Marketing Channels & Logistics Management: Chapter Five - Channel Participants

Chapter Five: Channel Participants

5.1 An Overview of Channel Participants
Channel activities may be carried out by the marketer or the marketer may seek specialist
organizations to assist with certain functions. We can classify specialist organizations into two
broad categories: resellers and specialty service firms.
Resellers
These organizations, also known within some industries as intermediaries, distributors or dealers,
generally purchase or take ownership of products from the marketing company with the intention
of selling to others. If a marketer utilizes multiple resellers within its distribution channel
strategy the collection of resellers is termed a Reseller Network. These organizations can be
classified into several sub-categories including:
 Retailers – Organizations that sell products directly to final consumers.
 Wholesalers – Organizations that purchase products from suppliers, such as manufacturers
or other wholesalers, and in turn sell these to other resellers, such as retailers or other
wholesalers.
 Industrial Distributors – Firms that work mainly in the business-to-business market
selling products obtained from industrial suppliers. An industrial distributor performs a
variety of marketing channel functions, including selling, stocking, and delivering a full
product assortment and financing. In many ways, industrial distributors are like wholesalers
in consumer channels.
Specialty Service Firms
These are organizations that provide additional services to help with the exchange of products
but generally do not purchase the product (i.e., do not take ownership of the product):
 Agents and Brokers – Organizations that mainly work to bring suppliers and buyers
together in exchange for a fee.
 Distribution Service Firms – Offer services aiding in the movement of products such as
assistance with transportation, storage, and order processing.
 Others – This category includes firms that provide additional services to aid in the
distribution process such as insurance companies and firms offering transportation
routing assistance.

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Importance of Channel Participants

Several surrounding features can be directly influenced by channel members, such as customer
service, delivery, and availability. Consequently, for the marketer selecting a channel partner
involves a value analysis in the same way customers make purchase decisions. That is, the
marketer must assess the benefits received from utilizing a channel partner versus the cost
incurred for using the services. These benefits include:
 Cost Savings in Specialization – Members of the distribution channel are specialists in what
they do and can often perform tasks better and at lower cost than companies who do not have
distribution experience. Marketers attempting to handle too many aspects of distribution may
end up exhausting company resources as they learn how to distribute, resulting in the
company being “a jack of all trades but master of none.”
 Reduce Exchange Time – Not only are channel members able to reduce distribution costs
by being experienced at what they do, they often perform their job more rapidly resulting in
faster product delivery.
 Customers Want to Conveniently Shop for Variety – Marketers have to understand what
customers want in their shopping experience. Hence, resellers within the channel of
distribution serve two very important needs: 1) they give customers the products they want
by purchasing from many suppliers (termed accumulating and assortment services), and 2)
they make it convenient to purchase by making products available in single location.
 Resellers Sell Smaller Quantities – Not only do resellers allow customers to purchase
products from a variety of suppliers, they also allow customers to purchase in quantities that
work for them. Suppliers though like to ship products they produce in large quantities since
this is more cost effective than shipping smaller amounts.
The ability of intermediaries to purchase large quantities but to resell them in smaller
quantities (referred to as bulk breaking) not only makes these products available to those
wanting smaller quantities but the reseller is able to pass along to their customers a
significant portion of the cost savings gained by purchasing in large volume.
 Create Sales – Resellers are at the front line when it comes to creating demand for the
marketer’s product. In some cases resellers perform an active selling role using persuasive
techniques to encourage customers to purchase a marketer’s product. In other cases they

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encourage sales of the product through their own advertising efforts and using other
promotional means such as special product displays.
 Offer Financial Support – Resellers often provide programs that enable customers to more
easily purchase products by offering financial programs that ease payment requirements.
These programs include allowing customers to: purchase on credit; purchase using a payment
plan; delay the start of payments; and allowing trade-in or exchange options.
 Provide Information – Companies utilizing resellers for selling their products depend on
distributors to provide information that can help improve the product. High-level
intermediaries may offer their suppliers real-time access to sales data including information
showing how products are selling by such characteristics as geographic location, type of
customer, and product location (e.g., where located within a store, where found on a
website). If high-level information is not available, marketers can often count on resellers to
provide feedback as to how customers are responding to products. This feedback can occur
either through surveys or interviews with reseller’s employees or by requesting the reseller
allow the marketer to survey customers.

