Selling via Distributors and Other Intermediaries
Many manufacturers do not sell products or services directly to consumers, instead relying on marketing intermediaries to perform a variety of important duties in order to deliver the product to the end user. These intermediaries, such as middlemen (wholesalers, retailers, agents, and brokers), distributors, and financial intermediaries, generally enter into longer-term agreements with the producer and form the marketing channel, or distribution channel.
Manufacturers use raw resources to create completed goods, which are then delivered to retailers or, less frequently, to consumers. Finished goods, on the other hand, often move from the manufacturer to one or more wholesalers before reaching the store and, eventually, the consumer.
During the physical transfer of products, each participant in the distribution chain normally gets legal custody of the goods, but this is not always the case. In consignment sales, for example, even though the items may be in the hands of a wholesaler or retailer, the producer retains complete legal title until the merchandise reaches the final user or consumer.
Distribution Channels in Less Industrialised Countries
In less industrialised countries, distribution channels are more direct—that is, shorter and simpler. However, there are notable outliers:
- The Ghana Cocoa Board collects cacao beans in Ghana and authorises trade enterprises to process them.
- Other West African countries use similar marketing strategies, where agents work through middlemen who hire sub-buyers to carry goods from far-flung locations.
- Until the late 20th century, Japan’s marketing organisation had long and complex distribution routes, with products sometimes passing through at least five wholesalers before reaching a retailer.
Choosing the Right Distribution Channel
Companies have a variety of distribution channels to choose from. Choosing the proper one could be one of the most important marketing decisions.
- Businesses may sell items directly to the final customer, especially industrial capital goods.
- Alternatively, they may transport commodities to the final user through one or more middlemen.
- Consumer and industrial marketing channels can be similar or very different in terms of design and organisation.
Channel Design and Service Components
The channel design is determined by the level of service that the target consumer desires. Five major service components guide this understanding:
- Quantity or lot size – Number of units a customer purchases on any given occasion.
- Waiting time – Length of time customers are willing to wait for goods to arrive.
- Proximity or spatial convenience – Product accessibility.
- Product variety – Breadth of the product offering.
- Service backup – Add-on services such as delivery or installation.
A single manufacturer may serve multiple target client groups through different channels, each requiring different levels of service, which may affect costs and pricing.
Channel Functions and Flows
Manufacturers delegate some responsibilities to intermediaries to provide better service outputs. Marketing flows include:
- Collection and distribution of marketing research information (Information)
- Development and dissemination of persuasive communications (Promotion)
- Agreement on terms for transfer of ownership or possession (Negotiation)
- Intentions to buy (Ordering)
- Acquisition and allocation of funds (Financing)
- Assumption of risks (Risk taking)
- Storage and movement of products (Physical possession)
- Buyers paying sellers (Payment)
- Transfer of ownership (Title)
Why delegate to intermediaries?
- Limited cash resources.
- Higher returns by focusing on core business.
- Intermediaries provide better distribution benefits due to specialization, experience, or scale.
Management of Channel Systems
Although middlemen save companies money, their cooperation must be encouraged. Five types of leverage exist:
- Coercive power – Threats if middlemen do not cooperate.
- Reward power – More benefits for cooperation.
- Legitimate power – Power based on position, rank, or contract.
- Expert power – Specific expertise.
- Referent power – Manufacturer is highly respected by middlemen.
Channel Conflicts
Distribution channels evolve, which can create conflict:
- Vertical conflict – Disagreement between manufacturer and dealers (e.g., Ford Motor Company).
- Horizontal conflict – Conflict between franchisees in neighbouring areas.
- Multichannel conflict – Two or more channels compete for the same market.
Wholesalers
Wholesaling involves selling goods or services to other businesses in bulk and at cheaper prices than retail. Types of wholesalers:
1. Merchant Wholesalers
- Also called jobbers, distributors, or supply houses.
- Types: Full-service and Limited-service.
Full-service wholesalers:
- Manage higher sales volumes.
- Maintain inventory, warehouses, financing, salespeople, and delivery.
- Include general-line (broad range) and specialist (specific products) wholesalers.
Limited-service wholesalers:
- Cut service costs.
