Product marketing is to establish and maintain the most cost effective, efficient and profitable method of distributing products to customers. Determining the best channel of distribution for a product involves an analysis of start-up costs, size of the potential customer base, potential sales volume, cost of shipping and size of the geographic territory. Finding the best method may involve a process of trial and error, or modeling the method of distribution after an industry leader.
The simplest method for selling products to customers is to employ a sales force that deals directly with the ultimate customer, and then to ship the goods and bill directly to that customer. Unfortunately, this method involves a substantial investment in a direct sales force. If there are many potential customers, the large geographic area and/or broad product lines, a direct sales force may not be possible. When involving in direct marketing , the relevant provisions namely S.34 under the Personal Data (Privacy) Ordinance has to be observed.
Distributors and Independent Sales Representatives
Many small businesses instead elect to market their products through independent firms. These independent firms can roughly be divided into two groups: A distributor is an individual or company that purchases goods from a manufacturer and then resells them to another company in the chain of distribution, such as a dealer or retailer. The other channel is through an independent sales representative (sometimes called a sales agent or manufacturer's representative). Unlike the distributor, the sales representative does not purchase the manufacturer's product. Instead, the sales representative calls on customers, solicits orders, and is paid a commission when the sale is completed.
Because a distributor actually purchases the goods from the manufacturer and carries an inventory, the credit worthiness of the distributor is extremely important. An independent representative, on the other hand, does not purchase the goods or maintain an inventory. Because the sales representative simply solicits the orders from the ultimate customer, the customer's ability to pay becomes more important than the sales representative's.
There are many variations on these two basic methods of product marketing. Most commonly, there are often additional parties involved in the chain of distribution. Many manufacturers of consumer goods sell to distributors, who in turn sell to dealers or retailers. In some cases, particularly with high tech hardware and software products, a distributor may modify or enhance the product before resale. Dealings with these "value-added resellers" can become complicated, as issues of protection of intellectual property and responsibility for defective products come into play.