Objective
1: 2
Major Participants in the Marketing Channel

Producers Intermediaries Final Users

&
Manufacturers

Wholesale Retail Consumers Industries

Intermediaries Intermediaries

* Commercial Channel * Target Markets

5.2 Producers and Manufacturers

Producers and manufacturers consist of firms that are involved in the extracting, growing, or
making of products. For the needs of the customers to be satisfied products must be made
available to customers when, where and how they want them.
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Example: Crayola® crayons

A manufacturer is someone who makes products in a factory like cars, boats, bikes, computers
etc.
A producer is someone who makes products NOT in a factory like food.
Producers also make TV shows, movies, radio shows, and media.
Producer is a much more general term. A manufacturer can manufacturer OR produce
something. A producer doesn't necessarily have to manufacture something. Shadow is right -- all
those things are produced, but it's just as useful a term for a factory or whatever. It's perfectly
normal for instance to say "The local tractor factory produces three hundred tractors a month."
Manufacturer- thinks industry, assembly lines, factories, nuts and bolts.
Producer - think of everything else that is made.
A manufacturer makes products from raw materials and/or by assembling pre-manufactured
components. A producer provides a product or service which may or may not require a
manufacturing process. A farmer is a producer. A banker is a producer. A manufacturer is a
producer. However, a producer is not necessarily a manufacturer.
5.3 Intermediaries
Intermediaries: are independent businesses that assist producers and manufacturers in the
performance of negotiator functions and other distribution tasks.
Wholesalers Intermediaries
Consist of businesses that are engaged in selling goods for resale or business use to retail,
industrial, commercial, institutional, professional, or agricultural firms, as well as to other
wholesalers.
FUNCTIONS PERFORMED BY WHOLESALERS
Wholesalers perform the following important functions.
i) Selling and Promoting: wholesalers provide a sales force enabling manufacturers to reach
many small-business customers at a relatively low cost. The wholesaler has more contracts
and is often more trusted by the buyer than is the distant manufacturer.
ii) Buying and Assortment Building: wholesalers are able to select items and build assortments
needed by their customers, thus saving the customers considerable work.

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iii) Bulk breaking: wholesalers achieve savings for their customers through buying in huge
quantities and breaking the bulk into smaller units.
iv) Warehousing: wholesalers hold inventories, thereby reducing the inventory costs and risks to
suppliers and customers.
v) Transportation: wholesalers provide quicker delivery to buyers because they are closer than
the manufacturer.
vi) Financing: wholesalers finance their customers by granting credit, and they finance their
suppliers by ordering early and paying their bills on time.
vii) Risk Bearing: wholesalers absorb some risk by taking title and bearing the cost of theft,
damage, spoilage, and obsolescence.
viii) Market Information: wholesalers supply information to their suppliers and customers
regarding competitors' activities, new products, price development, and so on.
ix) Management Services and Counseling: wholesalers often help retailers improve their
operations by training their sales clerks, helping with stores' layouts and displays, and setting
up accounting and inventory control systems. They may help their industrial customers by
offering training and technical services.
Types and Kinds of Wholesalers
Three major types of wholesalers as defined by the Census of Wholesale Trade. These are:

i. Merchant Wholesalers
Merchant wholesalers are independently owned businesses that take title to the merchandise
they handle. In different trades they are called jobbers, distributors, or mill supply houses.

