In: Economics
Question 3 Week 10: Tutorial 9
What are some of the disadvantages that can result when companies use channels of distribution to market their products overseas? Answer this question in 300 words (use your own words please)
Disadvantages of when companies use distribution
channel.
Revenue loss:
The manufacturer sells his product to the intermediaries at costs
lower than the price at which these middlemen sell to the final
customers. Therefore the manufacturer goes for a loss in revenue.
The intermediaries would never offer their services to the
manufacturer unless they made a profit out of selling his products.
They are either made a direct payment by the manufacturer, for
instance, shipping costs or as in the case of retailers by selling
the product at costs higher than the price at which the product was
bought from the manufacturer (also known as markup). The
manufacturer could have sold at this final price and made a greater
profit if he had been managing the distribution all by himself.
Loss of Communication Control:
Along with loss over the revenue the manufacturer also loses
control over what message is being conveyed to the final customers.
The reseller may engage in personal selling in order to increase
the product sale and communicate about the product to his
customers. He might exaggerate about the benefits of the product
this may lead to miscommunication problems with end-users. The
marketer may provide training to the salespersons of retail outlets
but on the whole, he has no control over the final message
conveyed.
Loss of Product Importance:
The importance given to a manufacturer's product by the members of
the distribution channel is not under the manufacturer's control.
In various cases, like transportation delays, the product loses its
importance in the channel and the sales suffer. Similarly, a
competitor's product may enjoy greater importance as the channel
members might be getting a higher promotional incentive.