- Types include Cash-and-carry, Truck wholesalers/jobbers, Drop shippers, Rack jobbers, and Producers’ cooperatives.
2. Brokers and Agents
- Brokers and agents do not take legal ownership of goods.
- Focus on bringing buyers and sellers together.
- Common in food, real estate, insurance, and international trade.
3. Manufacturers’ and Retailers’ Branches and Offices
- Manufacturers can conduct wholesaling directly through sales branches and offices.
- Improves inventory control, sales, and promotion flows.
Retailers
Retailing includes all operations to sell directly to consumers for personal use.
- Sales methods: In-person, mail, telephone, TV, Internet, or vending machines.
- Major share of revenue comes from store-based retailing, though online sales are growing.
History of Retailing
- Markets and peddlers were common until the Renaissance in Europe.
- Chain stores emerged in the 15th century (Fugger family in Germany) and 1859 (A&P in New York City).
- Department stores appeared in Europe and Asia in the 17th century.
- Shopping malls (late 20th century) centralised retail for convenience, often anchored by flagship stores.
Importance of Intermediaries
Skipping intermediaries may seem profitable, but it increases logistics and customer service burden:
- 1,000 direct customer orders = 1,000 shipments and thousands of customer interactions.
- Using intermediaries reduces effort with weekly shipments and fewer interactions.
Types of Intermediaries
- Agents and Brokers – Act as mediators, usually paid commission.
- Merchant Wholesalers and Resellers – Buy in bulk, sell to retailers or businesses.
- Distributors and Functional Wholesalers – Assist in faster product sales.
- Traditional and Online Retailers – Sell to end customers, either directly or through intermediaries.
Distribution Channels
Distribution channels are the path products take from manufacturing to consumers.
Three Types
- Direct Channels – Manufacturer delivers directly, full control, lower volume.
- Indirect Channels – Intermediaries deliver products, larger volume, higher price.
- Hybrid Channels – Mix of direct and indirect, shared control.
Three Methods
- Exclusive Distribution – Products sold through specific outlets.
- Selective Distribution – Products sold through selected intermediaries.
- Intensive Distribution – Products available in as many outlets as possible.
Distribution Channel Levels
- Level 0 – Direct manufacturer-to-consumer.
- Level 1 – Manufacturer → Distributor → Consumer.
- Level 2 – Manufacturer → Distributor → Retailer → Consumer.
- Level 3 – Traditional model: Manufacturer → Distributor → Retailer → Consumer, wider reach, higher costs.
Nine Main Intermediaries
- Retailers – Supermarkets, pharmacies, restaurants, bars.
- Wholesalers – Buy and resell to retailers.
- Distributors – Sell, store, provide support to retailers and wholesalers.
- Agents – Legal entities selling goods for commission.
- Brokers – Short-term sales relationships.
- Internet – Digital products distributed online.
- Sales Teams – Company staff responsible for sales.
- Resellers – Buy from manufacturers/retailers, sell to consumers.
- Catalog – Sales via magazines, often with commissioned salespeople.
Reverse Distribution Channel
- Handles returns of defective products or items that don’t fit.
- Consumers typically return items according to manufacturer instructions.
How to Define Distribution Channels for Your Product
Key Factors
- Company’s Daily Routine – Align channels with internal processes.
- Market Potential – Evaluate intermediaries’ reputation and market share.
- Logistics – Consider transport, storage, security, and delivery time.
- Location – Ensure intermediaries are in regions where target customers reside.
Managing Distribution Channels
Marketing departments monitor key performance indicators (KPIs):
- Benchmarking – Study competitors’ distribution practices.
- Project Review – Assess and optimize your channel processes.
- Costs and Benefits – Evaluate cost-effectiveness of channels.
- Company’s Daily Routine – Ensure alignment with business operations.
- Market Potential – Assess intermediaries’ performance.
- Logistics – Ensure safe and timely product transport.
- Location – Target right regions for your product.
Examples of Distribution Channels
Coca-Cola
- Uses franchisers, distributors, and retailers.
- Distributors deliver soft drinks to bars, restaurants, and supermarkets.
Natura
- Primarily uses catalog distribution, along with sales outlets.
- Network of consultants sells products to consumers using magazines.