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Modern well-managed merchant wholesalers perform the following types of distribution tasks
for producers and manufacturers:
1. Providing market coverage 4. Processing orders
2. Making sales contacts 5. Gathering market information
3. Holding inventory 6. Offering customer support
In addition to the above services, merchant wholesalers are equally well suited to perform the
following distribution tasks for their customers:
1. Assuring product availability 5. Breaking bulk
2. Providing customer service 6. Helping customers with advice and
3. Extending credit and financial assistance technical support
4. Offering assortment convenience

Merchant wholesalers can be sub classified into full service wholesalers and limited service
wholesalers.
Full Service Wholesalers
Full-service wholesalers provide such services as carrying stock, maintaining a sales force,
offering credit, making deliveries, and providing management assistance. They include two
types: wholesale merchants and industrial distributors.
Wholesale Merchants: sell primarily to retailers and provide a full range of services. General
merchandise wholesalers carry several merchandise lines while general line wholesaler’s
carryout one or two lines in greater depth. Specialty wholesalers specialize in carrying only
part of a line. (Examples are health food wholesalers, seafood wholesalers, and so on).
Industrial Distributors: are merchant wholesalers who sell to manufacturers rather than to
retailers. They provide several services, such as carrying stock, offering credit, and providing
delivery. They may carry a broad range of merchandise, a general line, or a specialty line.
Industrial distributors may concentrate on such lines as MRO items (Maintenance, Repair,
and Operating suppliers), OEM items (Original Equipment Suppliers such as ball bearings,
motors), or equipment (such as hand and power tools, fork trucks).

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Limited Service Wholesalers

Limited service wholesalers offer fewer services to their suppliers and customers. There are
several types.
Cash and Carry Wholesalers: have a limited line of fast moving goods and sell to small retailers
for cash and normally do not deliver.
Truck Wholesalers: truck wholesalers perform a selling and delivery function primarily. They
carry a limited line of semi perishable merchandise (such as milk, bread, snack foods), which
they sell for cash as they make their rounds of supermarkets, small groceries, hospitals,
restaurants, factory cafeterias, and hotels.
Drop Shippers: operate in bulk industries, such as coal, lumber, and heavy equipment. They do
not carry inventory or handle the product. Upon receiving an order, they select a
manufacturer, who ships the merchandise directly to the customer on the agreed terms and
time of delivery. The drop shipper assumes title and risk from the time the order is accepted
to its delivery to the customer.
Rack Jobbers: serve grocery and drug retailers, mostly in the area of non food items. They send
delivery trucks to stores, and the delivery person sets up toys, paper backs, hardware items,
health and beauty aids, and so on. They price the goods, keep them fresh, set up point of
purchase displays, and keep inventory records. Rack jobbers sell on consignment, which
means that they retain title to the goods and bill the retailers only for the goods sold to
consumers. Thus they provide such services as delivery, shelving, inventory carrying, and
financing. They do little promotion because they carry many branded items that are highly
advertised.
Producers' Cooperatives: are owned by farmer members and assemble farm produce to sell in
local markets. Their profits are distributed to members at the end of the year. They often
attempt to improve product quality and promote a co-op brand name.
Mail Order Wholesalers: send catalogs to retail, industrial, and institutional customers featuring
jewelry, cosmetics, specialty foods, and other small items. Their main customers are
businesses in small outlying areas. No sales force is maintained to call on customers. The
orders are filled and sent by mail, truck, or other efficient means of transportation.
ii. Brokers and Agents
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Brokers and agents differ from merchant wholesalers. They do not take title to goods, and they
perform only a few functions. Their main function is to facilitate buying and selling, and for this
they will earn a commission. They generally specialize by product line or customer types.
A) Brokers
The chief function of a broker is to bring buyers and sellers together and assist in negotiation.
They are paid by the party who hired them. They do not carry inventory, get involved in
financing, or assume risk. The most familiar examples are food brokers, real estate brokers,
insurance brokers, and security brokers.
B) Agents
Agents represent either buyers or sellers on a more permanent basis. There are several types.
i) Manufacturers' Agents: represent two or more manufactures of complementary lines. They
enter into a formal written agreement with each manufacturer covering pricing policy,
territories, order handling procedure, delivery service and warranties, and commission rates.
They know each manufacturer's product line and use their wide contacts to sell the
manufacturer's products. Manufacturers' agents are used in such lines as apparel, furniture,
and electrical goods. Most manufacturers' agents are small businesses, with only a few
employees, who are skilled salespeople. They are hired by small manufacturers who cannot
afford to maintain their own sales forces and by large manufacturers who want to use agents
to open new territories or to represent them in territories that cannot support full time
salespeople.
ii) Selling Agents: are given contractual authority to sell a manufacturer's entire output. The
manufacturer either is not interested in the selling function or feels unqualified. The selling
agent serves as a sales department and has significant influence over prices, terms, and
conditions of sale. The selling agents are found in such product areas as textiles, industrial
machinery and equipment, coal and coke, chemicals, and metals.
iii) Purchasing Agents: generally have a long term relationship with buyers and purchases for
them, often receiving, inspecting, warehousing, and shipping the merchandise to the buyers.
One type consists of resident buyers in major apparel markets, who look for suitable lines of
apparel that can be carried by small retailers located in small cities. They are knowledgeable

