Direct selling is a business model in which the manufacturer’s company sells the product directly to the customer without the intervention of a wholesaler . Traditional companies that sell products directly by setting up stores in factories and unmanned vegetable sales offices also have this business model. By reducing the margins for wholesalers and middlemen, you can lower the price of products, and by increasing profits, you can invest in equipment expansion of factories and improvement of product quality.
The main feature of direct sales is that one company handles product planning, manufacturing, marketing, and sales in a one-stop manner without the intervention of a wholesaler.
However, in the era of mass production and mass consumption, it has become more efficient in terms of time and cost to form a value chain by separating it into manufacturing and procurement, product planning and sales. The “horizontal integration” mechanism, in which multiple companies work together as a group and carry out separate processes such as material procurement and sales channels, has brought stable profits to SMEs specializing in manufacturing.
In the digital age, when manufacturers connect directly with consumers through EC sites, the division of labor becomes even finer, and “ individual specialized companies ” such as credit card companies for payment and logistics companies for delivery We have moved to an ecosystem that connects like a mesh. Since everyone has the opportunity to sell directly on the Internet, it is becoming important for companies to what new value they can create when providing products.
- 1 Background of increasing direct selling
- 2 Benefits of direct selling
- 3 Disadvantages of direct selling
- 4 Examples of direct selling companies
- 5 Success conditions for direct selling
- 6 Internet shopping is a typical method of direct selling
- 7 Branding and measures to attract customers are the keys to success in direct selling
Background of increasing direct selling
The reason why direct sales have been attracting attention in recent years is that the development of digital marketing infrastructure has made it easier for manufacturers to approach consumers directly. It will be easier for companies to use tools and services for conducting sales activities on the Web, and it will be possible to provide consumers with their products and services without having to secure distribution channels at high cost. It is now possible.
Another reason for the widespread use of direct selling is that the use of products and services on the Internet has become common due to the spread of the Internet and smartphones. An increasing number of companies are only selling directly, rather than selling at physical stores.
Benefits of direct selling
Increase in profit margin
Direct sales have the advantage of increasing profit margins because manufacturers sell products directly to consumers without the intervention of wholesalers or retailers, which reduces intermediate margins, commissions, and distribution costs. It should be possible to use the increased profit margin for sales of other management systems.
Communicate your brand vision to your customers
Direct selling have the advantage of being able to directly convey the manufacturer’s vision and message to customers. The thoughts contained in the product and the stories related to product development add value, which may lead to the building of relationships of trust with customers and promotion to repeaters. By conducting direct sales, it is possible to carry out branding at the same time as selling products in this way.
Target customers can be limited
When selling products through the route from wholesalers to retailers, it is possible to reach a wide range of people, but conversely, there is a possibility that it will reach people who are not the target that the manufacturer originally wanted to aim for.
At first glance, it may seem good to approach a large number of users, but by actively taking action on customers who are not very interested in the product and who do not make a purchase even if they see it. There may be disadvantages such as allocating extra resources that do not lead to sales, and increasing the number of extra inquiries due to lack of knowledge about the product.
By conducting direct selling, such disadvantages can be eliminated, and it becomes possible to sell products by focusing on the target customers that we originally wanted to aim for. Not only can you increase the chances of closing a transaction by limiting the target, but you can also reduce unnecessary inquiries, so you can expect the effect of reducing the cost of support.
When selling through a wholesaler or retailer, the manufacturer does not sell directly to the user, so it is not always possible to achieve the marketing that the manufacturer intended. However, when a manufacturer sells directly to users by operating its own manufacturer’s direct sales site, it is possible to market relatively freely.
If you operate an EC store in-house, you can easily grasp basic information of users such as age group and region, and specific data such as what kind of products are popular. It is also possible to sell products on a trial basis and plan future product sales strategies. It is a great merit that marketing that could not be easily done by the intermediary of wholesalers and retailers can be easily done by direct selling.
The more flexible your marketing, the more challenges you can take in marketing, and the more likely you are to expand your business. If you want to increase the scale of the manufacturer in the future, it is a good idea to consider a business model called direct selling.
Price competition is unlikely to occur
If you sell a product alongside a large number of similar products, you run the risk of being involved in price competition with surrounding products. On the other hand, when selling products directly, the EC store is operated by the manufacturer itself, so there is an advantage that price competition is less likely to occur because it is less susceptible to interference from other stores.
