Functions of Intermediaries in Distribution Channel

 

A distribution channel is a set of interdependent organizations involved in the process of making a product or service available for use or consumption by the consumer or business user.

Why are marketing intermediaries used?

Most producers use intermediaries to bring their products to the market and, in so doing, forge a distribution channel.

• Intermediaries make goods available to target markets more efficiently – through their contacts, experience, specialization, and scale of operation, they offer more than the firm can achieve on its own.
• They also provide economies of scale and reduce the number of contacts; this reduces the amount of work that must be done by both producers and consumers.
• They also transform the assortment of producers’ assortment into assortments wanted by the customer, thus playing a critical role in matching supply and demand.
• Many producers lack financial resources to carry out direct marketing
• In some cases, direct marketing is not feasible for producers because if they establish retail shops, they have to sell many products.

Functions of Intermediaries in Distribution Channel

Members of the marketing channel perform the following functions:

Functions Performed by Marketing Intermediaries

Contacting Function

They reduce the number of sales contacts on sales needed to reach all the customers. As the number of sellers and customers increases, the number of sales contacts increases geometrically, otherwise arithmetically, in cases where there are middlemen.

Matching and Sorting Function

This involves bulk breaking (buying in large units and breaking down into smaller units for resale) and bulk building (intermediaries buy from various small producers, selling to marketing boards, millers, or Processors of foreign buyers, especially in the marketing of coffee).

Basically, it shapes and fits the offer to buyers’ needs, including manufacturing, grading, assembling, and packaging.

Physical Distribution Function

Transportation and storage of products from producer to the final consumer. Transportation creates utility by ensuring goods are available where desired.

Warehousing and Storage

Ensures that products are available when expected. This ensures continuous production since manufacturers’ storage space is continuously emptied by the outflow of stock going to intermediaries. The middlemen assume ownership of goods/merchandise, thus financing the inventory and taking the risk.

Demand Stimulation

In a bid to make a profit, intermediaries engage in marketing functions as the marketing mix variables. Though they engage in marketing, they stimulate sales of their stock, which also include competitor products.

If a company’s product is not in demand, then they may phase it out. At times manufacturers may stimulate demand for their products by offering incentives to retailers. Demand stimulation by intermediaries is appropriate for small producers who do not have fiancés to promote their products.

Market Information

They gather and distribute marketing research information about factors and forces in the marketing environment needed for planning and aiding exchange, e.g., potential customers and competitors.

They provide information from producers to consumers or from consumers to producers. This information backs up what sales associates, consumers, and the media offer. Middlemen explain to consumers how to use and maintain the company’s products and where to take them for repair—questions regarding the product’s function by customers, warranties, and guarantee conditions.

Marketing and Promotion

Intermediaries provide many producers lacking the resources to carry out direct marketing with an avenue to sell their products.

Negotiation

They attempt to reach a final agreement on the price and other terms so that transfer of ownership can be affected.

Ordering

It involves communicating the intentions to buy to the manufacturer.

Financing

The acquisition and allocation of funds required to finance inventories at different levels of the marketing channel.

Risk-taking

The assumption of risks connected with carrying out the channel work.

Title

The actual transfer of ownership from one organization or person to another. Intermediaries are necessary; if a manufacturer performs channel functions, his costs go up, and the prices become higher. When some functions are shifted to intermediaries, the producers’ costs and the expenses become lower.

Many businesses should outsource distribution functions and concentrate on core business, i.e., production.

The use of intermediaries should not be viewed negatively to be a way of placing a firm’s destiny in their hands because both producers and buyers gain several advantages from these intermediaries who do a lot to smoothen the flow of goods services.

Factors Influencing the Type of Distribution Channel to Be Used

In deciding the combination of channels to use, the following factors should be considered:

Company Characteristics

These include such factors as company objectives and constraints, financial status, past channel experience, and desired degree of channel control required by the company.

Product Characteristics

These include such factors as perishability (require more direct marketing), bulky products (require channels that minimize shipping distance and handling), non-standardized products(sold directly by the company’s sales force, e.g., custom-built machines), products requiring installation are usually sold by the company or by franchised dealers.

Middlemen Characteristics

These include such factors as financial capabilities, payment policies, capability in reaching consumers, and any strengths and weaknesses.

Competitive Characteristics

The channels used by the competitors may represent the wisdom of the industry. Therefore, the company may use them to make available its product where the company competitors are; alternatively, the company might use a different channel to differentiate its products.

Environmental Characteristics

Political, legal, economic, and technological characteristics influence channel decisions. When the economy is depressed, producers may wish to use shorter channels to reach consumers at less cost.

Government legislation against producers doing their own marketing may also influence the channel decisions.

Customer Characteristics

Key questions here include:

• – What is the output level desired by the customers?
• – What is the lot size purchased by the customer?
• – Does the customer expect service back-up?
• – Are the target customers centrally located or dispersed?