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and provide helpful market information to clients as well as obtaining the best goods and
prices available.
iv) Commission Merchants or houses: are agents who take physical possession of products and
negotiate sales. Normally, they are not employed on a long-term basis. They are used most
often in agricultural marketing by farmers who do not want to sell their own output and do
not belong to producers' cooperatives. A commission merchant would take a truck load of
commodities to a central market, sell it for the best price, deduct a commission and expenses,
and remit the balance to the producer.
iii. Manufacturers' Branches and Offices
Unlike merchant wholesalers, agents and brokers, manufacturer's branches and offices are
wholly owned extensions of the producer that perform wholesaling activities. Producers will
assume wholesaling functions when there are no intermediaries to perform these activities,
customers are few in number and geographically concentrated, or orders are large or require
significant attention. Wholesaling activities performed by producers are conducted by means of a
branch office or sales office. A manufacturer's branch office carries a producer's inventory,
performs the functions of a full service wholesaler, and is an alternative to a merchant
wholesaler. A manufacturer's sales office does not carry inventory, typically performs only a
sales function, and serves as an alternative to agents and brokers.
Retail Intermediaries
Retailers: Businesses or individuals that sell more of their goods and/or services to final
consumers in small quantities.
Example: Wal-Mart®.
In a channel, retailers perform many valuable functions as the intermediaries between
manufacturers, wholesalers, and other suppliers and final consumers. Via the sorting process,
retailers collect an assortment of goods and services from various suppliers and offer them to
customers. Retailers communicate with customers and with other channel members, like
manufacturers and wholesalers. Retailers may ship, store, mark, advertise, and pre-pay for items.
They complete transactions with customers and often provide customer services.
Retailers and their suppliers have complex relationships because retailers serve two roles. They
are part of a distribution channel aimed at the final consumer, and they are also major customers
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for their suppliers. Thus, divergent viewpoints may occur, and they must be reconciled. Channel
relations are smoothest with exclusive distribution; they are most volatile with intensive
distribution. Selective distribution combines aspects of both in an attempt to balance sales goals
and channel member cooperation.
Retailers’ growing power in marketing channels
The power and influence of retailers in marketing channels have been growing mainly due to
three major developments:
a) Increase in size and thus buying power
b) Application of advanced technologies
c) Use of modern marketing strategies
FUNCTIONS PERFORMED BY RETAILERS
Retailers undertake business functions or activities that increase the value of the products and
services they sell to consumers. These functions are:
1. Providing an assortment of products and services.
2. Breaking bulk – offering products in small quantities tailored to the consumption pattern of
individual consumers and households.
3. Storing products (holding inventory) so that consumers can buy products when they want
them and in the quantities they want.
4. Providing services to improve the ease with which consumers can purchase and use products.
Retailers are especially suited to the following distribution tasks:
1. Offering manpower and physical facilities that enable producers/manufacturers and
wholesalers to have many points of contact with consumers close to their places of residence.
2. Providing personal selling, advertising, and display to aid in selling supplier’s products.
3. Interpreting consumer demand and relaying this information back through the channel.
4. Dividing large quantities into consumer-sized lots, thereby providing economies for suppliers
and convenience for consumers.
5. Offering storage, so that suppliers can have widely dispersed inventories of their products at
low cost and enabling consumers to have close access to the products of
producers/manufacturers and wholesalers.