When selling a product in a price competition, there is a demerit that the price is steadily falling from the price suitable for the product and profits cannot be expected, but also the demerit that the value of the brand itself is lowered due to the extremely low price. I have.
Providing products to customers at optimal prices is an important factor in establishing a brand image. In recent years, there are many products offered at extremely low prices, but if it does not match the strategy of the company’s manufacturer, it is not necessary to follow this trend, and it is important to firmly carry out branding unique to the company.
Direct selling are an effective way to maintain your brand image and avoid price competition.
Disadvantages of direct selling
Easy to imitate
The direct selling business model has a simple structure, which makes it easy to imitate. Therefore, it is important to create new value such as “time to delivery”, “highly customizable”, and “story that accompanies the product”, as well as differentiating the quality and uniqueness of the product. ..
In terms of organization, the manufacturing industry, which has been responsible for manufacturing as one process in the value chain, has marketing and sales know-how, so it is a strategy to hire the human resources necessary for direct sales. You need to think about it.
When forming an ecosystem with external companies such as payment and delivery, be aware of “ what are the incentives to promote interdependence between companies ” in order for operations to function smoothly. is needed. Incentives include revenue sharing ratios, new customer acquisition, and increased name recognition when compared to competitors.
Need to attract customers in-house
If you are a manufacturer that has already gained popularity, it will not be difficult to attract customers when you start new direct selling. However, relying only on the current name recognition may not lead to future customer attraction and sales, so it is always necessary to make efforts to increase the name recognition.
On the other hand, manufacturers with low name recognition have low ability to attract customers at the moment, so it is necessary to increase name recognition from now on in order to succeed in business. In order to increase name recognition, it is necessary to actively increase opportunities for customers to see products and services by using SNS and advertising media. If you already have a physical store, one way is to send information from that store.
It is important for EC stores in direct selling to be first informed of their existence. If you don’t know that you have a store, you won’t be able to recognize your products and services, and you won’t be able to increase your sales. When starting a new direct selling, it is necessary to consider a different method of attracting customers and advertising, which is different from wholesalers and retailers.
It costs a lot to start up and operate
Costs are required to create a new place for direct sales and an EC site. Not only the financial cost of launching an EC site, but also the cost of personnel and resources for advancing a new project is naturally required.
There are many new costs involved in developing new sales channels, but expanding sales channels has the potential to generate more profits than they currently have. In addition, the cost burden varies greatly depending on the method of operating a direct sales EC site, so it is important to thoroughly research the market before operating it.
Building an EC site used to be a high-risk challenge that required a large amount of money to be invested, but now it is possible to build a full-fledged store at a low cost. It is necessary to value the brand of the company’s own manufacturer, but the required cost is also an important item.
If you can find a place / company that can create a lean store according to your company’s intentions while considering the necessary functions, there is a possibility of lowering the cost. For that purpose, it is necessary to conduct a preliminary market research and consider the company’s budget.
Need to be considerate of the dealer
Profit increases due to direct sales One of the reasons why direct selling cannot be carried out even if it is known is due to consideration and consideration for the stores with which we do business. From the dealer’s point of view, manufacturers can be competitors, so it is natural to worry about the negative impact on the relationships of trust that have been built up to that point.
However, on the other hand, there is also a direct sales business model that has built a “win-win” relationship, such as increasing the name recognition of products and services as the manufacturer’s EC site becomes a hot topic, and increasing the sales of dealers. .. So, communicate well with your retailers, implement a balanced pricing strategy, and discover ways to sell directly while maintaining good relationships.
Examples of direct selling companies
Founded in Texas, USA in 1984, Dell focused on the fact that PC parts were standardized and could be assembled, and received orders from customers by mail order, and from the outside according to each person’s wishes. We started the business of procuring parts and delivering finished products. This epoch-making business model at that time was called “ Direct model “, and Dell, which had a capital of only $ 1,000 at the time of its establishment, became the second largest PC sales worldwide in 1998. Has grown into a company. Customers can get customized products at a low price, and Dell doesn’t have unnecessary inventory, which is a big advantage for both parties.
Since the transition from mail-order sales to Internet sales in the latter half of 1990, we have been developing services to appropriately procure models necessary for business and applications from past history by managing customer purchasing data.
NIKE is one of the most famous sports companies in the world. NIKE used to have a strategy of selling products mainly through wholesalers, but in recent years it has reduced the number of wholesalers and retailers who are partners, so the main sales method has been changed to direct selling. You can see that we are migrating. Furthermore, it seems that there is a strong view that it withdrew from Amazon in 2019 and switched to direct selling in earnest.
