Question

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)

Answer 1

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.