A. Why Are Intermediaries Needed?

A. Last updated 7/23/2011 B. Chapter 9: Marketing Channels

I. Value Delivery Network: Companies, suppliers, distributors, and customers who “partner” with each other to improve the performance of the entire system.

II. Role of distribution channels

C. Why are intermediaries needed?

1. Perception

a. Shorter distribution channels are more efficient

b. Elimination of intermediaries would lower prices for consumers

2. Reality: Usually, intermediaries reduce the overall distribution cost.

a. Reduces the number of transactions

b. Provides a level of service that the producer is unable to provide to buyers. Note. Elimination of the intermediary would not end the need for the services to be performed.

c. If producers felt that they could effectively provide the services performed by the intermediaries, they would do it.

A. Benefits of Intermediaries

1. Contact (contact efficiency) 2

a. Suppose that you had to go to different stores to buy eggs, milk, and bread?

b. Suppose you wanted to buy a television set? Transactions without and with intermediaries

Transactions without an intermediary Transactions with an intermediary

2. Matching (Sorting): For example, Pillsbury can efficiently produce its Hungry Jack instant pancake mix only at the rate of five thousand units per day. It is unlikely that a consumer could consumer that much in a year/lifetime.

a. A single producer tends to maximize the quantity it makes of a limited line of goods.

b. A single buyer needs a limited quantity of a wide selection of products.

3. Physical Distribution (standardizing exchanges):

a. ABSCO ran a truck to the eastern part of the state every two weeks. All customers on the route knew that the truck was going to be in the area and could order based on needs.

b. Intermediaries may even extend credit to customers to allow them to buy in larger unit sizes.

4. Information (Conduits of Information): 3

a. Puts buyers and sellers together. For example, what does a real estate agent or yacht broker do?

b. Consumer product manufacturers do not have the ability to interact with all of their customers.

c. Provides technical assistance. For example, the Nash Finch Company even offers assistance with grocery store construction.

III. Types of Intermediaries

A. Retailers: Businesses that perform activities in selling goods or services directly to the final consumer.

B. Merchant Wholesalers: All activities involved in selling goods and services to those buying for resale or business use.

1. Buy and resell merchandise.

2. Take title (ownership to goods; usually possession

3. Typically, wholesalers maintain a sales force.

C. Brokers: Brings buyers and sellers together and assists in negotiations.

C.1. Real estate agents or yacht brokers are good examples. 4

C.2. Brokers not take title to the goods they are selling.

D. Agents: Represent buyers or sellers on a more permanent basis.

D.1.Manufacturers’ Agents sell a company’s products in a specific geographical area, usually on an exclusive basis.

D.2.Agents do not take title, but they may take possession (e.g., drop off a sample or fill a small order).

IV. How long should your distribution channel be?

A. Questions that you would need to answer 1. How much control do you want? 2. What resources do you have? 3. What is the unit value? (High or low)

B. Determining the structure of the distribution system 1. Length of the channel

a. Control: Shorter channels mean more control

b. Resources: Often, smaller companies have less opportunity to have shorter channels and require wholesalers to sell to retailers.

c. Unit Value: Products with low unit values typically use longer marketing channels.

Cold Care Tissues – Low Unit Value 5

2. Intensity of the channel: Should the distribution be intensive or exclusive?

a. Intensive distribution (a package of gum): Selling in many outlets; typically used for cheap and frequently purchased items; control is a problem because of so many outlets.

b. Selective distribution (washing machines, stereos): A limited number of intermediaries; common for durable goods or manufacturers concerned about brand image (e.g., perfume).

Cannon Digital Cameras

c. Exclusive distribution (high fashion clothing): Exclusive territorial rights; better control;

Redkin – Exclusive Distribution