Agriculture Reference
In-Depth Information
marketing functions are performed. That is, products are owned, transported, fi nanced, and
stored. But in each system these functions are performed by different parties.
In a manufacturer-direct distribution system , the manufacturer sells directly to the
farmer or food customer. The original manufacturer or producer, who owns and controls the
product until the fi nal user purchases it, performs all marketing functions. This system has
the advantage of ensuring that the product will be priced, promoted, and sold in ways that are
acceptable to the manufacturer. This method is used widely by smaller local or regional farm
input manufacturers, who can develop their own sales force as they grow, and by catalog
merchants, local market fruit and vegetable operations, and farmers' markets in the food
market.
Some fi rms believe this strategy allows them to be more aggressive in the marketplace,
because they can create and control their image with customers. This channel also works
better where customers are concentrated. As the business grows and customers are distrib-
uted more widely, with increasingly different characteristics and needs, it becomes more
diffi cult to manage the direct-selling system. Marketing to widely different customers often
requires at least regionalized marketing policies, which become diffi cult to administer effec-
tively. However, when organizations give their sales force considerable autonomy, the
system can be effective even on a regional or national scale. Likewise, major developments
in customer databases which allow manufacturers to “know” their end users have facilitated
this channel. In addition, developments in e-commerce allow manufacturers to go directly to
the end-user employing the Internet and the fi rm's web-site as their “virtual” sales force.
Note that many companies that sell directly do so by establishing their own wholesale and
retail systems. The product must be physically transported and distributed as in any other
system, but in the direct system company-owned warehouses and/or retail stores will be
used, which allows manufacturers to ship and store products whenever and wherever they
choose. This freedom provides some real economic advantages.
In a dealer-distribution system , manufacturers sell their products to dealers, who, in
turn, sell products in their own local market. The big advantage is that the local dealer is
more in touch with the needs of local customers and can maintain the fl exibility to serve both
manufacturers' and customers' needs quickly and effi ciently. This eliminates the tendency
for an executive 1,000 miles away to fi ll local storage space with a product simply to gain
more room in a full warehouse, even though local farmers may not need the product in large
quantities that season. In addition, some feel that independent dealers are more highly moti-
vated to serve the local customer than are company employees.
Some manufacturers give their dealers (who may be called distributors, even though they
sell directly to farmers or consumers) the right to sell their products. Local dealers often have
a strong understanding of their local market and customers and fi nd great success in selling
a manufacturer's product as part of their business. This arrangement benefi ts both the local
dealer, who makes a margin on the products sold, and benefi ts the manufacturer by having
the local dealer's knowledge and presence in a given area. Although the manufacturer cannot
control the sales areas of dealers, giving some dealers this right and refusing it to others can
strategically limit the number of dealerships. To maintain the right to sell the manufacturer's
products, dealers may agree to maintain certain levels of service to customers and promote
the products in special ways. There may even be a contractual agreement, sometimes called
a franchise, spelling out the responsibilities of both the dealer and the distributor.
Other manufacturers encourage distribution through as many dealers as possible. Products
that are frequently purchased and less expensive generally tend to be mass-marketed in order
to maximize convenience to the buyer and saturate the market. Many hard lines of farm
 
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