Middlemen At Risk As Consumers Turn To Buying Direct
Carl Deveraux
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In today’s price-conscience market, the life of a middleman can often be placed in jeopardy by aggressive pricing structures offered to reduce the final cost to the end user. Very few industries remain stuck in the distributor mode, selling only to qualified warehouses, who in turn sell to distributors, who sell to retail outlets, which then sell to the customer.
Each step of the process adds to the final cost and being able to buy direct at any one of the steps, often offers consumers a chance to save money over the regular retail price. Initially, the only way a customer was able to take advantage of wholesale pricing was to be in bulk, and with some items such as televisions, refrigerators or other consumer appliances, buying more than one was out of the question. The price may have been slightly lower than at retail, but buying single units was discouraged by most manufacturers.
As consumers began demanding lower prices on everything from toilet paper to plasma televisions, manufacturers quickly realized that if they eliminate the multi-tier sales approach and passed the savings onto the customers they could sell more products and enjoy a larger percentage of the market for their goods. The cost of manufacturing an item may have increased but by eliminating the middle levels in the distribution process, they could still offer the goods at a price below their competition.
For example, an item is sold by the manufacturer for one dollar and each step adds just 10 percent to the cost, the warehouse will sell it for $1.10. The distributor will sell for $1.21 and the final cost to the consumer is $1.34, giving it a mark up of 34 percent from the original cost. Manufacturers opted to sell their products at factory direct pricing for perhaps $1.20, reaping a 20 percent improvement on the original cost and the consumer saves 14 percent. As the size and price of an item increase, so does the savings.
When one company inside a particular industry took factory direct sales to the public, others in the same industry were forced to follow suit or risk losing their market share to the lower prices. In today’s economic climate, a majority of people show for the best quality they can buy for the least amount of money. In some cases, price is the determining factor, especially for traditionally disposable goods.
In addition to cost savings, there are other reasons people may opt to buy direct, as they can also have a selection of older models, not carried by traditional sources at greatly reduce prices and manufacturers look to clear out their warehouses to make room for newer models. Additionally, if something needs to be returned there are fewer levels to go through to get the item back to the manufacturer for a refund.
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| Middlemen At Risk As Consumers Turn To Buying Direct |
| In today’s price-conscience market, the life of a middleman can often be placed in jeopardy by aggressive pricing structures offered to reduce the final cost to the end user. Very few industries remain stuck in the distributor mode, selling only to qualified warehouses, who in turn sell to distributors, who sell to retail outlets, which then sell to the customer. more |
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