Which of the following type of business sells products directly to consumers?

A business model is simply the overarching plan of a company to generate a profit by selling a service or a product. The business model provides an outline of the plans of the company to produce a product or service and to market it. This plan also includes the expenses that will occur with manufacture and marketing of the service or product. Different business models exist, each of which can suit different companies and types of businesses.

Manufacturer

The manufacturer business model utilizes raw materials to create a product to sell. This type of business model might also involve the assembly of prefabricated components to make a new product, such as automobile manufacturing. A manufacturing business can sell the products created directly to customers, which is known as the business-to-consumer model. Another option involves outsourcing the sales aspect of the process to another company, which is known as the business-to-business or B2B model. Wholesaling manufacturers typically sell products to retailers, which then sell directly to consumers. An example of this type of company might be a clothing manufacturer that sells merchandise to a retailer, which then sells to consumers.

Distributor

A company fitting the distributor business model would be a business that buys products directly from a manufacturing company. This business would then resell the products directly to consumers or to a retailer. The distributor often acts as one of the middle points between a manufacturer and the general public. Distributors have the challenge of setting price points that will produce a profit while also utilizing effective promotion strategies that will secure strong sales. Competition can be fierce for distributors, which necessitates continual analysis of the market.

Retailer

A retailing business purchases products directly from a wholesale or distributing company, then sells the inventory directly to the public. Retailers often utilize a brick-and-mortar location for points of sale. Examples of retailers include grocery stores, clothing stores, and department stores. Retailers might be nationwide chains, or they could be independent shops operated by a single entity. A physical location for a retailer is common but not mandatory. Retailers may choose to offer sales as an online retailer. Online retailing can be done alone or in combination with selling from a physical location. Retailers experience the ongoing challenge of competing against other retailers that offer similar products.

Franchise

A franchise business model might involve any of the other business models, such as manufacturing, distributing, or retailing. Franchise business are set up according to the unique service or product sold or produced. The business model of the franchise is adopted by the purchaser of the franchise, who is known as the franchisee. Purchasing a franchise has some important benefits for the franchisee, since most business processes and protocols are already established for the business. However, with these established protocols come less flexibility for the franchisee.

Additional Business Model Structure Options

Within these four standard business models, business owners can structure their companies to include specific features of one or more models. For example, a company that engages in direct sales to consumers might integrate a process of product demonstrations in the consumer’s home. Companies could also engage in direct online sales without the use of an intermediary company. Retailers that utilize both a physical store location and a website could offer online sales for consumers who could then pick up their items at the brick-and-mortar store. Companies might also hold Internet auctions for sales. Some businesses also utilize a sales approach that offers a free basic service with the option to upgrade to a paid, premium service. Business model structures can vary significantly, and companies might explore a wide array of combinations to find a model that meets with success.

Direct selling is selling products directly to consumers in a non-retail environment. Instead, sales occur at home, work, online, or other non-store locations.

Learn more about direct selling to help you consider different revenue streams and avoid potential scams.

What Is Direct Selling?

With direct selling, distributors avoid intermediaries in the supply chain and sell products directly to consumers. In traditional retail settings, products are sold online or at a physical store, but direct selling relies heavily on salespeople getting in front of customers in nontraditional settings.

How Direct Selling Works

Direct selling eliminates several intermediaries involved in product distribution, such as the regional distribution center and wholesaler. Instead, products go from the manufacturer to the direct sales company, then to the distributor or rep, and finally to the consumer. The products sold through direct sales are usually not found in typical retail locations, which means finding a distributor or rep is the only method to buy the products or services.

Direct selling is usually associated with party-plan and network marketing companies. Although these companies use direct sales, they aren't the only ones; many businesses that sell business-2-business (B2B) use direct selling to target and sell to their end customers. For instance, many companies that sell advertising or office supplies will send their reps directly into the stores that can use their services.

Note

Don't confuse direct selling with direct marketing. Direct selling takes place when individual salespeople directly reach out to consumers, whereas direct marketing involves a company marketing directly to the consumer.

Types of Direct Selling

There are a variety of ways business owners can utilize direct selling, including:

• Single-level direct sales
• Host or party-plan sales
• Multi-level marketing

Single-level direct sales are typically performed one-on-one through door-to-door or in-person presentations, online meetings, or catalogs. Generally, income is earned on sales commissions, with possible bonuses for reaching target goals. Host or party-plan sales are made in a group setting, usually involving the distributor or rep doing a presentation in their home or a potential customer's home.

In some cases, a company might sell to individuals in a business. For example, a real estate software sales rep might do a group sales presentation to a group of Realtors. Income can come from commissions from sales, and sometimes through the recruitment of other reps.

Sales in multi-level marketing (MLM) are made in various ways, including those associated with single-level and party-plan sales. Income earned through MLM is commission on sales, as well as the sales made by other business partners the distributor recruits into the company.

Direct sales may be mistakenly referred to as MLM or network marketing, but these terms are not interchangeable. While MLM and network marketing are a form of direct sales, not all direct sales systems involve MLM. For instance, in single-level marketing, the sales representative is only paid commission on the sales they personally make; there is no recruitment of other sales team members or commissions earned from their sales.

Direct Selling vs. Pyramid Schemes

Unfortunately, it can often be hard to distinguish between a legitimate MLM business opportunity and a pyramid scheme because they share many of the same characteristics. Both MLM and pyramid schemes require participants (called "distributors") to recruit other people, and both tie an individual's compensation directly to their recruiting results. The main difference between the two is that pyramid schemes are designed to keep distributors' money flowing into the company.

Most pyramid schemes will keep the income stream going by charging fees and requiring distributors to regularly purchase a certain amount of products to sell—even if they don't need it. There may be products or services to sell, but most people's income largely depends on how well they can recruit because the company is more interested in having a steady flow of income from distributors. Here are some potential signs of a pyramid scheme:

• Lavish promises of getting rich quick
• Too much emphasis on recruiting other distributors
• You're required to initially "invest" a lot of money
• Promoters use emotional sales tactics to convince you to join
• Very little focus on the actual product or service

Are Direct Sales Companies Legal?

Direct sales—particularly MLM and network marketing—have suffered a bad rap because many companies have been scrutinized for using marketing methods resembling pyramid schemes. Direct selling is perfectly legal, but pyramid schemes are scams and illegal. In the U.S., recruiting people into a pyramid scheme can be a felony, and the Federal Trade Commission is the primary agency responsible for stopping such cases.

Key Takeaways

• Direct selling involves distributors selling products or services directly to consumers.
• The three types of direct selling are single-level direct, party-plan, and multi-level marketing.
• Pyramid schemes are different from multi-level marketing and illegal.

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Sources

The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.

1. Federal Trade Commission. "Multi-Level Marketing Businesses and Pyramid Schemes." Accessed July 10, 2020.

   What business sells products directly to the people who use or consume them?

   B2C, or business to consumer, is the type of commerce transaction in which businesses sell products or services directly to consumers.

   What is a business that sells goods or services directly to the public?

   A retailer sells products and services directly to the public in person, online, or through a combination of both. Retailers purchase goods from manufacturers and wholesalers and resell them to customers for a profit.

   What type of entrepreneurial business sells products to people other than the final customer?

   Service business type of entrepreneurial business sells instead of a product.

   Which of the following represents businesses buying from and selling to each other over the internet?

   Ecommerce, also known as electronic commerce or internet commerce, refers to the buying and selling of goods or services using the internet, and the transfer of money and data to execute these transactions.