Direct Distribution vs. Indirect Distribution

Why does the “middle man” exist? Why do producers and wholesalers use intermediaries to sell their products? There are various reasons that are dependent upon many variables.

 

Direct Distribution

Direct distribution leads to lower prices for the consumer. Since the product is only marked up once, the selling price is much cheaper. As a result, consumers that purchase a product directly from the wholesaler or manufacturer will pay much less for a product.

Unfortunately, this is a very narrow view of the selling process. It would be very detrimental for the economy to use only direct distribution. First and foremost, wholesalers and manufactures are experts in creating the product. They do not have expertise in customer relations and individual consumer distribution. This is why the middle man exists. The benefits of a middle man will be discussed further in the blog.

While direct distribution is very appealing due to low prices, it can be far from efficient. There is a legitimate reason why many manufacturers and wholesalers do not distribute directly in order to gain competitive advantage.  They are not adept in business to consumer type selling. Instead, they rather sell in bulk to another business. It will be that business who will have expertise in selling to consumers. These businesses will have proper logistics and consumer relations in order to support high individual demand whereas manufactures and wholesales do not have similar capacities.

 

Indirect Distribution

Indirect distribution has many advantages. That is why a large portion of the economy uses indirect distribution to sell products. Different firms specialize in different categories; it is very difficult to specialize in all the aspects of the product cycle. Thus, firms decide to focus on what they specialize in and use outside companies for the other tasks.

Manufacturers generally are experts in business to business relations. They know how to adjust prices due to bulk purchases and they know how to use raw materials to create products. This is where their expertise ends. Thus, they choose to sell their products at a profit to middle men. They are happy with the profit they are making. Furthermore, their whole operation remains efficient instead of only a portion.

The middle men understand consumer demand. They understand how to sell the product to the consumer. Moreover, they understand how to deal with consumer criticism and disapproval. The manufactures do not specialize in this area and prefer that the middle man handle individual consumer issues.

 

Conclusion

Indirect distribution can be extremely effective for all three parties: manufactures/wholesales, retailers, and customers. Manufacturers are able to focus on the product and only have to worry about bulk distribution. Retailers are able to focus on each individual consumer and large scale logistics. Consumers are able to receive expert products and expert assistance via manufacturers and retailers, respectfully. The indirect model may not offer the highest profit margin for manufacturers or the lowest costs for consumers, but it offers a very efficient model in order to have the highest value possible.

 

 

 

Exsiting and New Product Image

Existing vs. New Brands Online

When a company sells products online, they have two options: sell existing brands or sell newer brands. These are two opposite strategies and both have both pros and cons. However, there are some points to consider when choosing to use existing or new brands in your product mix.

When to use existing brands

Existing brands should be used on if it meets certain criterion. Firstly, the potential brand must have an excellent image. If the brand has a poor image, it could hurt the image entire company. Secondly, the brand must be successful. If this brand isn’t going to benefit you financially, than most likely (not always) it will not be a good brand to carry on the website. Third, this brand must have a financially strong history. You want a well established brand that you will be able to carry in the long term in order to generate long term purchasing.

When to create a new brand

If all the considered existing brands do not meet the prior criteria, then a new brand may be used. When using a new brand, a company must be cautious. Firstly, the new brand must have great potential. The product should be extremely efficient and reliable. This will ensure growth of the new brand. Also, the new brand shouldn’t be too risky. Obviously there will always be risk when selling a new brand; however, the risk should not be large due to the efficiency of the product. Lastly, the brand should not have any negative connotation in slogan or design. Since it is a new brand, it should try to appeal the majority of viewers in both design and slogan.

 

Forecasting Difficulty

It can be extremely difficult to forecast the revenue, costs, and ROI for a new product. Obviously some general assumptions can be predicted, but it can extremely difficult to have an accurate forecast. There are various factors as to why this is:

• The brand image is not determined
• The marketing techniques are not guaranteed to work
• The internet has an extremely large market
• SEO is becoming difficult and complicated

Obviously, there are many unknown constraints that lead to an unpredictable future. These unknown constraints make it difficult to determine revenue, costs, and ROI for a new product. Sometimes a new product makes explode and have a favorable monetary outcome whereas a better product may not have the same fortunate outcome. This is because marketing, image, and exposure cannot be predicted and are often hard to manage.

