This article is about one of the most commonly used channels of distribution such as a one-level channel of distribution (or one-intermediary channel) which is about selling indirectly to customer using a single intermediary such as retailers.
A one-level channel of distribution contains one intermediary between a manufacturer and consumers. The role of an intermediary in a consumer market is typically performed by a retailer by while in an industrial market this could be an agent or broker. Products can be sold to customers in independent retailer shops, multiple shop organizations, stores including supermarkets, superstores, department stores as well as retail cooperatives.
Main feature of one-intermediary channel
Type and main features of one-level channel of distribution:
Producer -> Retailer -> Consumer
A one-level channel is usually used for selling consumer goods in retail shops, but could also be utilizing an agent for selling industrial products to other businesses. It has one intermediary such as retailers. Indirect sale to customers is made with one intermediary along the route.
With the increasing size of many modern retailers, the single intermediary channel is becoming more common.
When is a one-level channel of distribution used?
This channel of distribution is mainly used when the producer wishes to reach a large number of consumers in different markets which are spread over a wide geographical area. Huge retailers such as Tesco or Lidl are able to arrange their own storage and distribution systems to individual stores to make the product available in the whole country. They can provide customer with high standards of product quality and reliable delivery times under a well-know brand.
Examples of using one-intermediary channel
Let’s take a look at examples of goods or services using one-level channel of distribution.
Large supermarkets around the world hold their own stocks instead of using wholesalers.
Many holiday companies sell holidays using travel agencies who act an intermediary.
Also, real estate agents are often used to sell residential and commercial property on behalf of the property owners.
Advantages of a one-intermediary channel of distribution
Advantages of one-level channel of distribution include:
- Lower storage costs. It is the retailers who cover the cost of holding inventories of the product. They are responsible for holding stocks and pay for cost of this. When retailers hold stocks instead of the manufacturers, it greatly improves product availability for final retail consumers.
- Allows producers to focus on production. When retailers sell your products, you can allocate time and other to focus on what you do best – making products. It is retailers who have their competencies in effectively selling products to final customers.
- Wider reach. Retailers are able to distribute the product over a wide geographical area as they have wide coverage of the market. They will help the producer to reach large numbers of consumers. Some retailers such as 7Eleven also have an international reach.
- More convenience for customers. Retailers not only will pay for advertising and other promotional activities, but can sell products in locations that are convenient to final consumers. It is retailers who are usually more conveniently located for customers than producers. Additionally, many retailers have product displays for people see and try the product before purchasing.
Disadvantages of a one-intermediary channel of distribution
Disadvantages of one-level channel of distribution include:
- Need to share profit. The retailer takes some of the profit away from the producer. Because there is another one intermediary in the channel, which adds a mark-up, or profit margin, profits have to be shared between two parties. Retailers will make final goods more expensive to consumer by adding their own profit margin. This means that two different profit margins will be added to the final price meaning that the customer has to pay more. And, this will reduce potential profits for manufacturers.
- Less control over Marketing Mix. Producers may lose some control over Marketing Mix, however not as much as in the two-level channel of distribution. The manufacturer does not have total influence over how the product is marketed to consumers, especially when it comes to brand image in relation to price discounts or product deterioration caused by inappropriate product storage.
- Transportation costs to retailers. Unlike in two-level distribution channel where wholesalers take core of transportation costs, in one-level distribution channel it is producers who must pay delivery costs to the retailers. This can consequently reduce profit margins for the manufacturer.
- No exclusivity in sales. Most retailers sell products made by many producers in their retail shops. In fact, they rely on stocking only well-known brands to attract customers. Hence, there is no exclusive outlet for a manufacturer when retailers sell competitors’ products as well.
In summary, a one-level channel of distribution is all about selling indirectly to customer with the use of other businesses. Sales of products are made with direct intermediary being involved in the sales process which is the retailer.
