What are the three functions performed by intermediaries in a marketing channel?

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.

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 .

Family Grocery Shopping

Retailers sell the products to the end user. They can be small "mom and pop" stores, or huge chains such as Wal-Mart.

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.

a. Transactional Function

–Buying. Purchasing products for resale or as an agent for supply of a product

–Selling. Contracting potential customers, promoting products, and soliciting orders

-Risk Taking: Assuming business risks in the ownership of inventory that can become obsolete or deteriorate.

b. Logistical Function

-Assorting. Creating product assortments from several sources to serve customers

-Storing. Assembling and protecting products at a convenient location to offer better customer service.

-Sorting. Purchasing in large quantities and breaking into smaller amounts desired by customers.

–Transporting: Physically moving a product to customers.

c. Facilitating Function

–Financing. Extending credit to customers

–Grading. Inspecting, testing, or judging products, and assigning them quality grades

–Marketing information and research. Providing information to customers and suppliers, including competitive conditions and trends.

Intermediaries in a distribution channel provide services that enable manufacturers to reach different types of customers. A channel might include a number of intermediaries, such as agents, wholesalers, distributors and retailers. Intermediaries act as middlemen between different members of the distribution chain, buying from one party and selling to another. They also may hold stock and carry out logistical and marketing functions on behalf of manufacturers.

Direct and Indirect Channels

Manufacturers sell products and services to their customers through direct and indirect channels. Where manufacturers sell direct to customers through their own salesforce or website, they do not require intermediaries. If they wish to sell to customers and prospects their sales teams cannot reach, they appoint intermediaries to act on their behalf. Intermediaries may have additional resources and relationships to supplement to a manufacturer’s own sales and marketing resources, enabling it to reach a wider customer base.

Selling Through Agents

Agents act as independent representatives for manufacturers, selling to other intermediaries such as wholesalers or retailers. These agents can be individuals or companies. Agents earn commission or fees for the sales they make or the services they provide. They form a valuable extension to a manufacturer’s internal sales resources.

Reaching More Customers Through Retailers

Independent stores and retail chains sell products to consumers and business customers. By appointing retailers, manufacturers can reach different areas of the country and target smaller customers they could not afford to serve directly. Retailers buy products for resale direct from manufacturers or from wholesalers. They generally stock goods from many different suppliers, including competitive offerings in the same product category, so manufacturers must use incentives and discounts to encourage retailers to push their products in order to achieve strong sales.

Simplifying Logistics through Wholesalers

Wholesalers buy products in bulk from a number of different manufacturers, stocking them in warehouses and selling them to retailers. By holding stock, wholesalers enable manufacturers to supply customers in different regions without investing in their own warehousing facilities. Wholesalers also help manufacturers reduce their logistics costs by delivering stock to retailers or offering stores a collection service.

Cooperative Marketing Through Distributors

Distributors carry out similar functions to wholesalers, but generally have closer working relationships with manufacturers. Distributors may have exclusive arrangements with manufacturers and do not carry competing products. They may be part of a franchise, only offering the products of one manufacturer. Like wholesalers, they provide valuable warehousing and logistical functions for manufacturers. They may also participate in cooperative marketing programs with suppliers, improving sales for manufacturers.

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