NIKE’s digital sales, which have been converted to direct sales, increased by 75% according to the 2019 quarter performance report, accounting for 30% of total sales.
In addition, NIKE, which has been suffering from corona in recent years, introduces exercises that can be performed indoors, promotes products that employ celebrities, and is steadily conducting marketing activities.
In addition, “Nike Live” allows you to easily ask questions through the application “Nike Store Chat (LINE)”, and the service “Nike Fit” that allows you to find the best product by scanning your feet. We are also offering new services such as “NIKE App at Retail,” which allows you to easily reserve and purchase products, and we can see that we will continue to expand the scale of our business.
NIKE is already proud of its global brand, but when it comes to full-scale entry into direct selling, it can be seen that it is also focusing on marketing and promotion.
Founded in Japan in 2012, Factory Et is an apparel manufacturer that has partnered with apparel factories in Japan and sells stores at double the cost of manufactured products . Its feature is “ direct sales agency ” that sells products purchased from the factory at its own store. For improvement from the factory side, we will collectively provide design proposals, marketing, and store sales, and make the same amount as the manufacturing cost as our own profit.
The factories that Factory D deals with are high-tech factories that are outsourced to famous brand companies. This business, which provides high-quality products to customers at low prices and brings profits commensurate with technology and raw materials to factories, has a domestic apparel market size of $15 billion in the 1990s to $10 billion in the 2000s.
Tsuchiya Bag Factory
Tsuchiya Bag Mfg. Co., Ltd. is a Japanese company that is popular for leather products such as carefully handmade bags, in which craftsmen make each and every product. The company owns stores not only in Japan such as Kanto and Kansai but also overseas such as Taipei and Hong Kong and sells directly.
The company is expanding its sales channels not only in Japan but also overseas, but it wasn’t until 2000 that it launched its EC site. Initially, we renewed our products every few years, but we created a store by introducing “Shopify” to provide better services to our customers without failing to keep up with the EC industry, which requires a sense of speed. I got it. At the same time, by renewing the internal system, we have established a system for full-scale direct sales on the EC site.
By operating an actual store where customers can directly check products and experience their quality and size, and at the same time operating an EC site, which is a sales channel that can deliver products to customers all over the country, the company itself. Not only the sales of the product but also the brand name is growing.
It can be said that a marketing strategy is necessary to make people aware of its appeal because it is the Tsuchiya Bag Factory, which is particular about “manufacturing.” From the case of Tsuchiya Bag Factory, we can see that the EC site is one of the easiest ways to start direct sales.
Success conditions for direct selling
Being able to develop direct selling channels
The condition for starting direct selling is whether it is possible to develop direct sales channels (sales channels that do not go through wholesale) by conducting mail-order sales and EC in-house as in the case of Dell . >. In the digital age, the opportunities for companies to operate EC sites are increasing. On the other hand, if it is difficult to acquire a sales channel, a direct sales agency service such as Factory E will be established.
Pay attention to the price balance with wholesalers and retailers
Many businesses are thinking of selling products that are already sold through wholesalers and retailers directly. In that case, it is important to pay attention to the price balance.
If the price of the product is set lower than that of the retail store, the relationship with the retail store may be deteriorated and the contract may be terminated. Even if you switch to full direct selling, your customers may find that your relationship is worsening due to poor retail reputation, and your brand power may be weakened.
In order to avoid such troubles, it may be done as a means to “sell the product at the same price as the retail store even when selling directly”. If the price is the same as that of retail stores, it should be less likely that both retailers and customers will feel uncomfortable.
If you want to add value to direct selling, one way is to sell products that are only directly sold, with a customer experience that can only be obtained at direct sales stores.
When starting direct selling, it is necessary to think about wholesalers and retailers, not just about the company and its customers.
Establishing a brand and increasing name recognition
When selling products directly, it is said that conversion rates may be high because customers with high customer loyalty often visit the store. In order for customers with high customer loyalty to continue to use the store, it is necessary to establish a brand image.
If the image of the brand is uncertain or low, it will not leave an impression on the customer, but it will also cause the customer to feel anxious about “the brand is not stable”, and there is a risk that the purchasing motivation will be reduced.
Acquiring repeaters is one of the challenges for direct selling EC sites. Not only can you stabilize sales by securing customers who purchase products on a regular basis, but you can also acquire new customers by spreading the reputation of those customers. The more new customers you have, the more brand awareness you have and the more profit you can expect.
