What are the advantages of using channel intermediaries in the distribution of goods?

If you aren’t as qualified to sell and ship your product as you are in making it, you might consider having others sell and distribute it for you. These options come with benefits and disadvantages, and reviewing the pros and cons of distribution channels will help you make the best decisions to maximize your sales and profits.

Increased Reach

Using wholesalers, distributors, retailers, sales agents and rep companies helps you get into markets you can’t get into by yourself. Even if you have the distribution capabilities, you might not be able to negotiate your way into retail chains, where a wholesaler who has relationships with those chains can. Even if you can negotiate contracts with retail outlets and have the production capacity to fulfill their orders, you might not have the staff or delivery capabilities to take advantage of these opportunities.

Intermediaries can solve many of the problems that prevent you from achieving your maximum sales potential. If you can’t afford to create an online shopping option for customers, finding a partner to add you to its shopping website might be the most economical way to add online sales to your distribution mix.

Increased Costs

When you use intermediaries, you must pay them a commission or offer a discount. This decreases your profit margins, even though you might have increased sales and revenues. Project your gross profits before you sign a long-term distribution agreement to determine if it’s a cost-effective option for you. In addition, you might need to extend trade credit or deliver product on terms that your cash flow situation can’t support. If you must negotiate extra loans or credit to fulfill orders for which you won’t be paid for 90 days or longer, you’ll increase your debt and debt service requirements.

Better Marketing

When you work with retailers, they will pay for the advertising, promotions and public relations efforts that get customers into their stores. Wholesalers, sales agents, distributors and rep companies will use their resources to promote you to their customers and clients.

Many manufacturers offer co-op programs, whereby you reimburse retailers for a percentage of any ads they run that feature your company name, product or logo, reducing your costs to get your product in print, on the air, or on the internet. The advantages of marketing channels include getting to leverage their experience and marketing data for your own benefit. They already have the connections and knowledge that you are looking for, according to Marketing MO.

Lack of Control

When you use marketing and sales intermediaries, you might be one of many companies they represent, and they most likely won’t pay the same attention to communicating your message and protecting your brand as you would, according to Marketing Crossing. If a retailer can’t sell its inventory of your product, it might discount it so low that the public thinks you have a product that’s inferior or won’t sell. Customers might also come to your intermediaries for post-sale service and get a bad experience. Negotiate agreements that specify how intermediaries can promote your products, where they can sell them, and what prices they can charge.

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Have you ever noticed the presence of an intermediary in your everyday life? Did you know that the grocery store you go to on most days, and the shopping malls you visit, are forms of intermediaries? Did you know that people can also act as intermediaries? Read along to become an expert on all the different types of intermediaries.

Intermediaries in Marketing

Companies sometimes require external agents to help them market their products. The external agents are called intermediaries.

Intermediaries help a company to promote, sell and distribute its products to its customers.

Marketing intermediaries act as middlemen between various stages in the distribution chain. Intermediaries make the accessibility of the products easier for customers. With the technological advancements now available, and the rise in the digital engagement of customers, intermediaries can also be seen on digital platforms. Intermediaries are part of the distribution chain, with four main types of intermediaries.

Types of intermediaries

Mainly four types of intermediaries act at the different stages of distribution.

Intermediaries: Agents and brokers

Agents are people that represent another person or entity. They serve as an intermediary between buyers and sellers on a permanent basis. They have the power to negotiate and are given decision-making power. They are most actively present in the real estate industry.

Brokers are similar to agents in their role as intermediaries between buyers and sellers. However, they are not permanent representatives of a person or an entity. They are most active in the trading sector.

Both agents and brokers are paid on commission for a sale or transaction they have mediated.

Intermediaries: Wholesalers

Wholesalers act as intermediaries between manufacturers and retailers. They buy products from manufacturers or farmers and sell them to retailers. Products are purchased in huge quantities from the manufacturer, and the wholesaler distributes them to retailers. A wholesaler might buy only a specific product from manufacturers or have a variety of products from manufacturers available in large quantities.

Wholesalers mainly focus on the Business-to-Business (B2B) market rather than the Business-to-Consumer (B2C) market.

Wholesalers can operate in traditional cash-and-carry outlets or warehouses, but technological advancements have also allowed wholesalers to move their business onto digital platforms.

Intermediaries: Distributors

Similar to wholesalers, distributors are in direct contact with the manufacturer. But unlike wholesalers, they do not sell the products to a retailer but the end-user. They usually distribute only from a specific manufacturer and provide after-sales services to customers. They are either paid in commission or fees by the manufacturer.

