Unlike decisions regarding products, pricing, or promotion, distribution decisions require both intra-organizational as well as inter-organizational skills. The product’s path to the market frequently involves interaction with external agencies or intermediaries that bridge the gap between the point of production and the point of sale.
Functions of an Intermediary
The three basic functions performed by an intermediary in the distribution channel are as under
- Transactional functions: This function involves adding value to the distribution channel by bringing in the intermediary’s resources to establish market linkages and customer contacts. The intermediary either directly undertakes the marketing and sales function or helps to establish buyer-seller relationships by serving as a link between manufacturer and retailer
- Logistical functions: This function involves the physical distribution of goods. It involves sorting and storing supplies at locations within the reach of the end customer. It also breaks up the bulk production of the manufacturer into smaller portions and may include the transportation of smaller shipments to intermediaries or retailers further down the channel of distribution
- Facilitating functions: Although often confused with logistics, the facilitating functions of intermediaries supplement the entire marketing flow of the product and are separate from logistics. The facilitating functions include financially supporting the marketing chain by investing in storage capabilities. They may include facilitating sales by helping the consumer buy even when he or she does not have cash (through financing plans, purchase agreements, etc.)
Together, with these functions an intermediary ensures market coverage, reduce the cost of market coverage, increase the availability of cash flow in the distribution channel, and increase end-user convenience. A producer can bypass an intermediary by elimination or substitution, but the tasks performed by the intermediary cannot be eliminated.
Advantages of Using an Intermediary
Since selling directly from the manufacturer to the consumer is a tough task for doing business, then the need for channels of distribution would be obviated.
Following are some of the benefits of using an intermediary in the marketing channel
- The advantages of using intermediaries emerge from the core economics of supply-chain management i.e., market coverage, direct customer contacts, systematic cash flow, etc
- The intermediary adds value to the marketing of the product by bringing in specialization, marketing knowledge, capacity to segment the market, and selling skills that allow the marketer to implement marketing strategies effectively
- The intermediaries providing logistic support increase convenience to both the producer and the consumer by offering effective delivery and pre- and post-purchase customer service as well as facilitating manufacturer services, making them indispensable to most mid- and small-scale producers
- Intermediaries, provide several benefits to both manufacturers and consumers: improved efficiency, a better assortment of products, routinization of transactions, and easier searching for goods as well as customers
- Intermediaries help in bridging the gap between the assortment of goods and services generated by producers and those in demand from consumers
- In order to smooth the flow of goods and services, intermediaries perform such functions as sorting, accumulation, allocation, and creating assortments. Say for example, manufacturers typically produce large quantities of a few similar products, while consumers want small quantities of many different products, so the intermediary helps in resolving such discrepancies
Sorting: In sorting the intermediaries take a supply of different items and sort them into similar groupings
Accumulation: In accumulation the intermediaries bring together items from a number of different sources to create a larger supply for their customers. Intermediaries allocate products by breaking down a homogeneous supply into smaller units for resale
Assortment: Assortment of products to give their customers a wider selection
- Intermediaries help in reducing the cost of distribution by making transactions routine. This facilitates standardizing exchange relationships in terms of lot size, frequency of delivery and payment, and communications. Therefore, the transactions become regular and thereby the costs associated with those transactions are reduced.
- Intermediaries facilitate the search processes of both buyers and sellers. Producers are searching to determine their customers’ needs, while customers are searching for certain products and services. A degree of uncertainty in both search processes can be reduced by using channels of distribution.
Disadvantages of using an Intermediary
More often manufacturers visualize intermediaries as parasites rather than assets. The disadvantages of using an intermediary stem from psychological apprehensions, market antecedents which have created such apprehensions, and lack of managerial skills or resources that are sufficient to balance and manage the intermediary.
The fears, which may come true if the producer fails to manage the intermediary are
- Fear of losing control
- Fear of losing customer ownership
- Fear of losing customer contact
- Fear of inadequate communication
- Fear of opportunistic behavior
- Fear of poor market management Fear that the objectives of the intermediary will conflict with those of the producer
- Fear that the intermediary will extract rather than add to value
These fears often undermine the working relationship between a producer and an intermediary and act a hindrance in the effective utilization of resources and maximizing the potential of the marketing mix.
