When businesses, particularly small and medium-sized enterprises (SMEs), enter new markets, they frequently struggle to determine the best strategy. One of the most important decisions is whether to sell goods or products directly to consumers or through a third party, such as a wholesaler or retailer, who knows the market better and is already established. So, what are the pros and cons of each approach?
Direct Distribution to Consumers
Selling your goods or products directly to consumers offers several advantages. For one thing, you have more control over the process. Brand identity is critical, and selling directly to consumers allows you to control almost every aspect of how customers access your products and interact with your company.
You also don’t have to worry about the brand or aesthetic of a third-party partner, or the placement of your products in a store. Direct distribution allows you to collect valuable data on your customers’ buying habits, respond to customer feedback directly, and get your goods or products to customers faster.
Revenue vs Expenses
Most importantly, selling directly to consumers means more revenue because you are not required to share profits with a third party. However, it also means increased costs. Direct distribution requires you to pay for expenses such as buying or renting trucks, hiring drivers, renting storage and retail space, and more. A direct approach also necessitates more work on your part, and you may struggle to reach consumers in a new market without the guidance and assistance of an established entity in that market.
Indirect Distribution to Consumers
An indirect approach means sharing some of the costs and labor required for the tasks mentioned above. It also means, ideally, benefitting from the knowledge and experience of a third-party who is familiar with the new country or market you’re entering. Many SMEs prefer an indirect approach for market entry because it allows them to benefit from somebody else’s infrastructure and salesforce, and it often means customers can find their products easily. With a direct approach, consumers often have to go out of their way to look for your products, whereas a good indirect approach means they can stumble upon your products while going to the retailers they already frequent routinely.
Direct vs. Indirect – What’s Right for Your SME?
Only you can make this decision, but there are certain factors to consider. For example, if you sell luxury items, your brand is very important, so selling directly to consumers helps you control more of your customers’ experience and your brand’s presentation. If you want to enter several new markets simultaneously or quickly, you can use an indirect approach so the local third-party does the heavy lifting while you focus on the next market to enter.
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