Convenience is another key issue to keep in mind when thinking about the best location. Customers want to get what they want quickly and easily.
A distribution channel is the path of the product from you to the customer. There are two types of distribution channels: indirect and direct.
Indirect Distribution Channels: An indirect distribution channel simply means that between you and the customer, there is an intermediary who is responsible for getting the product to the customer¡ªa middleman. Distributors specialize in distribution. They know what they are doing, and they know how to make a product move. Distribution may be a burden on a company, and if the benefits outweigh the costs of paying outsiders to do the dirty work, then go for it. In 1995 Nantucket Nectars sold their two distribution companies and hired outside distributors because the outsiders really knew how to deliver the juice. Those cool cats who founded Freeloader created a distribution partnership. Hotwired\magazine distributed Freeloader's software, and in exchange Freeloader sold versions that automatically subscribed their customers to Hotwired. Besides doling out your goodies, intermediaries can provide many more useful services, such as conducting market research, sharing business risk, and providing customer service.
Unfortunately, unless you have a Freeloader-Hotwired connection going on, middlemen incur costs that come out of either customers' savings or your profits. However, manufacturing agents may be able to solve the cost problem. They specialize in selling many different types of products and are paid on commission so the cost is kept at a minimum. In Guerrilla Marketing, lay Levinson and Seth Goodin (1993) argue that marketing agents are great assets because they expand the work and sales force without your having to hire many employees.
Direct Marketing Channels: A direct marketing channel means your business distributes the product. These channels have several benefits.
- It is conducive to just-in-time inventory systems where you order the product from suppliers (or make the product yourself) when you receive consumer payments instead of having a pre-ordered inventory. The result is that you can cut down on inventory costs and offer a greater variety of products.
- You can cut out the cost you pay to distributors since there is no need for them. You, not the distributors, are sending the product directly to the customers.
- Mail-order and online catalogs are also popular forms of direct distribution channels.
Indirect or Direct Before you decide whether to do direct or indirect distribution, do three things:
- Find out what distribution channels exist in your industry.
- Understand the trends that are developing in distribution channels.
- Know which channels are most profitable for you.