What is Indirect Distribution Channel? Definition of Indirect Distribution Channel, Indirect Distribution Channel Meaning and Concept
The indirect distribution channel is characterized by the fact that the company uses intermediaries to get its products to the final consumer.
Indirect distribution channels can be short or long, depending on the number of intermediaries in the distribution chain.
Participants in an indirect distribution channel
The participants in an indirect distribution channel can be the following:
An agent is characterized by not acquiring ownership of the product, since its function is only to connect companies that want to sell a product and others that want to market or distribute it.
Not all companies use agents in their distribution chain, they are usually used when importing products are commercialized. Since they are only the relationship links for the conclusion of commercial agreements between the parties.
In turn, the agents can be of three types:
- Commercial representative: These people can function and negotiate on behalf of the owners or the producing company, when carrying out buying and selling activities; although we know that they are not owners in the strict sense.
- Broker : They are second-hand distributors because they are experts or specialists in a business area.
- Commission agents: They are also occasional and when closing a sale operation they charge the production company a sales commission.
The wholesalers in the distribution chain are those who buy the satisfactions to the production company in large quantities, store it and then sell to other intermediaries.
Wholesalers acquire ownership of the good. Therefore, they assume the functions of promoting, financing and marketing the product. They carry out the negotiation process and agreements on the prices and conditions of the good that they commercialize.
The wholesaler sells to retailers, so they do not come into contact with the end user of the product. This allows them to have a relationship with a large number of retailers dispersed in different geographical regions, which allows the product to have a strong presence in the market.
Wholesalers can be classified as follows:
- Traditional: they are the wholesalers who sell the products in their commercial facilities, they are the ones that we know more commonly, because they maintain relationships with the seller and with the retail distributor.
- Self-service: in self-service the wholesaler does not come into contact with the buyer, because the retailer takes a cart and fills it with the products he wants to buy, pays for them and that's it.
- Remote wholesalers : these wholesalers make sales using means such as the mail, the telephone or the digital means of the internet.
These distributors are the ones who come into contact with the final consumer, since they sell small quantities of the product, which is why they are known as retailers. The retailer is dedicated to the attractive placement and display of the products it sells, to stimulate and motivate the purchase of the product.
Advantages and disadvantages of indirect distribution channels
Among the main advantages we find:
- Lower storage cost: the production companies leave their product stocks early and these are stored with wholesalers who have the adequate infrastructure to store large quantities of products.
- Greater efficiency: due to the level of reach that is achieved, due to the fact that indirect distributors have a large number of establishments or also if franchises are used; which allows the commercialization of the product in a greater number of points of sale.
But not all are advantages, among the disadvantages we highlight the following:
- Higher prices for the consumer: each link in the chain gets a profit margin, which makes the final price of the product higher.
- Less control by the company: since each intermediary manages its own administrative, delivery, logistics policies, etc. Which can compromise the quality and image of the product.
- Longer times: if you have many intermediaries, the passage of the product through the different links in the chain causes a delay in the process time or becomes more complicated.
In conclusion, it can be said that having indirect distribution channels has a series of advantages and disadvantages. Therefore, the company must carry out a clear and objective evaluation to determine if the opportunities obtained in the advantages are greater than the risks that can be had in the disadvantages of the process.