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6. Removing substantial risk from the producer/manufacturer by ordering and accepting

delivery in advance of the season.
They can be classified by one or more several characteristics like amount of service, product line,
relative prices, control of outlets, and store cluster.

Classification of Retailers (Reading Assignment)

i) Retailers Classified by Amount of Service

ii) Retailers Classified by Product Line
iii) Retailers Classified by Relative Prices
iv) Retailers Classified by Control of Outlets
v) Retailers Classified by Type of Store Cluster
Distributor
Types of Distributors
There are 3 main types of distributors which are intensive distributors, selective distributors and
exclusive distributors. The types of distributor can also be classified as direct distributors and
indirect distributors.
Intensive Distributors
This type of distributor is normally used when the manufacturer/vendor wants to sell their
products as quickly as possible through the widest possible channel. Intensive distributors will
work with many vendors and usually sell high volumes of goods at lower prices and earn lower
margins.
For mass market products, this type of intensive distributor can be a very effective route to
market enabling goods to be distributed through the channel to the end consumer quickly. While
profit margins are generally lower, manufacturers/vendors can benefit from improved cash
flow.
Selective Distributors
This type of distribution is where manufacturers/ vendors select specialized distributors who are
experienced at distributing their products. Manufacturers/ vendors may restrict the number of
retailers that a distributor can supply to in order to effectively reach the target market, maintain a

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high level of service and retain high retail pricing maximizing profit margins for the whole
distribution channel.
Exclusive Distributors
This type of distributor is used when the manufacturer / vendor has a niche market and product
with targeted consumers. There will usually be only one exclusive distributor for each territory.
This type of distributor is used where channel control is important to maintain brand integrity,
brand image and often higher pricing points. Exclusive distributors are usually more common
than exclusive retailers. This allows exclusive distributors to sell to all their suitable retailers.
Direct Distributors
With this type of distributor the manufacturer / vendor to sells and delivers products directly to
the consumer. Direct distributors usually choose this route in order to reduce costs by negating
the need for a middle man as they would require a share of the profit margin in return for
distributing the products. However, direct distributors face several drawbacks. Firstly they are
limited to their own physical storage capacity dictated solely by their sales volumes. Secondly
they are likely to have much less marketing exposure and significantly higher marketing costs
which may in actual fact offset any saving made by not using other types of distributors.
Indirect Distributors
This type of distributor uses a network of wholesalers, retailers and resellers to distribute their
products to consumers, and is the most common type of distributor. Indirect distribution enables
manufacturers / vendors to concentrate on production while the distributors focus on generating
sales. The distributors sell to their existing customer base of resellers / retailers with whom they
have good relationships enabling speedy sales and distribution of products. With this type of
distribution there may also be more than one distributor per territory.
The type of distribution channel selected will largely depend on product type, size of business
and volume of sales.
Facilitating Agencies in Marketing Channels
Facilitating agencies are business firms that assist in the performance of distribution tasks other
than buying, selling, and transferring title.
 Transportation agencies  Order processing agencies
 Storage agencies  Advertising agencies
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 Financial agencies  Marketing research firms

 Insurance companies

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