Securing customers and establishing a brand are considered to be one of the ways to raise the brand’s name recognition, but in recent years, SNS has also been attracting attention as an effective means.
Effective means to improve the name recognition differ depending on the image of the company and the customer base, but what kind of means is effective for the company should be carefully considered in order to activate the direct selling business.
Communication with consumers (SNS, customer support, etc.)
One of the merits of direct sales is that it is “close to consumers”. In direct selling, the manufacturer and the customer communicate directly with each other, so it is possible to obtain not only basic customer information but also realistic opinions such as opinions about products and stores and comfort.
The main means of acquiring information are SNS and customer support, and if you take immediate action such as developing a new product or improving the store based on the reaction actually acquired, it will be a measure to prevent customer withdrawal. increase.
Companies that are worried that it will be difficult to devote resources to customer service and SNS management because the operation of an EC site requires not only product sales but also store creation / operation and logistics. There may also be. However, there are some EC sites that can be outsourced, so outsourcing the operations can secure a lot of resources.
One of the methods is to outsource to focus on the work that can only be done by the company.
Internet shopping is a typical method of direct selling
Featured online shopping
With the generalization of the Internet, manufacturers of consumer goods such as beverages and personal computers have started direct sales on EC sites one after another. The system is such that products are displayed on the screen of a PC and delivered directly to consumers using courier or mail without going through a retail store. It seems that there are many manufacturers that give consideration to wholesalers and retailers who act as intermediaries, but with the rapid spread of the Internet, many manufacturers have started EC sites on a trial basis. In particular, companies that did not have a nationwide sales channel before and local companies with weak sales systems are starting to operate EC sites. Many of the products handled by direct sales are local special products, and it seems that many major companies enter through subsidiaries, and the EC site uses a channel different from the existing sales channel owned by the head office. We are entering direct selling.
Effective use of EC site
However, there is a possibility that the high system cost will be wasted just by publishing the EC site on the Internet.
For example, “I want to open a shop on the Internet after other companies make a profit. However, I don’t know how much sales I can earn, so I want to minimize expenses. It is difficult to operate an effective EC site if you say “I want to operate an EC site with.” Unlike actual stores, such EC sites do not actually exist. However, responding to inquiries, orders, complaints, etc. is the same as in a real store. Prompt response to inquiries and shipping of products are indispensable tasks even on EC sites. Also, regarding products, if the price range is the same as that of the actual store or the number of products on display is about the same, there is no merit of the EC site, so the conversion rate will not increase. On the other hand, in a successful e-commerce site, for example, in the so-called “market type” such as Amazon, it is important how many products are handled and the customer has freedom of choice. On the other hand, on the direct sales site “Sony Style” operated by Sony, we will implement a “product-specific” strategy of responding to needs by preparing products that can only be purchased there and a variety of products and services in a specific category. There are many cases.
The feature of “Sony Style” is that it offers product-specific accessories targeting Sony product users and limited-edition models that can only be purchased in Sony Style.
Utilization of EC sites in SMEs
For small and medium-sized manufacturers, who find it difficult to carry out large-scale sales promotion activities compared to large companies, direct sales through online shopping is an effective means. In addition, quick response to inquiries and system construction such as same-day shipping of products are important for making the best use of online shopping. With direct sales via online shopping, once you build the system, you can receive orders 365 days a year. It is an effective means for small and medium-sized enterprises with technical capabilities specialized in a specific product category to sell directly on the Internet. Even small and medium-sized enterprises, which are smaller than large enterprises, can enter the market with the power of pure products.
Branding and measures to attract customers are the keys to success in direct selling
For companies that already offer their products at wholesale and retail stores, the direct selling channel is an effective way to expand the sales channel. One of the merits of direct sales from manufacturers is that they are close to the customer psychologically because they are a sales method that does not mediate with other vendors, and the customer’s voice can be reflected immediately.
However, if you consider only the convenience of your customers and your company, the relationship between wholesale and retail sales that you have built an effective relationship with may deteriorate, so carefully consider the price and sales method. is needed. As for the method of attracting customers and branding, it is necessary to implement a strategy unique to direct sales, so it is necessary to secure a lot of resources when starting a new business.
Therefore, it is indispensable to scrutinize the contents of the work, and it is effective to improve the efficiency by outsourcing the work that may be a burden when starting direct sales while reviewing the conventional in-house business. Logistics tends to be a routine work, so leaving it to an outside professional not only reduces resources, but is also one of the tasks that can stabilize the quality of operations.