A company must make constant efforts to maintain image and exposure when releasing a new product. This can help lead to a profitable new product. Regardless, even when these measures are taken, it is still extremely difficult to accurately forecast growth for a new product. The best a company could do is work to make and keep an excellent image, this is the best plan for success.

 

 

Maintaining Long Term Success

Poor Feedback

Understanding feedback is extremely important for a company to maintain long term success. Therefore, what happens when a firm receives a Google Alert or RSS feed showing that customers are speaking poorly about the firm’s products? This leaves a firm with two options:

1. Ignore the complaints if the firm is currently successful

2. Consider the feedback and make efforts to improve customer satisfaction

Choosing Option 1 can be extremely detrimental. Even though the firm is currently successful, new negative feedback may be an indicator of a negative future. A firm must ALWAYS consider negative feedback from their customers and constantly make efforts to improve their products. This is the only way to ensure long term success. This is why the most successful companies still ask customers to fill questionnaires and report and negative issues. Analyzing consumer feedback and acting according to that feedback can be a major influencer for long term success.

Choosing Option 2 is the better option. As stated earlier, a firm should always be eager to hear feedback from their consumers. If the firm efficiently alters their product according to the feedback they receive, they will be able to satisfy current and new customers. Customer loyalty is a major indicator of success. Firms that have a great deal of loyal customers will likely be successful in the long run. These satisfied customers will often speak highly of the firm and will contribute to positive word-of-mouth advertising. Ultimately, keeping customers satisfied should be one of the most important goals a company has. Learning how to adapt a product based on negative feedback can contribute greatly to customer satisfaction.

A simplified feedback model

Using Social Media to Understand Brand Image

Social Media is an excellent tool to find out what image a brand and/or an existing product currently has. Consumers are very opinionated over social media forums. They like to praise products and brands they approve of while bashing products and brands they have issues with. Understanding how to use Social Media to evaluate a firm’s brand and product image can help maintain long term success.

The most popular social media forums firms use are the following:

• Twitter
• Facebook
• Google+
• Instagram

Each social media forum has different tools and techniques that companies can use to create product and brand awareness along with determining the level of customer satisfaction a firm currently has. Firms must become familiar with the different techniques used on each forum. There is plenty of research and ideologies that are open to the public to utilize regarding tactics to use in the social media world. While there is no specific way to achieve success on these forums, there are plenty of tactics and methodologies firms can use to increase their positive utilization on these social media platforms.

Here are some brief tips to consider when evaluating a brands image.

1) It is important for your firm to be active on these social media forums and interact with their current and potential customers. Contact dissatisfied customers and find out their complaints in a detailed manner. Try to win back their satisfaction!

2) Find out what the majority of customers like about your brand. What is it about your firm’s brand that contributes to competitive advantage? Your firm must utilize these differences to their advantage in the future.

3) Find out what customers like about the competition. Perhaps a competitors brand has more desirable qualities. It is not only important to know how consumers feel about your firm, but also how consumers feel about the competition.

4) Let your customers know you appreciate their feedback. This can go a long way when trying to gain long term loyal customers. A single response can go a long way!

Usage of these tips on any social media platform is an excellent start in testing and improving your brand image. A firm must be on top of their feedback and their image. Understand the customers thoughts is extremely important!

The complexity of Social Media

Law and the Internet

Self Regulation v. Lawful Regulation

This is a very popular debate and unfortunately there is no correct answer. However, there are various ways one can support each side. In the United States, we have a combination of both Self Regulation and Lawful Regulation.

