Marketing channels and middlemen

Lead-in

1. Do you know how channels of distribution work?.

2. Identify the different types of retail businesses.

3. Describe the different kinds of wholesalers.

4. Explain how product and service marketing differ.

On Saturday morning Ann Garcia left her house in a midwestern city to go shopping. Her shopping list included some groceries, a pair of running shoes, a lamp, and a book about gardening. Because many stores in the city carried these items, Ann had difficulty deciding where to go first. She knew that all the items on her list were available at stores near her home. Including the time she spent browsing, Ann bought what she wanted and returned home in two and a half hours.

Ann knew where to find the items on her list. Like most consumers, however, she was unaware of the marketing system that made those products readily available. This marketing system can be understood by studying (1) the channels of distribution, (2) retailing, (3) wholesaling, and (4) the marketing of services.

Channels of distribution

Producers and manufacturers provide products in large quantities; individuals consume products in small amounts. Also, most consumers do not live near the locations where goods are produced. How, then, do manufacturers and producers get their products to customers?

The path that a product or service follows from the manufacturer or producer to the consumer or industrial user is called a channel of distribution. The channel includes the producer or manufacturer, the customer, and all middlemen. A middleman or intermediary is a business firm operating between the producer or manufacturer and the consumer or industrial buyer that aids the movement of goods. Intermediaries are often able to perform the marketing functions more efficiently than manufacturers or producers. A channel of distribution, then, consists of businesses linked by a common goal: to make a product or service available for purchase.

Channels for consumer products

Consumer products are items intended for use by individuals or families. They can be used by the consumer without a great deal of further processing. Examples of consumer products are frozen and canned foods, clothing, appliances, and automobiles. There are five common channels of distribution for consumer products.

Producer to Consumer. This is the shortest channel of distribution for consumer products. Producers or manufacturers may sell their products directly to consumers in their homes. For example, fresh fruits and vegetables, cooking utensils, cosmetics, and food storage containers often flow directly from the manufacturer or producer to the consumer. Avon and Tupperware products pass through this channel. Book publishers and record and tape companies sometimes sell products through the mail to persons who are members of their clubs.

Almost all service businesses use this channel. Dry cleaners, dentists, and prepares of income tax returns provide services directly to customers.

Producer to Retailer to Consumer. Sometimes producers or manufacturers sell goods to retailers who, in turn, sell them to consumers. The retailers involved are usually large firms. For example, a food manufacturer may sell canned foods to a large supermarket company. A manufacturer of draperies may sell them to Sears or the J.C. Penney Company.

Producer to Wholesaler to Retailer to Consumer. Thousands of small producers and retailers use this channel of distribution. For example, a manufacturer may sell a product to a wholesaler who also buys related products from other manufacturers. This wholesaler then sells an array of goods to retailers. Thus, a manufacturer of tooth-brushes sells them to a drug wholesaler who, in turn, sells a group of products (including toothbrushes) to drugstores, supermarkets, and other retail stores.

Producer to Agent to Retailer to Consumer. Some producers sell their products through agents who help them reach large retailers such as national and regional supermarket chains. Agents are middlemen who actively assist in the sale of products without taking title to them. This means that they do not own the goods involved. Agents are an important link in the channel of distribution because they bring buyers and sellers together. Agents often work for producers who are looking for retailers to buy their products. Sometimes they work for retailers who are trying to find suppliers for certain goods. Hosiery and apparel are examples of goods commonly sold through agents.

Producer to Agent to Wholesaler to Retailer to Consumer. Agents are often used in industries where many producers supply a large number of wholesalers scattered around the country. Again, the job of the agent is to bring buyers and sellers together in order to make products available for purchase. Agents are widely used in industries such as canned fruits and vegetables and frozen foods.