Intermediaries in the channel of distribution are a middle man. They are the middle person in the chain of distribution between the producers and consumers of a product.
And, intermediation is the process used in the distribution to facilitate the distribution of the product from a producer to a consumer.
Functions of intermediaries in the channel of distribution include transportation, storage, advertising and sales. Producers use those middlemen to distribute their products. Although intermediaries take their own profit margin, it is still more cost effective for manufacturers to use those specialists in the intermediation process.
So, producers can focus solely on what they are the best at – manufacturing the product.
Different types of intermediaries in the distribution channel
Producers. Producers are makers of products, or simply – manufacturers. They primarily make goods but also need outlets for their products that can give them as wide market coverage as possible to sell their products the desired image of the product appropriately promoted. Examples of producers include Del Monte, Nestle, Mars, Pfizer, The Coca Cola Company, etc.
The traditional channel of distribution consists of the following middlemen: wholesalers, agents (brokers), distributors and retailers. Let’s take a look at each of them in details:
1. Wholesalers. Wholesalers are intermediaries that link producers with retailers. They buy in bulk large quantities from manufacturers, then separate or ‘break the bulk’ purchase into smaller units for resale in convenient quantities to retailers. They handle distribution, transportation and carry storage costs to lower transaction costs for producers and retailers. That is why wholesalers do not sell to final consumers, but sell to other business organizations and individuals. Examples of wholesalers include National Grocers, Costco Wholesale, Sam’s Club, Makro, METRO Cash and Carry, Eurocash Group, etc.
2. Agents (brokers). They link between those producing goods and/or services and those wishing to buy them, especially in foreign countries or new markets as they have local knowledge. Agents are intermediaries who arrange a sale but do not take title to the goods – do not buy and sell anything. They usually act on behalf of sellers and buyers negotiating the deal to get paid on a commission basis after the sales are made. Examples of agents (brokers) include real estate agents, travel agents, stock brokers, insurance brokers, etc.
3. Distributors. These are independent businesses that distribute products from many producers serving a local sales point. They specialize in a particular industry and hold stock from several manufacturers providing greater choice for customers. Vehicle distribution centers may be selling many different car brands to the final consumers. For example, Sime Darby Motors is one of the leading automotive groups in Asia Pacific, representing luxury brands such as BMW, Jaguar, Land Rover and Porsche to broad-appeal market brands including Ford and Hyundai.
4. Retailers. Commonly referred to as ‘shops’ in everyday language, retailers are responsible for the sale of products to the final consumer usually in small quantities.They may deal either directly with makers of products or wholesalers who often need to persuade retailers to stock a firm’s products. This is because retailers have limited floor space and shelf space, so will only want to hold supplies of brands that sell well. As retailers can reach a large number of consumers many manufacturers prefer to deal directly with large retailers. There are many different types of retailers such as:
- Independent retailers. They are often just single convenience stores owned by individuals or partners, or simply family businesses running as mom-and-pop stores. These independent retailers typically operate in their local areas and have limited number of customers. Examples include small local vendors often owned by a sole trader such as hair salon, nail salon, restaurant, diner, neighborhood convenience store, etc.
- Retail cooperatives. These are businesses that pool the resources of individual retailers to form a collective partnership in order to serve their local communities. The cooperative employs economies of scale on behalf of its retailer members to acquire discounts from producers and often share marketing expenses. Retail cooperatives are owned by their members who participate in decision making and all earnings are split among them. Examples of retail cooperatives include Best Western, Carpet One, E. Leclerc, Foodstaffs, Nisa, Do It Best, etc.
- Chain stores. These multiple shop organizations offer a wide range of products in their specialty area. Chain stores are usually businesses with 10 or more establishments which have developed strong brand recognition and possess good brand image so consumers know what to expect. These retailers with numerous outlets also benefit from solid reputation because people can trust what they are getting. Examples of chain stores include Lowe’s, Body Shop, H&M, Bed Bath & Beyond, etc.
- Department stores. They are large retail establishments selling a large range of consumer products such as furniture, jewelry, kitchen equipment, clothing, toys and cosmetics. Each area of the store or different floors will usually specialize in particular product category. Department stores typically sell five or more different lines of products. Examples of department stores include Kohl’s, Myer, David Jones, Macy’s, Sears, House of Fraser, Galeries Lafayette, Harrods, Sogo, Nordstrom, etc.
- Supermarkets. These are huge outlets selling everyday products mainly food items. Many supermarkets skip the wholesale process and buy products directly from manufacturers because of time with regards to food spoilage. Examples of supermarkets include Tesco, Lidl, Whole Foods Market, Aldi, Target Grocery, Loblaws, First Mart, etc.
- Discount stores. Discounters focus on selling core daily products at cheaper prices to low income customers. These off-price stores are buying goods cheaply from manufacturers (production surplus, liquidated goods, out of season clothes, discontinued product lines, salvaged items, part of an odd or partially damaged lot of goods) and limit their advertising budgets. Examples include Marshalls, Big Lots, Dollar Tree, dd’s DISCOUNTS, Bargain King, Ross Dress for Less, etc.
- Hypermarkets. Superstores are very large supermarkets that stock a wide range of products such as food, clothes, home appliances, gardening equipment, cosmetics, etc. Because of their huge size, they tend to be located on suburbs where the space is available and the cost of land is relatively low. Examples of hypermarkets include e.g. Walmart, Carrefour, Target, Auchan, Nesto, etc.
Consumers. Consumers are the users of products (goods and services) like you and me, other businesses or government. Consumers like convenience, so they need easy access to a firm’s product. This will allow them to try and see the product before they buy it. The business also needs to allow, if necessary, the return of faulty goods.
In summary, intermediaries in the channel of distribution are agents or businesses that act as a middle person between the manufacturer and consumers of a product.
Intermediaries survive because they perform some of the marketing functions better than the producer. While intermediaries add cost to the product, they also add value to the product that off-sets the cost increase.
