Direct to Consumer
Business: Edexcel GCSE, topic 2.2.15
Manufacturer-Retailers-Customers
A business can choose to skip wholesalers and sell directly to retailers. A retailer is any shop that sells directly to the customer in small quantities. Tesco and the corner shop at the end of the road are both examples of retailers.
Higher margins or lower prices
- Bypassing wholesalers makes it likely that customers will pay lower prices because the business is “cutting out a middle man”.
Hard to contact retailers
- It can be hard for a business, especially new start-ups, to get retailers to stock their products.
- This means that it can be harder for a firm to reach as many people and it could take longer to sell a company’s products.
Control over shops (retailers)
- Going directly to retailers means that a producer or manufacturer can have complete control over which shops customers can buy their products from.
- A luxury brand may not want their products stocked in Tesco or TK Maxx as it may lead consumers to perceive their brand as lower quality.
Higher logistics costs
- Selling to retailers directly may increase a business’ delivery and logistics costs if they have to deliver all the products to a retailer themselves.
Direct to Consumer
Direct to consumer distribution involves selling directly to individual customers. This is the cheapest channel for the consumer and it is often done by businesses using their own website.
Nobody else takes a cut
- Selling direct to consumer lets a business charge the lowest price possible to the consumer because there are no intermediaries (organisations in the middle) who take a cut of the profit.
- Alternatively, the business can charge the same price and have a higher margin.
Hard to reach customers
- It can be hard to reach as many customers as quickly because a firm will have to invest time and money into setting up new stores or their own website.
E-commerce
- It is becoming easier to reach more consumers directly with the use of e-commerce and m-commerce.
- This means that lots of businesses don't need to set up physical stores.
Test yourself on Direct to Consumer
Which of the following is not an example of a retailer?
Why do businesses bypass wholesalers?
Why might a start-up use a wholesaler to sell their products?
What is a benefit of selling direct to customers?
Why is it becoming easier for businesses to reach more customers without setting up a store?