Why arc Marketing Intermediaries Used

Why do producers give some of the selling job to intermediaries V After all, doing so means giving up some control over how and to whom the products are sold. The use of intermediaries results from their greater efficiency in making goods available to target markets. Through their contacts, experience, specialization and scale of operation, intermediaries usually offer the firm more than it can achieve on its own.

Figure 21.1 shows how using intermediaries can provide economies. Part A shows three manufacturers, each using direct marketing to reach three customers. This system requires nine different contacts. Part B shows the three manufacturers working through one distributor, which contacts the three customers. This system requires only six contacts. In this way, intermediaries reduce the amount of work that must be done by both producers and consumers.

From the economic system's point of view, the role of marketing intermediaries is to convert the assortments of products made by producers into the assortments wanted by consumers. Producers make narrow assortments of products in large quantities, but consumers want broad assortments of products in small quantities. In the distribution channels, intermediaries buy the large quantities of many producers and break them down into the smaller quantities and broader assortments wanted by consumers. As such, intermediaries play an important role in m at c hing supply and demand.

Marketing Channel Functions

A distribution channel moves goods from producers to consumers. It fills the main time, place and possession gaps that separate goods and services from those who would use them. Members of the marketing channel perform many key functions. Some help to complete transactions:

• Information. Gathering and distributing marketing research and intelligence information about actors and forces in the marketing environment needed for planning and facilitating exchange.

• Promotion. Developing and spreading persuasive communications about an offer.

• (lantact. Finding and communicating with prospective buyers.

• Matching. Shaping and fitting the offer to the buyer's needs, including such activities as manufacturing, grading, assembling and packaging.

• Negotiation. Reaching an agreement on price and other terms of die offer, so that ownership or possession can be transferred.

Others help to fulfil the completed transactions:

• Physical distribution. Transporting and storing goods.

• Financing. Acquiring and using funds to cover the costs of the channel work.

• Risk taking. Assuming the risks of carrying oi.it the channel work.

The question is not 'whether these functions need to be performed, but rather who is to perform them. The producer can eliminate or substitute institutions in the channel system, but the functions cannot be eliminated. When channel members arc eliminated, their functions are moved either forwards or backwards in the channel, only to be assumed by other members. In short, the producers can do without intermediaries, but they cannot eliminate their functions.

All these functions use up scarce resources and can often be performed better through specialization. To the extent that the manufacturer performs these functions, its costs go up and its prices have to be higher. At the same time, when some of these functions are shifted to intermediaries, the producer's costs and prices may be lower, but the intermediaries must charge more to cover the costs of their work. In dividing the work of the channel, the various functions should he assigned to the channel members that can perform them most efficiently and effectively to provide satisfactory assortments of goods to target consumers.

Continue reading here: Types of Marketing Intermediaries

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