In a general scenario, before a product reaches its end user, there are various levels of intermediaries, like wholesalers, distributors and retailers. Each such level adds on to the base price of the product, due to the transport prices and margins involved. So, the final price of the product, offered to the end-user, is much more than the base price.
In such a scenario, consumers can either buy goods from the retailers or directly from the manufacturers.
Buying directly from the manufacturers has some advantages and disadvantages for both buyers and companies.
The Buyers’ point of view-
a. Reduced price due to absence of additional costs of warehouse handling, transport, packaging and retail display.
a. Consumers find it difficult to make buying decisions because they are not able to analyze and compare products side-by-side.eg. Footwear, Garments etc.
b. Unable to test and inspect demonstration products, like electronics.
c. Difficulty in returning products in case of defect, because the consumers need to go directly to the manufacturer. This causes inconvenience to the buyers.
The Company’s point of view-
a. Increase in margins for the manufacturers. This is because the additional costs, due to supply chain, are reduced. So, the manufacturers can charge an adequate margin which is much larger than the one they receive on selling through a dealer.
b. Get to know the customers in a better way. The manufacturers do not have to depend on the skills of the dealers for the sale of their products and customer feedback. The manufacturers can directly pitch their product to the end-users and refine their product’s features or marketing strategies according to the feedback received.
a. Services and local parts’ availability are important functions of a dealer, which suffer when companies go for directly selling to the customers. This, in turn, reduces the competitive advantage.
b. Dealers know the local market better. So, in absence of a dealer, companies might not be able to apply the correct marketing strategies.
c. Dealers provide vast distribution network for a product which is not possible in case of direct buying.