responsible for delivering the product to the right location and at the right time.
- After-sales service: After the product is delivered to the consumer, the manufacturer continues to provide care services such as technical support, warranty and repair if needed.
- Direct interaction with customers: In direct distribution channels, manufacturers or service providers can interact directly with consumers. This helps them capture feedback from customers and improve the product or service over time.
- Data and information management: Manufacturers track data related to sales processes, inventory levels, market trends and customer feedback to effectively manage distribution and adjust strategies. business strategy.
4. Advantages of direct distribution channels
Direct distribution channels are widely used in many different fields. This is thanks to the benefits this form brings to business activities including:
4.1 Ensuring product quality
One of the advantages of direct distribution is that businesses can focus on improving quality in different departments. Businesses can come up with the best way to produce, market, package and ship products. This allows the business to evaluate the product and make changes if necessary.
4.2 Receive feedback directly from customers
The advantage of direct distribution is the company's ability to receive feedback directly from customers. This feedback can include in-store or online surveys where customers rate their experience with company representatives and the quality of the product. This allows businesses to further improve customer experience and encourage repeat purchases.
4.3 Reach customers quickly
Direct distribution channel is the easiest form of channel to reach customers because it does not go through any third party. By controlling all aspects of the distribution process, manufacturers will understand exactly how their goods are getting to the end consumer. This helps businesses eliminate redundant and ineffective processes as well as reduce time and costs in reaching customers.
4.4 Flexibility in product management
When applying direct distribution channels, businesses will conveniently manage and adjust the production and distribution process of products. Facing market fluctuations, businesses can quickly react to meet the needs of all customers.
4.5 Increase product exclusivity
Direct distribution channels can also help businesses increase the exclusivity of their products thanks to absolute control over the distribution system, helping to increase the value of the product in the market.
5. Limitations of direct distribution channels
Besides the outstanding benefits mentioned above, the direct distribution system still has certain limitations such as:
- High costs: Direct distribution channels require manufacturers to invest in order processing, warehouse systems, transportation and employee training. These activities can lead to increased production costs and increased product prices.
- Limited reach: Compared to other forms of distribution, the reach of direct channels is smaller. Manufacturers are often only able to serve customers in areas where distribution systems have been established.
- Difficulties in human resource management: Operating the human resources system for direct distribution channels requires employees to be professional and experienced. Therefore, businesses not only need to improve the quality of employees but also find ways to retain them.
6. Distinguish between direct distribution channels and indirect distribution channels
Besides direct distribution channels, another form of distribution is indirect distribution channels. So what is the difference between these two forms? The detailed comparison table below clearly differentiates, businesses can refer to:
Comparison criteria | Direct distribution channel | Indirect distribution channel |
Channel length | As a short distribution channel, manufacturers distribute products directly to final consumers. | As a long distribution channel, the manufacturer will take the product through many intermediaries before reaching the end customer. |
Control ability | Easily control the quality and how products reach customers. | There is less control and reliance on intermediary distributors. |
Expense | Large initial investment costs include order processing systems, warehouses, transportation, personnel,... | Lower costs compared to direct channels. |
Customer accessibility | Reach customers quickly, directly and accurately. But limit the reach to the area with the distribution system established by the manufacturer. | Extensive distribution network helps bring products to many potential customers. |
Profit | Higher profits due to direct revenue from end customers. | Profits are lower due to deductions for discounts, commissions, etc. for intermediaries. |
Thus, the article has explained the correct understanding of what a direct distribution channel is . Direct distribution channels play an important role in building strong relationships with customers and managing the entire distribution process effectively. By optimizing direct interactions and transactions, businesses can provide a better shopping experience and build customer trust. Don't forget to follow other articles on 1C Vietnam's website to update useful knowledge about corporate governance!