Intermediaries: Retailers

Retailers are the types of intermediaries consumers are most familiar with and interact with the most. Shops, supermarkets, websites, etc., are examples of retail. Retailers have a wider reach. They either buy from the manufacturer or another intermediary.

Retailers purchase fewer items than other intermediaries but have a more comprehensive range of products. E-commerce platforms such as Amazon, Shopify, etc., are also forms of retail.

Not all businesses have intermediaries in their distribution channels. This depends upon the industry and the operating market. For example, the steel industry usually uses two intermediaries in their distribution channel, namely the wholesalers and the retailers, as shown in Figure 1. The cosmetic industry, however, usually only needs one intermediary between the manufacturer and the end consumer, the distributors, as shown in Figure 2.

Fig. 1 - Role of intermediaries in the steel industry

Fig. 2 - Role of intermediaries in the cosmetic industry

Examples of intermediaries

Let's now look closely at a few specific examples of intermediaries.

Examples of agents

Real estate agents work with people trying to sell and buy properties. This can be seen in Figure 3. They show the property for sale to the interested buyers and negotiate prices that both parties agree upon. They are paid in commission, which is a pre-determined percentage of the transaction made through the sale. For instance, their agreed commission could be 5% of the total value of the sale (e.g., the sale of a house).

Fig. 3 - Role of intermediaries in the real estate industry,

Literary agents work as intermediaries between authors and publishers, as shown in Figure 4. Agents pitch an author's work to the publishing company and increase the chance of the work getting published.

Fig. 4 - Role of intermediaries in the literature industry

Examples of wholesalers

Websites such as thewholesaler, mxwholesale, dkwholesale, etc., are examples of wholesaler websites in the UK.

The Booker Group, acquired by Tesco, is the largest wholesaler in the UK in terms of revenue.

The Booker Group supplies many products, including groceries, wine, beer, stationery, tobacco, and more. They stock over 200,000 products. They supply products to restaurants, retail stores, theatres, and even the prison service in England and Wales.

Examples of distributors

The UK has the most significant number of distributing companies in London, followed by Manchester.

Some of the largest distributors in the country include:

• John Distilleries Pvt Ltd

• Esso petroleum company Ltd

• TATA steel UK Holdings Ltd

John Distilleries is an Indian company and one of the biggest distributors in the UK. John, as the name suggests, produces distilled beverages. Its chief products include whiskey, wine, malts, and vodka products. The drinks are manufactured in India, exported to the UK, and sold by distributors to the people in the UK, making it easier for them to reach this product.

Examples of retailers

Some of the biggest and most common examples of grocery retailers in the UK include:

• Tesco

• Sainsbury

• Walmart (Asda)

• Morrisons.

For instance, Tesco works with thousands of suppliers, who supply them with all kinds of different grocery products (e.g. milk, vegetables, bread, etc) which they sell in their numerous Tesco supermarkets.

Importance of intermediaries

The importance of intermediaries comes down to a few key factors. Intermediaries of all levels are important as they make the availability of products or services for their users much more accessible. They make the process of offering the desired product to the right user efficient and effective, as they have information about the customers and their needs. The importance of intermediaries is also prevalent as they have direct contact with the customers and are therefore knowledgeable about what products to source and where to source them from. They base these decisions on the manufacturer's quality and customer demands.

As intermediaries deal with smaller quantities of products but of a wider variety, they can match the different needs of customers. They have information as to what customers are looking for and can link them to the right supplier for a fee, making the job much quicker and easier for both parties.

Advantages and Disadvantages of Intermediary Channels

The advantages of intermediaries include the following:

• Better accessibility of products and services

• Physical distribution of goods

• Storage of supplies

• Better market coverage

• Improve buyer-seller relations

• Before-and-after sales services.

The disadvantages of intermediaries include:

• The manufacturer loses some decision-making power.

• The manufacturers' profit is reduced due to the money they have to pay the intermediaries.

• Intermediaries may be misinformed about the product, thereby misinforming the customer.

• Intermediaries may favour a competitor's product if they offer a better fee, and as a result, the manufacturer may lose their target market or market share.

As you can see, intermediaries are essential for businesses because of their various roles. Without intermediaries, it would be much more difficult for manufacturers and customers to find the right products quickly and efficiently.

Intermediaries - Key takeaways

• Intermediaries help a company promote, sell, and distribute its products to its customers.

• There are four main types of intermediaries that act at the different distribution stages: agents or brokers, wholesalers, distributors, and retailers.

