Channel Intermediaries: Definition and Function in Business

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  1. 0:05 Channel Intermediaries: Definition
  2. 1:23 Merchant Wholesaler
  3. 1:54 Agents and Brokers
  4. 2:49 Channel Functions of Intermediaries
  5. 4:46 Lesson Summary
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Taught by

Jennifer Lombardo

Marketing managers must have an effective physical distribution strategy, and companies must be able to deliver their products to the consumer. Most managers utilize channel intermediaries to help with transaction, logistical and facilitating functions. Learn more about this process here.

Channel Intermediaries: Definition

How does a consumer go about purchasing a product? Do they knock on the door of the producer? Most products are purchased from channel intermediaries whose main purpose is to deliver product from the manufacturers to the end users. The purpose of a channel intermediary is to move products to consumers, whether business or consumer. Some intermediaries take title, or ownership, of the product from the producer. This means that they can set the price and control the final method of sale. This would be an example of a retailer.

When Ninja Corp first decided to launch their product line, they had to determine which channel intermediaries they would need to effectively reach their target market. Remember that the overall marketing mix consists of the 4 Ps (which are product, promotion, price and physical distribution). This lesson discusses the P of physical distribution through the channel intermediaries.

Merchant Wholesaler

Merchant wholesalers are institutions that purchase goods from producers and then resell them to other businesses, wholesalers or retailers. They can receive the title of the product from the manufacturer, hold products for inventory and then later resell them. Merchant wholesalers' customers usually consist of small- or medium-sized retailers. Ninja Corp also uses merchant wholesalers to help distribute their products to retailers that their smaller corporate trucking company can't reach.

Agents and Brokers

Some intermediaries do not want to be bothered with taking title or ownership of products. Agents and brokers are wholesalers whose main purpose is to facilitate sales. They help deliver products from the producer to the consumer. They make their profits by collecting a fee, or commission, based on the amount of sales they are successful at delivering for the producer.

For example, small start-ups or companies who want to have a better distribution tend to use agents or brokers. This allows the company to reach a larger market and still reap excellent profits as long as the agents or brokers are successful. Ninja Corp used agents and brokers in the very beginning of their marketing strategy. The agents and brokers were successful in getting them distribution until Ninja Corp had the money to build their own local delivery truck routes. Intermediaries can be a huge help to both a start-up and an established business.

Channel Functions of Intermediaries

Ninja Corp uses intermediaries to help with all types of transactional functions. These can consist of contacting and promoting, negotiating and risk-taking. Ninja Corp uses wholesalers, agents and brokers to help promote their product line and produce more sales orders. They also depend heavily on the intermediaries to negotiate payments and organize delivery schedules. Lastly, Ninja Corp utilizes them for risk-taking in the sense that the intermediaries have to take ownership of managing their product inventories.

Another type of function that Ninja Corp utilizes intermediaries for would be a logistical function. Ninja Corp needs wholesalers, agents and brokers to help with physically distributing, storing and sorting their product line. This helps with time and space issues and allows Ninja Corp to have their products available where and when their customers need their products.

Intermediaries are also very important to Ninja Corp because they provide inventory storage, which allows the company to provide a good supply of their products and also offers product protection by keeping their products in a safe location closer to where the products will eventually be distributed. This sorting ability allows Ninja Corp to overcome discrepancies of quantity and assortment by allocating the correct product in the exact amount needed to the retailers and consumers. For example, Ninja Corp can make sure that the stores all have inventory available on the shelves for consumer purchase of the Martial Arts product line.

The last function of an intermediary would be providing a facilitating function. This allows the company to depend on a wholesaler, agent or broker to provide research on other channel members and the consumer environment. They would also provide financing help to channel members in order to keep the flow of goods consistent.

Lesson Summary

Marketing plans must have an excellent physical distribution strategy. Companies need to make sure that they can get their products to end consumers efficiently and effectively. There must not be low inventory, or sales will be lost. Most products are purchased from channel intermediaries who sell mainly to consumers directly. The purpose of a channel intermediary is to move products to consumers, whether in the business or consumer sector. Channel intermediaries also provide transaction, logistics and facilitating functions, such as physical distribution, inventory storage and sorting.

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