Factory direct

Factory direct

Factory direct is a term used to explain when a manufacturer sells directly to the end-user of a product. Most products bought and sold by consumers are purchased through intermediaries and in many cases can include two tiers made up of distributors and resellers.

Each selling tier adds cost to the product. While many manufactures have no ability to service and support end-users and thus use distribution channels, increasingly the Internet and eCommerce capabilities have increased the number of manufacturers who sell factory direct.

There are two common factory direct channel strategies. The first sets the price artificially high so as not to aggressively compete with the manufacturer's various channel partners. Thus, this is a very profitable channel but frequently misleads the customer who assumes the best price for a product comes when they purchase directly from the manufacturer. The second offers a "wholesale" price typical of what a reseller or distributor might pay.

Popularized by Dell Computers, a factory direct channel is one where the price is typically lower than one would pay buying through a multi-tier distribution channel.


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