Contribution of Intermediaries

It may be fashionable to rail about the perverse influence of channel intermediaries, or middlemen. Wholesalers and retailers in the grocery industry are sometimes described as antiheroes, for example, whereas farmers may be seen as economic victims.

Those who take these views typically feel that intermediaries reap unfair profits. It is true that short-term imbalances in the economic system may allow opportunistic retailers and wholesalers to capture largely unearned windfall profits. For example, hotels may inflate prices for rooms, food, and beverages to maximize profits from a captive market, say, fans attending the Super Bowl.

In the long run, however, intermediaries must justify their existence on economic and societal terms to survive. An intermediary must be able to perform some marketing channel activity better than any other channel member. For example, Speigel, Inc., a major intermediary for apparel and home furnishings manufacturers, has a catalog division and more than 275 stores in the US. Speigel provides a wide range of marketing channel activities to boost sales in its stores, including sales and advertising support, store displays, inventory ordering and storage, delivery, and customer credit. Manufacturers such as Sony, RCA, Calvin Klein, and Reebok benefit from the channel activities of Speigel and other retailers. Without retail intermediaries, these manufacturers would have to build their own stores or sell directly to consumers through catalogs or some other means. If they could market more effectively and efficiently without Spiegel, good business sense says they would do so. Obviously, Spiegel is performing some of the marketing channel functions better than the manufacturers could.

Justifying their existence is painfully necessary for intermediaries in the highly competitive grocery products industry. Large supermarkets chains following the productivity perspective continue to move away from independent wholesalers to their own distribution networks in an effort to control costs and improve product availability. Even Fleming, the world’s largest grocery wholesaler, is struggling to maintain its financial well-being. Fleming’s customer base, small independent grocers, is losing business to the larger chains. At the same time, large manufacturers such as Procter & Gamble have cut back on discounts and promotional allowances. Since wholesalers such as Fleming traditionally kept a sizable potion of these moneys, profit margins are under even more pressure. Fleming and other wholesalers will have to be more efficient to survive, and many are also looking at expansion into international markets as means of generating more sales volume.

In the vast majority of cases, intermediaries are not profiteering parasites; they are simply businesses trying to compete by adding value to the market offering. Given far-flung global markets, intense competition, and specialized support services, intermediaries are likely to remain integral in most marketing channels.

Comprehension questions:

1. Who are intermediaries or middlemen?

2. What do short-term imbalances allow retailers and wholesalers to do?

3. What must intermediaries justify in the long run?

4. What must intermediary be able to perform?

5. What will retailers and wholesalers have to do to survive?