Producers delegate these flows for a variety of reasons. First, they may lack the financial resources to carry out the intermediary activities themselves. Second, many producers can earn a superior return on their capital by investing profits back into their core business rather than into the distribution of their products. Finally, intermediaries, or middlemen, offer superior efficiency in making goods and services widely available and accessible to final users.
For instance, in overseas markets it may be difficult for an exporter to establish contact with end users, and various kinds of agents must therefore be employed. Because an intermediary typically focuses on only a small handful of specialized tasks within the marketing channel, each intermediary, through specialization, experience, or scale of operation, can offer a producer greater distribution benefits. Although middlemen can offer greater distribution economy to producers, gaining cooperation from these middlemen can be problematic.
Middlemen must continuously be motivated and stimulated to perform at the highest level. In order to gain such a high level of performance, manufacturers need some sort of leverage.
Researchers have distinguished five bases of power: As new institutions emerge or products enter different life-cycle phases, distribution channels change and evolve. With these types of changes, no matter how well the channel is designed and managed, conflict is inevitable.
Often this conflict develops because the interests of the independent businesses do not coincide. For example, franchisers, because they receive a percentage of sales, typically want their franchisees to maximize sales, while the franchisees want to maximize their profits, not sales. The conflict that arises may be vertical, horizontal, or multichannel in nature.
When the Ford Motor Company comes into conflict with its dealers, this is a vertical channel conflict. Horizontal channel conflict arises when a franchisee in a neighbouring town feels a fellow franchisee has infringed on its territory. Finally, multichannel conflict occurs when a manufacturer has established two or more channels that compete against each other in selling to the same market.
For example, a major tire manufacturer may begin selling its tires through mass merchandisers, much to the dismay of its independent tire dealers. Wholesaling includes all activities required to sell goods or services to other firms, either for resale or for business use, usually in bulk quantities and at lower-than-retail prices.
Wholesalers, also called distributors, are independent merchants operating any number of wholesale establishments. Wholesalers are typically classified into one of three groups: Merchant wholesalers, also known as jobbers, distributors, or supply houses, are independently owned and operated organizations that acquire title ownership of the goods that they handle.
There are two types of merchant wholesalers: Full-service wholesalers usually handle larger sales volumes; they may perform a broad range of services for their customers, such as stocking inventories, operating warehouses, supplying credit , employing salespeople to assist customers, and delivering goods to customers. General-line wholesalers carry a wide variety of merchandise, such as groceries; specialty wholesalers, on the other hand, deal with a narrow line of goods, such as coffee and tea or seafood.
Limited-service wholesalers, who offer fewer services to their customers and suppliers, emerged in order to reduce the costs of service. There are several types of limited-service wholesalers. Cash-and-carry wholesalers usually handle a limited line of fast-moving merchandise, selling to smaller retailers on a cash-only basis and not delivering goods.
Truck wholesalers or jobbers sell and deliver directly from their vehicles, often for cash. They carry a limited line of semiperishables such as milk, bread, and snack foods. Drop shippers do not carry inventory or handle the merchandise. Operating primarily in bulk industries such as lumber, coal, and heavy equipment, they take orders but have manufacturers ship merchandise directly to final consumers. Rack jobbers, who handle nonfood lines such as housewares or personal goods, primarily serve drug and grocery retailers.
Rack jobbers typically perform such functions as delivery, shelving, inventory stacking, and financing. In less-developed countries , wholesalers are often the sole or primary means of trade; they are the main elements in the distribution systems of many countries in Latin America , East Asia, and Africa. In such countries the business activities of wholesalers may expand to include manufacturing and retailing , or they may branch out into nondistributive ventures such as real estate, finance , or transportation.
Until the late s, Japan was dominated by wholesaling. Even relatively large manufacturers and retailers relied principally on wholesalers as their intermediaries.
However, in the late 20th century, Japanese wholesalers declined in importance. Even in the most highly industrialized countries, however, wholesalers remain essential to the operations of significant numbers of small retailers. We welcome suggested improvements to any of our articles. You can make it easier for us to review and, hopefully, publish your contribution by keeping a few points in mind.
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Channel functions and flows In order to deliver the optimal level of service outputs to their target consumers, manufacturers are willing to allocate some of their tasks, or marketing flows, to intermediaries. Management of channel systems Although middlemen can offer greater distribution economy to producers, gaining cooperation from these middlemen can be problematic. Wholesalers Wholesaling includes all activities required to sell goods or services to other firms, either for resale or for business use, usually in bulk quantities and at lower-than-retail prices.
Merchant wholesalers Merchant wholesalers, also known as jobbers, distributors, or supply houses, are independently owned and operated organizations that acquire title ownership of the goods that they handle. Full-service wholesalers Full-service wholesalers usually handle larger sales volumes; they may perform a broad range of services for their customers, such as stocking inventories, operating warehouses, supplying credit , employing salespeople to assist customers, and delivering goods to customers.
Limited-service wholesalers Limited-service wholesalers, who offer fewer services to their customers and suppliers, emerged in order to reduce the costs of service. Previous page The consumer buying process.
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Producers sell vegetables through various retail and wholesale practices. 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.
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.
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. 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.
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.
These intermediaries, such as middlemen (wholesalers, retailers, agents, and brokers), distributors, or financial intermediaries, typically enter into longer-term commitments with the producer and make up what is known as the marketing channel, or the channel of distribution.
Channel intermediaries also provide transactional, logistics and facilitating functions, such as physical distribution, inventory storage and sorting. Learning Outcome. At the end of this lesson, you'll understand how channel intermediaries function and their importance in physical distribution strategies.
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. Individual or firm (such as an agent, distributor, wholesaler, retailer) that links producers to other intermediaries or the ultimate buyer. Distribution intermediaries help a firm to promote, sell, and make-available a good or service through contractual arrangements or purchase and resale of the item.
A distribution channel is a chain of businesses or intermediaries through which a good or service passes until it reaches the end consumer. It can include wholesalers, retailers, distributors and even the internet. Two Intermediary Levels Channel: In this distribution channel two intermediaries are involved which are wholesaler and retailer. Most small producers of Drugs, hardware and food items use this distribution channel. Three Intermediary Levels channel: Meat Industry uses this type of distribution channel in which the meat is delivered to the wholesalers by the producer.