If a country were to use a true Self Regulation policy, there would be excessive chaos. The gap between the upper class and lower class would expand tremendously.  The upper class would gain more wealth at the lower class expense. This is why the United States has policies such as minimum wage and incremental taxing. Also, with a Self Regulation policy, there would be many industries having monopolies. Again, this would lead to a large separation between the upper and lower class; and also put more families in the lower class range.

Adam Smith; the “Father of Free Market Capitalism”

If a country were to use a Lawful Regulation policy, there would be no motivation to compete. No competition means a stagnant economy and faulty products. Employers and employees would have no motivation to create better products and better pricing. This can be seen in true communist countries where everyone is treated as equal to the person next to them. Where it may be convenient for everyone to be equal, it drastically limits the economic potential of a country. This can be detrimental.

Karl Marx; the “Father of Communism”

Obviously there are flaws with both philosophies. That is why most countries opt to create policies that combine laws and freedom. In the United States, generally, Republicans believe in more self regulated policy whereas Democrats believe in higher regulation. Regardless, both parties still do not believe solely in one of the two mentioned policies. The argument over where the ideal equilibrium lies will always be debated; its simply a matter of opinion and values. Entrepreneurs tend to have a more self regulated mindset due to the fact it allows them run their business as they please.

 

Jurisdiction over the Internet

This is quite a complicated concept. What court should control the internet? The internet is a worldwide medium that businesses use to sell products and services. Thus, it can become very tricky in deciding what court has jurisdiction in any matters involving internet business.

The federal court should have jurisdiction in the United States. Most businesses offer their products domestically to any consumer willing to purchase. It is very rare that an online business will only sell their products to the state in which they operate. If this is the case, then this small amount of businesses can be state regulated. However, for the majority of internet businesses, the federal court should regulate the operations.

The tricky scenario comes when you consider businesses that sell to both domestic consumers and international consumers. There are now two different countries involved; and both countries likely have varying policies regarding the economy. I’m sure, in the future, countries will work out international policies regarding international internet business. This however, can lead to arguments in policy due to varying government styles. It is very interesting to watch due to the amount of grey areas that develop.

Ultimately, domestically, the federal court should have the majority of jurisdiction. In general, the federal courts do have jurisdiction over matters involving two states; thus, the internet jurisdiction should be treated as an interstate issue.

 

E-Marketing Specifics

5 Questions a Firm Should Ask

When a firm develops an e-marketing plan, there are various questions that should be asked. There are countless questions that can be generated. Therefore, I narrowed the questions down to 5 specific questions that will help facilitate and briefly analyze the e-marketing planning process.

1) What opportunities does our firm have? There must be an opportunity for a firm to attack. A firm must be able to exploit this opportunity in order to generate profit. This can be determined with a detailed SWOT analysis.

2) How will we differentiate ourselves? A firm must differentiate themselves from the competition. The firm needs to clearly understand how it will be different in order to persuade consumers to purchase from them.

3) What products are we selling to whom? A firm must understand exactly what products they plan to sell. Furthermore, a firm must know what people to target with each particular profit. This way, a firm can drastically adjust their e-marketing tactics according.

4) What will be our infrastructure and distribution? A firm must understand how it will gather information and payments from buyers. With that said, a firm must have inventory on hand in order to quickly facilitate the process. Moreover, a firm must understand how the buyers will receive the products from inventory that they purchased.

5) Do we have proper finances to operate? All firms need to have the proper amounts of capital to finance their venture. A firm must forecast their future cash flow in order to understand if they will be able to survive financially.

Once a company has valid answers to each of these 5 questions, then the company can start to accumulate specific details that will lead to success. These 5 questions are great to predict whether or not a company will be successful.

Setting Proper Goals

All e-marketers should set goals. However, there are two extremely specific factors to consider when creating a goal:

1. Quantity
2. Time

A goal must contain both and quantitative amount along with a period of time. This way, the firm can works towards a specific goal. This way, completion or failure to complete this goal will be easy to assess. Also, if the goal is set properly, completing a goal in the proper amount of time and amount will almost always lead to a successful business. E-marketers should understand that it is important to set specific, measurable goals in order to increase motivation and ultimately, success.