Understanding your supply chain is an essential foundation for this discussion. A supply chain isn’t just a list of suppliers and distributors; it’s a complex web of relationships, processes, and flows that move your product from creation to the consumer. Neglecting to grasp its intricacies can lead to inefficiencies, cost escalations, and a brand message that can get lost in translation.
Initially, the advantages of working with intermediaries may seem overwhelmingly positive. They can help your product reach places it otherwise couldn’t, absorb some of the risks that come with market volatility, and even provide specialised knowledge in areas where your business may lack expertise. However, the real question is whether these benefits continue to outweigh the drawbacks as your business scales and evolves.
The costs incurred from intermediaries directly eat into profit margins. Additionally, each layer between you and your customer diminishes your control over your brand’s image and the customer experience. Intermediaries can also slow down the process of getting your product to market, and often, valuable customer data and insights are lost when not dealing directly with the end consumer.
So when is the right time to make the shift and go direct? This is not a decision to be made impulsively. If you find that your profit margins are shrinking to the point where the business model is becoming unsustainable, this is a strong indicator that a change is needed.
Similarly, if your brand message is becoming distorted or diluted, going direct offers a chance to regain control over how your brand is presented and how your product is positioned in the market. Advances in technology have also made it significantly easier to facilitate a direct-to-consumer approach. E-commerce platforms are more user-friendly than ever, and digital marketing channels provide a myriad of ways to reach potential customers directly.
As markets mature and consumers become more educated about the products they are buying, the value added by an intermediary has the potential to wane. This is especially true in markets where customers are increasingly looking to buy directly from brands, valuing the authenticity and personalised experience that a direct relationship can offer.
While going direct may seem alluring, it is important to be aware that it comes with its own set of challenges. The decision to go direct is not merely a change in sales strategy; it’s a complete transformation of your business model, which entails setting up new logistics, customer service, and even digital platforms to support a seamless experience for your end consumers. The infrastructure needed to make this shift successful often demands a substantial financial investment.
The potential for market backlash will also need to be considered, as the transition to a direct model can be viewed as a competitive threat by existing intermediaries. These are partners who have, until this point, been essential in getting your product to market. The risk of strained relationships is real and could manifest in various ways, such as reduced cooperation in inventory management or even the termination of contracts, which could lead to short-term disruptions that affect revenue and require quick adjustments to the new direct-to-consumer strategy. It’s a delicate balancing act, requiring diplomatic finesse and strong communication skills to navigate the transition without burning bridges.
Another challenge to consider is that in the absence of established channels, customer acquisition is an uphill battle, at least initially. The convenience of leveraging an intermediary’s customer base is replaced by the necessity of building your own potentially from the ground up, and consumer trust which might have been readily transferred through an established intermediary, now has to be earned directly. Building this trust takes time and consistent delivery on-brand promises.
While these challenges may seem daunting, they are not insurmountable. Ultimately the decision to eliminate a distributed channel in favour of a direct-to-market approach is a significant one that requires thorough analysis and strategic planning. A well-timed and well-executed shift can result in a more profitable, agile, and customer-focused business. As the market continues to evolve, remaining adaptable and willing to reassess your channel strategy can position your business to seize not just current opportunities but those that lie ahead.
At Active Directions, we help many small-to-medium enterprises understand their channel strategy. Our objective and wholistic approach enables the businesses we work with to confidently and successfully deliver on their channel strategy objectives and navigate through change as required. Reach out today for a confidential conversation
