Channel Intermediaries
Functions of Intermediaries
Intermediaries make it possible for a company to deliver its products to the end user without needing to own the whole supply chain.
LEARNING OBJECTIVES
Describe the functions of agents, wholesalers, distributors and retailers
KEY TAKEAWAYS
Key Points
- Distribution of goods takes place by means of channels, and the intermediaries are the independent groups or organizations within the channel that make the product available for consumption.
- There are four main types of intermediary: agents, wholesalers, distributors, and retailers.
- A firm may have as many intermediaries in its distribution channel as it chooses. It can even have no intermediaries at all, if it practices direct marketing.
Key Terms
- distribution intermediaries: Independent groups or individuals that provide the channel for a company’s product to reach the end user.
Intermediaries
Intermediaries, also known as distribution intermediaries, marketing intermediaries, or middlemen, are an extremely crucial element of a company’s product distribution channel. Without intermediaries, it would be close to impossible for the business to function at all. This is because intermediares are external groups, individuals, or businesses that make it possible for the company to deliver their products to the end user. For example, merchants are intermediaries that buy and resell products.
There are four generally recognized broad groups of intermediaries: agents, wholesalers, distributors, and retailers.
Agents/Brokers
Agents or brokers are individuals or companies that act as an extension of the manufacturing company. Their main job is to represent the producer to the final user in selling a product. Thus, while they do not own the product directly, they take possession of the product in the distribution process. They make their profits through fees or commissions.
Wholesalers
Unlike agents, wholesalers take title to the goods and services that they are intermediaries for. They are independently owned, and they own the products that they sell. Wholesalers do not work with small numbers of product: they buy in bulk, and store the products in their own warehouses and storage places until it is time to resell them. Wholesalers rarely sell to the final user; rather, they sell the products to other intermediaries such as retailers, for a higher price than they paid. Thus, they do not operate on a commission system, as agents do.
Intermediaries: Retailers sell products to end users. They can be small “mom and pop” stores or huge chains such as Wal-Mart.
Distributors
Distributors function similarly to wholesalers in that they take ownership of the product, store it, and sell it off at a profit to retailers or other intermediaries. However, the key difference is that distributors ally themselves to complementary products. For example, distributors of Coca Cola will not distribute Pepsi products, and vice versa. In this way, they can maintain a closer relationship with their suppliers than wholesalers do.
Retailers
Retailers come in a variety of shapes and sizes: from the corner grocery store, to large chains like Wal-Mart and Target. Whatever their size, retailers purchase products from market intermediaries and sell them directly to the end user for a profit.
Channel Design
A firm can have any number of intermediaries in its channels. A “level zero” channel has no intermediaries at all, which is typical of direct marketing. A “level one” channel has a single intermediary, usually from the manufacturer to the retailer to the consumer.