Indirect sales

From CEOpedia | Management online

Indirect sales are the sales of products or services of the company performed by partners. They are opposite to direct sales made by the company staff. Indirect sales allow companies to sell more products and services without extensive network of sales staff. The indirect sales can be less profitable, because of discounts for partners, however that can be compensated by smaller human resources costs.

The difference between direct and indirect sales is noticeable. Direct sale is mostly generated by original service providers and product manufactures, at the same time indirect sale is provided by a third - party such as reseller, affiliate or system integrator etc. Methods and systems of direct and indirect sales channels are completely different.

There's some companies in the market that rely only on indirect channels. Also for most of the companies indirect sales are major driver of revenue (Kokemuller N. 2018)

It is very important to integrate direct and indirect sales channels to maximize sales results. Recently indirect sales channels feel the pressure, because of a big competition and high popularity of online sales (Macula A. 2018) The best invention is a method when buyers and sellers of services or goods engage in commerce. It's a method of requesting, selling, quoting and purchasing services or goods through a user interface, for example web browser that provides users with an option to select direct or indirect sales channels for services or goods from a single purchase (Maged A. 2006)

There are some benefits and problems according to indirect sales, first benefit is that the companies do not need to hire additional sales people. On the other hand, when there's a lot of sales happen through third-party then the company does not have a control over brand image.

Who needs indirect selling?

We can divide companies using indirect selling into 3 categories:

  • Companies that have very low price of the products and there is no point in hiring sales personnel.
  • Companies that have such a high demand on their product that they can't deal with it by their own.
  • Companies that see efficient channel of indirect selling that is available in the market and can be leveraged to their advantage (Macula A. 2018)

Four types of indirect sales agents

There are four types of indirect sales agents:

  • affiliates - sells for a commission,
  • resellers - similar to affiliates, usually tech products,
  • independent sales representatives - easy to scale up or down,
  • system integrators - usually B2B contacts (Kokemuller N. 2018)

Affiliates

Person or a company that sells the product takes a commission for every sale made. Percentage of the commission depends on a seller and the company. It is popular for the company to raise a price of the product for the percentage that they need to pay to the seller. Affiliate sales are popular online, mostly third-part intermediaries match providers with affiliates. Producer can invest in banners, Google Ads or other tools to create traffic and increase brand recognition. Then the affiliates promote products and solutions by their website, social media and their marketing lists. Important aspect is that key benefit is that the cooperation with affiliates is based on effect - sales made (Seifert R. Thonemann U. Sieke M. 2006)

Resellers

Reseller buys a product for a specific prize, mostly lower than a market price, because of the big quantity of the products that he buys. Next reseller increase the price of the product and sell it as his own. The partners drive a 10-20% margin or percentage of a profit to every sale. Reseller programs are smaller in scope than affiliates, but it is very similar. Reseller partners focus on promotion to make a sale, it is very popular in software industries and technology hardware. One of the companies that use reseller program is Apple company, they rely on their partners to promote their products through all promotion channels for example face-to-face, services online, paid campaigns (Rudnick A. 2007)

Independent sales representatives

An Independent Sales Representative is known as a Manufacturer's Representative, he represent your product line or your service in a specific region. By using independent reps, the company can reduce amount of staff in sales department. They can also cut costs on office management and travels. Independent sales representative is also paid on a commission basis. Independent representative serve as a company's marketing, outside sales and customer service. The company needs to cover commission, sales materials, training and payment schedule. It is very common to invest in independent agents in insurance industry.

System integrators

A system integrator (SI) is a company that advertise "solutions" to customers, mostly in B2B system. System integrators specialize in system integration, which is defined as the process of bringing together sub-systems into one system. To deliver the overachieving functionality of the system, it needs to be aggregation of all the subsystems. System integration is also a process of linking together different software applications and computing systems physically or functionally that need to act as an integrated whole. IBM is a business consultant that helps business customers to find perfect technology solutions for them. They often include different software and hardware components in integrating tech solutions. Information technology (IT) departments hire outside systems integrators, because they need help with upgrading or building a computer application. The SI looks for highly involved and dedicated partners that fully support the company in assembling and delivering to customers systems of top quality at agreed competitive prices and at the promised delivery date. (Middel R. Fisscher O. 2007, p. 8)

Examples of Indirect sales

  • Affiliates: Companies can partner with websites and other online businesses to promote their products and services. These affiliates will receive a commission for each sale made through their website, enabling companies to reach more customers without having to employ their own sales staff.
  • Dealers and Distributors: Companies can partner with dealers and distributors who can then sell their products and services in their own stores and online. These dealers and distributors can also provide additional services such as installation and maintenance, as well as offering discounts or promotions to customers.
  • Agents: Companies can also hire agents to sell their products and services on their behalf. Agents are typically independent contractors who are paid a commission on each sale they make.
  • Franchises: Franchises are businesses that are owned and operated by independent entrepreneurs. Franchises are typically licensed to use a company’s products and services and to promote them in their local area.

Advantages of Indirect sales

Indirect sales have several advantages for companies. These include:

  • Low cost of human resources and investment. Indirect sales allow companies to reduce the costs of hiring and training sales staff, and can be less expensive than direct sales.
  • Greater market reach and brand awareness. Indirect sales partners can help companies reach more potential customers, as well as increase brand recognition.
  • Ability to tap into partner resources. Partners can help to provide additional resources such as marketing, customer service, and other services that can help companies reach new customers.
  • Increased customer loyalty. Customers who purchase from partners are more likely to remain loyal to the company as they have a personal relationship with the partner.

Limitations of Indirect sales

Indirect sales come with certain limitations. These include:

  • Lack of direct control over sales process - when using indirect sales, companies lose direct control over sales process, which can lead to unsatisfactory customer experience and negative attitudes towards the brand.
  • Reduced customer loyalty - customers may be more loyal to the sellers than to the brand, which makes it more difficult to retain customers.
  • Limited availability of customer data - customer data is collected by the partners, so companies have limited access to it and thus limited opportunities to analyze it and use it in their marketing and sales strategies.
  • Higher costs - indirect sales usually come with higher costs, since companies have to pay commissions to partners, and also have to invest in marketing materials and training for partners.

Other approaches related to Indirect sales

In addition to indirect sales, there are other approaches that can help companies generate revenue. These include:

  • Affiliate marketing - this involves setting up agreements with other companies to promote your products and services. When a customer purchases from the partner, the company earns a commission.
  • Content marketing - this involves creating content that can be used to increase brand awareness, drive more website traffic and convert leads.
  • Social media marketing - this involves leveraging social media platforms to promote products and services and engage customers.
  • Email marketing - this involves using emails to communicate with customers and promote products and services.
  • Direct mail marketing - this involves sending direct mail pieces to potential customers to promote products and services.

In summary, there are a variety of approaches that companies can use to generate revenue, including indirect sales, affiliate marketing, content marketing, social media marketing, email marketing, and direct mail marketing. Each of these approaches has its own benefits and drawbacks and can be used to reach different customer segments.


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References

Author: Dominika Ogórek

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