During the early and late stages of market development, the need for multiple channel intermediaries is high. Large-volume retailers prefer direct selling as it is more cost-effective. Self-service checkout allows customers to choose merchandise without the assistance of a cashier. While the relationship between these two parties can be beneficial to the end-user, it is often considered temporary and lacks the capacity to develop a close relationship.
Producers use channel intermediaries to market their products. These intermediaries transform product assortments into consumer demands. A good example of a channel system is Apple, which opened its first stores in 2001. Its stores were owned and operated by Apple. On the other hand, Walmart exerts considerable power over suppliers and has many channels. Walmart has many suppliers, but the power of a single firm is the most important factor in this vertical marketing system.
Generally, marketing intermediaries perform a number of functions in the distribution of a product, including sales negotiation. However, they do not take title to the product and instead operate on an extended contractual basis. They often sell within a territory and handle related, but not competing lines of goods. Unlike traditional channel intermediaries, these intermediaries are not permanent representatives of either the buyer or seller.
Indirect channels involve fewer intermediaries. These intermediaries, called indirect channels, are not required to carry the product from production to end customers. Instead, the direct channel provides direct contact between the company and the end-user. Indirect channels are more efficient in reaching customers and performing functions that a sales force cannot. They can also reach more potential customers. They are more effective in reaching consumers that are price sensitive.
Value-added resellers (VARs), on the other hand, bundle products from different vendors and resell the bundled packages to different segments. Marketing managers who utilize VARs must be skilled in branding. In countries that used to be part of the soviet bloc, a significant amount of purchasing takes place on the black market. In China, there is an extremely complex set of operational and imposition laws that encourage foreign firms to establish distribution networks.
Direct marketing has the advantage of putting products in front of people in the consumer’s hands. However, it is ineffective for many customers. Instead of reaching out to people one-on-one, advertisers use price-oriented promotion techniques such as coupons and rebates. This approach helps target price sensitive households. While direct marketing is more expensive, it is often more effective than the others for building long-term sales.