Introduction
Companies worldwide use direct or indirect distribution channels to pass their products to consumers. Costco is one company that thrives from using an indirect distribution channel. Other companies, such as Apple Inc., use a mixture of direct and indirect channels. A mixed distribution approach has more benefits than indirect and direct means independently (Fang, 2019). The choice of distribution channel that an organization decides to use is influenced by many factors, among them the availability of stores, availability of resources, type of products sold, nature of competition, and profitability of the firm, among others. It will be necessary to evaluate and describe Apple and Costco’s use of mixed and indirect distribution channels, respectively.
Apple’s Distribution Approach
The business model of Apple Inc. emphasizes using both direct and indirect channels of product distribution. In the direct distribution approach, the company meets the needs of the consumers directly by selling them apple products via apple stores. Conversely, in the indirect distribution channel, the company avails the products to the consumers through third parties such as retailers and wholesalers (Fang, 2019). Retailers and wholesalers can purchase Apple products in bulk and distribute them to consumers at a profit.
Apple uses the mixed distribution approach to sell products like iPhones and Mac laptops. In 2022, the company generated more than $394 billion in revenues; the iPhone sales generated $205.5 billion, while Mac laptops generated $40 billion (Cuofano, 2022). Every time the company decides on the business strategy that it should use, it always puts into consideration iPhones and Mac laptops because they are the leading products that it deals in. The best place Apple uses to showcase its technology to customers is the Apple stores that the company owns. The company displays its products in the stores to allow the customers to have a one-on-one experience with them and appreciate their quality.
The direct distribution approach is crucial for the company’s success because it enables Apple to offer a top-notch buying experience for iPhones and Mac books. During this process, the customer service providers within the store offer services and education to the customers regarding the quality and reliability of the products (Cuofano, 2022). Apple keeps increasing its iPhone and Mac bookstores across the globe to further the initiative of direct distribution. Although the direct distribution strategy is part of the company’s business plan, it is costly, so the company merges it with an indirect distribution approach.
Having ultimate control over the customers’ experience requires many resources. The company employs qualified, knowledgeable, and experienced individuals within the tech world to offer the customers information they want to hear about iPhones and Mac books (Cuofano, 2022). The experienced employees also offer customers information that they consider essential about these products but might not be known to them. The direct channel of distribution of iPhones and Mac laptops plays a key role due to several reasons. It enhances brand exposure at a large scale because Apple stores are always located in the most lavish and iconic places across the globe.
Apple’s indirect distribution channels lock the gap in some markets where direct distribution networks are still underway (Nguyen, 2020). Since Apple Inc. does not have the resources to put up iPhone and Mac bookstores worldwide, as this will call for massive investment in human resources and finance, the company uses reliable wholesalers and distributors to avail the products to the consumers. The indirect distribution comprises third-party cellular network carriers, resellers, authorized retailers, and others the company deems efficient. Therefore besides the retail store system owned by the company, Apple has solid global indirect retail links with approved distributors.
Some of the distributors of the iPhone and Mac books produced by the companies have their e-commerce platforms, and an example, in this case, is Amazon. Similarly, the company has a strategic agreement with various telecom stores like Verizon or AT&T, allowing them to apply Apple services and products to their telecom sets for valued cohesive client solution delivery (Nguyen, 2020). Millions of the company’s resellers have successfully sold the products and services to customers worldwide.
The merger of direct and indirect distribution approaches to selling Mac books and iPhones has offered the company a unique distribution channel model that has improved market coverage (Nguyen, 2020). The model also fosters product availability to the customers each time they are in need, leading to revenue maximization. Additionally, the company’s use of a mixed approach with integrating post-sales and pre-sales services, including maintenance, financing, and warranty support, leads to a more substantial brand reputation.
Costco’s Distribution Approach
Costco Company uses the indirect distribution channel to avail the products to the consumers. The company transfers most of its products to the retailers or consumers who are responsible for making them available to the consumers (Cuofano, 2023). The typical products the company deals in are vacuum cleaners and baby cribs. Costco Company embraces intermediaries to connect with customers to avoid the expensive nature of direct distribution channels. Compared to Apple Inc., Costco Company needs more adequate stores across the world to aid in selling the products directly to the consumers. Besides, the company considers putting up stores as an expensive venture that can eat much into its profits, making the entire process invaluable.
An indirect distribution channel allows the company to reach more customers because it does not have the duty of storing or shipping the products directly to every consumer (Cuofano, 2023). The company, therefore, maximizes every profit during the sale of vacuum cleaners and baby cribs. Similarly, Costco Company embraces a direct distribution channel because it helps share the inventory cost with the intermediaries. The company sells the products in bulk to retailers and collects quick money from them while the retailers wait to get the customers. Ultimately, the retailer bears the cost of the inventory, and this is an advantage to the company.
The vacuum cleaners and baby cribs that the company sells are always of good quality and are sold at affordable prices. The products that Costco produces and sells to retailers and wholesalers are simple and easy to use. Any customer can rely on general knowledge to use the products because they do not require any extreme skills to operate, as is the case with the tech products that Apple Inc. deals in. Besides, the fact that these products are sold at affordable prices implies that any minor mistake in putting up stores haphazardly across the globe might affect the revenue generated by the company. Ultimately, the price of baby cribs and vacuum cleaners cannot be compared to that of iPhones and Mac books.
Finally, Costco uses indirect distribution because it cannot reach consumers directly (Fang, 2019). Products such as baby cribs and vacuum cleaners have much demand across the globe. However, the same products are produced by many companies, unlike the case with iPhones and Mac books that Apple Company only produces. Because of this, Costco uses indirect distribution to escape the allure of competition from other companies close to its customers (Cuofano, 2023). In a nutshell, the company should sell the products to retailers and wholesalers in bulk to distribute the same to all corners with consumers.
Conclusion
The question of whether to use a direct distribution channel or an indirect distribution channel depends on the intentions of the organization and the objectives present. Direct and indirect distribution have their merits, and it is always necessary to weigh between the two, ascertain customer presence, and decide on the approach to take. The mixed distribution channel is the most effective approach because it benefits from direct and indirect distribution. Apple Company is among the firms worldwide that have succeeded in using the mixed distribution approach, while Costco has benefited and thrived from using the indirect distribution channel.
References
Cuofano, C. (2022). Apple Distribution Strategy: The Apple Store is not About Selling iPhones.
Fang, Q. (2019). The marketing strategies of BHG Lifestyle market in Nanning, Guangxi. Asia Pacific Journal of Religions and Cultures, 3(1), 1–20.
Nguyen, W. (2020). Applied Distribution Overview.
Cuofano, C. (2023). Business Strategy Lessons from Costco Business Model.
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