Contents
- Introduction to Indirect Sales
- Types of Indirect Sales
- Advantages of Indirect Sales
- Disadvantages of Indirect Sales
- Comparison of Direct and Indirect Sales
Introduction to Indirect Sales
Indirect sales, also known as secondary sales, refer to the process of selling goods and services through intermediaries. For example, if you are a publisher and have released a print run of a book, you turn to stores and kiosks to sell a portion of the print run and sell the book to end readers. In this context, stores and kiosks act as intermediaries, helping you reach a wider audience.
Types of Indirect Sales
Distribution
Distributors purchase goods from manufacturers and then resell them to other intermediaries, such as dealers. They do not interact directly with end consumers but focus on developing their dealer network. This approach is often the only legal method of selling for international companies operating in markets with strict regulations. For example, in Russia and Kazakhstan, companies cannot sell alcohol or tobacco products directly, but only through local distributors.
Dealership
Dealers, in turn, purchase products either from manufacturers or distributors and then sell them to end consumers with a retail markup. For instance, when you buy bread at a supermarket, you are essentially purchasing it from a dealer who acquired it from a bakery. Car dealerships are also dealers and, although they do not manufacture cars, sell them under a specific brand.
Franchising
Franchising is a model in which a franchisee, acting on behalf of the franchisor, opens its branches. An example can be McDonald's cafes, where franchise owners represent the company in their cities. Franchisors provide their partners with support in starting the business, including assistance in finding premises and training staff. Franchisees pay initial and ongoing fees, which ensure profit for the franchisor.
Advantages of Indirect Sales
- Expansion of retail points, allowing the manufacturer to cover a larger territory and increase the customer base.
- Increased brand recognition, positively impacting sales volume.
- Reduced costs for job creation and product promotion.
Disadvantages of Indirect Sales
- The company's reputation largely depends on the behavior of intermediaries, making it difficult to control their operations.
- Intermediaries may seek to sell products at lower prices, sometimes forcing manufacturers to sell at a loss.
- The necessity to pay for "shelf space," which may include official payments and kickbacks to purchasing managers.
- Deferred payments, meaning manufacturers may not receive funds immediately but only after a certain period.
Comparison of Direct and Indirect Sales
Direct sales occur when a manufacturer sells products directly to end consumers without intermediaries. This method is ideal for small companies that do not produce large volumes of goods to attract dealers. In contrast, large manufacturers find it challenging to manage all processes independently, so they often rely on the help of intermediaries, such as distributors and dealers, who assist in distributing the products and take their share of the profit.