Channel intermediaries, also known as distribution or marketing intermediaries, or middlemen play a crucial role in a company’s distribution channel.
They make it possible for the company to distribute its products to the customers without having the need to own the entire supply chain and distribution network.
A company distributes its products through various distribution channels.
Sometimes it becomes impossible for businesses to function at all if they do not use intermediaries.
It is because without these external players, the company might become unable to deliver its products to the end users or customers.
In some cases, businesses might not depend on external intermediaries, which is called direct marketing.
A firm can keep as many intermediaries as it likes or needs.
Fundamentally, their job is to make the product available for consumption to the consumer.
Here we have listed the primary four categories of intermediaries:
Types of Intermediaries:
Agents:
Agents or brokers are individuals or companies that act as extension of the producing company and are representatives of the company.
The agents work with the customers directly.
They are not the owners of the products and neither do they sell products to earn profits.
Instead, they receive commissions on sales.
Sometimes they also act as marketing and sales agents and might need to convince the customers to make a sale.
Some examples of sales agents or brokers include real estate agents and car sales agents.
Wholesalers:
The wholesalers are not like agents which means they get the ownership of the products they take from the manufacturing company.
The wholesalers are also independent players and own the products that they sell.
They earn profits by selling the products to others.
Wholesalers buy in bulk and receive discounts which is the main source of their profits.
However, wholesalers do not interact with the final buyers like the agents do and neither they receive commissions like agents.
Instead, they sell to the retailers or merchants at higher prices than the buying price.
These wholesalers also stock the products they buy from the manufacturers at their own warehouses until they can resell them.
Distributors:
The function of the distributors is similar to that of the wholesalers.
They also purchase the products from the manufacturers and store them until they have to resell them to the retailers and the other intermediaries.
There is a business relationship between the company and distributors.
Some distributors buy exclusive rights to a company’s products so that they are the sole distributors to the company’s products in a given area.
Companies might also form agreements with the distributors to ensure that they do not sell and market rival brands.
For examples, the distributors of Coca cola might not sell Pepsico products and vice versa.
Often distributors also have minimal contact with the final buyers.
They sell to other channel intermediaries including wholesalers and retailers.
Retailers:
Retailers can exist in various forms and sizes.
There are large retailers like Walmart, Costco, and Target corporation and then there are smaller retailers like the grocery stores.
The smaller retailers generally do not buy from the manufacturers directly.
However, the large retailers like Walmart can source from manufacturers directly.
These large retailers like Walmart or Costco Wholesale are similar to the wholesalers in various regards.
Instead, they buy from the other intermediaries like wholesalers, and distributors and sometimes the larger retailers who sell at lower prices.
Compared to the wholesalers and distributors, the retailers make smaller purchases mostly.
However, retailers like Walmart and Costco buy in bulk like wholesalers and which is also their main source of profits since they sell at lower prices compared to the other smaller retailers.
Types of marketing channels:
The types of marketing channels can differ on the basis of the method of distribution and the types of people involved in the process.
Basically, a marketing channel is a set of activities included in the process of transferring the ownership of goods and their movement from production to the point of consumption and as such includes all the institutions and marketing activities in the marketing process.
The selection of marketing channels has a crucial impact on the availability of products and the firm’s profits.
A company might decide the appropriate marketing channel based on the size of the product, manufacturing process, and distribution costs.
The four types of marketing channels that the companies use for distribution of their products are the following:
Marketing channels types
Direct Selling:
It refers to the arrangement where the manufacturing company sells its own products and serves as its own intermediary.
When a company employs a direct selling channel, the consumers order the product from the manufacturer directly.
This type of marketing channel is the company’s own approach as there is no third party or intermediary involved in the process.
For example, Dell is considered a pioneer in this area. It sold laptops and PCs directly to consumers using its direct selling approach and allowed customers to develop their own customizations.
There are several online stores that adopt this technique where they use direct selling as the marketing channel.
For example, the artist that sell their products online directly to consumers employ this approach.
Rather than using a fixed retail location, direct selling involves the marketing and selling of products to the consumers directly.
In the modern era, direct selling includes online sales as well as personal contact arrangements.
Indirect selling:
This is the marketing channel where the company employs intermediaries for the marketing, sales and distribution of its products.
It depends on the company that how many intermediaries it wants to employ.
Sometimes, there is just a single intermediary involved in the marketing and distribution of the product from the company to the final consumers and sometimes, the product may be through more than one intermediary before reaching the final consumers.
In the case of most direct distribution, there might be just one intermediary involved in the process of distribution.
In the most indirect case, the product will pass through the hands of the agent, the wholesaler, and the retailer before reaching the final consumer. It is generally the case, when the number of manufacturers and small retailers is higher and an agent is used for coordinating a large supply of the product.
Dual distribution:
Dual distribution involves the use of both direct and indirect channels. For example, companies may employ intermediaries like distributors and resellers for the sales of their products, in combination with their direct channels like ecommerce websites.
It includes a wide range of marketing arrangement in which the firm or the wholesaler employs more than one channels at the same time to reach the end user.
Firms can sell the products they make to the consumers directly or sell them to the resellers for resale.
For example, McDonalds’ has a large number of franchisees that operate its restaurant stores worldwide.
However, the company also runs some company owned stores.
Another example of dual distribution is how Apple sells its products. In several markets it has its own stores and ecommerce stores.
In the other markets, it sells its products through authorized resellers.
This type of marketing channel also allows the company additional opportunities to grow their profits by adopting multiple distribution channels.
Reverse channels:
The one thing that is common about the previous three channels is the flow of goods from the manufacturer to the consumer.
Technology has made it possible to reverse the flow.
The reverse flow of goods starts from the consumer.
It starts from the consumer and then through the intermediary it reaches the beneficiary.
Think of businesses that make money by selling used goods or recycled goods.
An important distinction between the reverse channels and the other traditional channels is the addition of the beneficiary.
There is no manufacturer involved in reverse flow. There is just a user or consumer and there is a beneficiary at the other end.
If you know of thrift stores, you know they use this model.
A few last words:
The role of channel intermediaries is very important in terms of managing sales and distribution.
They are of four types and companies use various mixes of intermediaries depending on their needs and the geographic distribution of their businesses.
Sometimes companies combine direct selling with the other three intermediary channels to gain the highest outreach and sales.
Intermediaries are very important in terms of reaching the final consumer.
Apart from that, there area four main types of marketing channels that differ on the basis of distribution method and type of people involved in the process.
Which channel the company utilizes will have an important impact on its sales and revenues.
Companies use mainly three types of marketing channels including direct, indirect and dual distribution. The reverse flow is utilized by fewer businesses and those which resell used or recycled products mainly.