What is the Direct Sales business model?
The direct sales business model has existed for a long time now. In this business model, companies don’t sell products or services to customers through a retail environment.
Instead, sales occur in person and in a private setting. Therefore, companies directly sell to consumers, usually at their home, work, online, or other non-retail locations.
The direct sales business model is a variant of the Business-to-Consumer (B2C) business model. Similar to the B2C business model, the aim of the direct sales model also is to eliminate any intermediaries.
However, unlike the B2C model, the direct sales model does not need physical or online stores to be functional.
While the direct sales business model cuts the intermediaries involved in the process, it introduces salespeople who take care of a company’s sales.
These employees of the company go to customers and sell directly to them at any location. In this model, the company relies heavily on its salesforce to generate sales.
How does the Direct Sales business model work?
The primary goal of a company that uses the direct sales business model is straightforward, to eliminate any intermediaries from the process.
Therefore, any parties involved in getting products or services to consumers get eliminated. These may include parties, such as wholesalers or retailers, who provide a platform for manufacturers and consumers to interact.
In this business model, a company manufactures products or offers services. Instead of the traditional route, the company may sell its products or services directly to consumers.
However, there are some variants of the direct sales business model. Those may include another intermediary that is crucial to the process.
The intermediary may come in the form of a direct sales company. These are companies that take products from manufacturers.
Then they offer them a qualified salesforce that helps sell the products. Through these companies, manufacturers can avoid any other intermediaries, as direct sales companies take care of the whole process.
There are several variations of the direct sales business model. These include variations such as the party-plan or network marketing models.
These types of direct sales business models vary from each other in some aspects. In the party-plan direct sales business model, companies sell to groups of people gathered through connections.
On the other hand, the network marketing direct sales business model is for companies that move their consumable products through a network of independent representatives.
It may include both personal use and sales to end consumers. Companies may also use both the direct sales business models and make a hybrid model for themselves.
What are the advantages and disadvantages of the Direct Sales business model?
The direct sales approach to business may have advantages and disadvantages. Some of these are as below.
The advantage of the direct sales business model is that it eliminates the intermediaries from the process. By doing so, companies can also abolish any associated expenses with having intermediaries. It also means companies can profit more as they don’t have to divide their profits.
The direct sale business model also increases contact with consumers. Therefore, it creates a better relationship between the company and its consumers. It also decreases the wait times for customers and increases product knowledge.
Overall, the direct sales business model gives the company more control over its sales process. Instead, if the company uses conventional methods of selling products, for example, through retail services, it loses its command.
The disadvantage of using a direct sales business model is that it reduces distribution channel options. By locking out intermediaries, companies also relinquish other promotional or marketing advantages provided by having those intermediaries involved.
Similarly, by taking up the sales process in-house rather than outsourcing it or transferring it to other parties, companies increase their internal workload.
By selling products directly to consumers, companies take up any work that intermediaries would do otherwise. Therefore, it may result in higher costs related to administration.
Lastly, direct selling can also increase the company’s fulfillment costs. This point is also similar to the above point. These are costs or tasks that intermediaries would normally undertake. However, by removing them from the process, the company must also bear those costs.
Some big brands such as USANA, Amway, Stella & Dot, and ItWorks sell their products directly to consumers without relying on intermediaries in the process. Some of these companies use the network marketing approach to selling products, which works in their favor.
The direct sales business model is for companies that sell to consumers directly. It is closely related to the Business-to-Consumer (B2C) business model.
These companies waive the traditional methods of sales to consumers through a retail environment. Instead, they sell to consumers in other non-retail locations.