• Agents are people that represent another person or entity. They serve as an intermediary between buyers and sellers on a permanent basis.
• Wholesalers act as the intermediaries between manufacturers and retailers.
• Distributors act as the intermediaries between manufacturers and end-users.
• Retailers buy products from manufacturers or other intermediaries and sell them to the end consumer.
• Storage of supplies, improving buyer-seller relations, and providing before-and-after-sales services are a few advantages of intermediaries.
• Loss of the manufacturer's decision-making power, reduction in profit, and misinformation about products are a few disadvantages of intermediaries.

Frequently Asked Questions about Intermediaries

Intermediaries are important in marketing as sometimes companies require external agents to market their products. The external agents are called intermediaries, and they help promote, sell, and distribute products to customers.

There are four main types of intermediaries including agents and brokers, wholesalers, distributors, and retailers. 

Intermediaries help a company promote, sell, and distribute its products to its customers. Marketing intermediaries act as middlemen between various stages in the distribution chain. Intermediaries make the accessibility of the products easier for customers. 

Some of the advantages of intermediaries include better accessibility to products, storage of supplies, better market coverage, and improved buyer-seller relations. On the other hand, the disadvantages of intermediaries include loss of decision-making power, reduced profit, and misinformation.

Companies sometimes require external agents (intermediaries) to help them market their products. This includes the promotion, sale, and distribution of the products. As a result, intermediaries act as middlemen between various stages in the distribution chain.

Final Intermediaries Quiz

Answer

Intermediaries help a company to promote, sell, and distribute its products to its customers.

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E-commerce platforms such as Amazon or other business websites cannot be considered intermediaries. True or false?

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False. Intermediaries also include e-commerce platforms.

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How many types of intermediaries are there?

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Answer

There are mainly four types of intermediaries acting at different stages of distribution; agents or brokers, wholesalers, distributors, and retailers.

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Answer

Agents are people that represent another person or entity. They serve as an intermediary between buyers and sellers on a permanent basis. 

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What is the difference between an agent and a broker?

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Answer

Agents are permanent representatives of an entity or a person, whereas, brokers represent an entity or a person temporarily.

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___________ act as intermediaries between manufacturers and retailers.

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Wholesalers mainly focus on the Business-to-Business (B2B) market. True or False?

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What is the difference between a wholesaler and a distributor?

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While both procure products from the manufacturer, wholesalers sell to a retailer, whereas, distributors sell to the end consumer.

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Shops, supermarkets, websites etc are examples of 

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What are the primary roles of an intermediary?

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The primary roles of an intermediary include promoting, selling, and distributing products or services.

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List a few advantages of intermediaries.

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• Better accessibility of products and services.
• Physical distribution of goods.
• Storage of supplies.
• Better market coverage.
• Improve buyer-seller relations.
• Before and after-sales services.

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List a few disadvantages of intermediaries.

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• Manufacturer loses some decision making power.

• Manufacturers’ profit is reduced due to the money they have to pay the intermediaries.

• Intermediaries may be misinformed about the product, thereby misinforming the customer.

• Intermediaries may favour a competitor’s product if they offer them a better fee, and as a result, the manufacturer will lose their market.

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How can an intermediary help the literature industry?

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Literary agents are intermediaries that work in the literature industry, that help authors. They pitch an author's work to a publishing house, making it a lot easier for authors to find publishers, and for publishing houses to find the right authors.

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All businesses have one or more intermediaries. True or False?

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False. The number of intermediaries required depends upon the industry and the market they operate in.

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List a few reasons why intermediaries are important.

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• Easier availability of products, market knowledge, and the ability to link sellers to the right buyers are a few reasons why intermediaries are important.

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___ help a company to promote, sell and distribute its products to its customers.

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___ are people that represent another person or entity.

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___ are similar to agents in the role they play as intermediaries between buyers and sellers. However, they are not permanent representatives of a person or an entity. 

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Both agents and brokers are paid ___ for a sale or transaction that they have mediated. 

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Wholesalers act as ___ between manufacturers and retailers. 

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Wholesalers mainly focus on the Business-to-Consumer (B2C) market.

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Distributors sell products to...

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Amazon and Shopify are examples of ___ platforms.

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Not all businesses have intermediaries in their distribution channels.

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___ work as intermediaries between authors and publishers.

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Websites such as thewholesaler, mxwholesale, dkwholesale, etc. are examples of ___ websites in the UK. 

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As intermediaries deal with ___ quantities of products but of a bigger variety, they can match the different needs of customers.

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One of the advantages of intermediaries is that the manufacturer gains some decision making power.

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___ is a pre-determined percentage of the transaction made through the sale.

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Retailers purchase ___ quantities of items compared to other intermediaries.

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