Chapter

ChapterFive:
Five:Channel
ChannelParticipants
Participants

5.1 Evolution of Marketing Channels

5.2 An Overview of Channel Participants
5.3 Producers and Manufacturers
5.4. Intermediaries
5.4.1 Wholesalers Intermediaries
5.4.2 Retail Intermediaries
5.5 Distributor
 5.1 Evolution of Marketing Channels
• Marketing channels always emerge out of a demand that marketplace needs be better served.
• However, markets and their needs never stop changing; therefore, marketing channels operate in a
state of continuous change and must constantly adapt to confront those changes.

5.2 An Overview of Channel Participants

• The three basic divisions of the marketing channel are: producers and manufacturers,
intermediaries and final users.
• Channel participants are defined as participants that engage in negotiators functions linked
together by the flows of negotiation or ownership.
• Producers and manufacturers and intermediaries are further broken down into wholesale and retail
intermediaries and consumer and industrial users.
• Final users are defined as target markets and are excluded from further discussions of channel
members.
• 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
• 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;- 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.
Importance of Channel Participants
• 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.
• 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.
 Cont,d
• 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
 5.3 Producers and Manufacturers
• consist of firms that are involved in the extracting, growing, or making of products.
• The range of producing and manufacturing firms is enormous, both in terms of the diversity of goods and services
produced and the size of the firms.
• For the needs of the customers to be satisfied, products must be made available to customers when, where, and how
they want them. Thus, producing and manufacturing firms must somehow see that their products are distributed to
their intended markets.
• 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, media.
• 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.
 5.4 Intermediaries

• Channel intermediaries are individuals or organizations who mediate exchange utility in relationships involving two
or more partners. Intermediaries generate form, place, time, and/or ownership values by bringing together buyers
and sellers.
• Intermediaries have always helped channels to ‘CRAM’ it: create utility by contributing to Contractual efficiency,
facilitating Routinisation, simplifying Assortment, and Minimizing uncertainty within marketing channels.
A. Contractual Efficiency
• Channels consist of sets of marketing relationships that emerge from the exchange process. An important function
performed by intermediaries is their role in optimizing the number of exchange relationships needed to complete
transactions.
• Contractual efficiency describes this movement toward a point of equilibrium between the quantity and quality of
exchange relationships between channel members.
B. Routinisation
• Routinisation refers to the means by which transaction processes are standardized to improve the flow of goods
and services through marketing channels. Routinisation itself delivers several advantages to all channel participants.
• First, as transaction processes become routine, the expectations of exchange partners become institutionalized.
There is then no need to negotiate terms of sale or delivery on a transaction-by-transaction basis.
 Cont.d
• Second, routinisation permits channel partners to concentrate more attention on their own
core business concerns.
• Furthermore, routinisation provides a basis for strengthening the relationship between
channel participants.  
C. Sorting
• Organizations strive to ensure that all market offerings they produce are eventually converted
into goods and services consumed by those in their target market. The process by which this
market progression unfolds is called sorting.
• In a channels context, sorting is often described as a smoothing function. This function
entails the conversion of raw materials to increasingly more refined forms until the goods
are acceptable for use by the final consumer.
 Cont.d
D. Minimising Uncertainty
• The role that intermediaries play in reducing uncertainty is perhaps their most overlooked function.
Several types of uncertainty develop naturally in all market settings.
1. Need Uncertainty
• Need uncertainty refers to the doubts that sellers often have regarding whether they actually understand
the needs of their customers.
• Most of the time neither sellers nor buyers understand the exact machines, tools, or services required to
reach optimal levels of productivity. Since intermediaries function as bridges linking sellers to buyers,
they can become much closer to both producers and users than producers and users are to each other.
• As a result, the intermediary is in the best position to understand each of their needs and reduce sellers’
uncertainty by carefully reconciling what is available with what is needed.
• In channels where there is a lot of need uncertainty, intermediaries generally evolve into specialists. The
ranks of intermediaries must then increase, while the roles they play become more complex. Conversely,
the number of intermediaries generally declines as need uncertainty decreases.
2. Market Uncertainty
• Market uncertainty depends on the number of sources available for a product or service.
• Market uncertainty is generally difficult to manage because it often results from
uncontrollable environment factors – i.e., social, economic, and competitive factors.
• One means by which organizations can reduce their market uncertainty is by broadening
their view of what marketing channels can, and perhaps should, do for them.
3. Transaction Uncertainty
• It relates to imperfect channel flows between buyers and sellers. Intermediaries play the key
role in ensuring that goods flow smoothly through the channel.
• The delivery of materials frequently must be timed to precisely coincide with the use of those
goods in the production processes of other products or services.
• Problems arising at any point during these channel flows can lead to higher transaction
uncertainty.
• When transaction uncertainty is high, buyers attempt to secure parallel suppliers, although this option
is not always available.
• Uncertainty within marketing channels can be minimized through careful actions taken over a
prolonged period of exchange.
• Naturally, as exchange processes become standardized, need, market, and transaction uncertainty is
lessened. Furthermore, as exchange relationships develop, uncertainty decreases because exchange
partners have got to know one another better and are communicating their needs and capabilities.
• The functions performed by marketing intermediaries concurrently satisfy the needs of channel
members in several ways. 
• Facilitating Strategic Aims;- The most basic way that the needs of market channels can be assessed
and then satisfied centers on the role channel intermediaries can perform in helping channel members
reach the goals mapped out in their strategic plans.
• Fulfilling Interaction Requirements;- This refers to the degree of coordination and on-site service
required by members of a marketing channel. Coordination provides the means by which harmony
in ordering systems, delivery timing, and merchandising is achieved between buyers and sellers
• Satisfying Delivery and Handling Requirements;- How often do customers need deliveries? What
are their order quantities? To what extent will demand fluctuate? These questions typify the
processes involved in matching channel functions to the need for efficient resource management
within marketing channels.
• Channel members are often unaware of their precise delivery and handling requirement needs. By
minimizing transaction uncertainty, channel intermediaries help clarify these processes.
• Managing Inventory Requirements;-The costs of financing and carrying inventory differ across
product categories and channel members. The proficiency, with which they determine and ultimately
satisfy warehousing, stock-out, and product substitutability needs, sets intermediaries apart from
each other.
• channel intermediaries, by bridging producers and their customers, are instrumental in aligning an
independent organization’s mission with the organization. They operate basically at two levels:
wholesale and retail.
5.4.1 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.
• 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.
• Buying and Assortment Building: wholesalers are able to select items and build assortments needed
by their customers, thus saving the customers considerable work.
• Bulk Breaking: wholesalers achieve savings for their customers through buying in huge quantities
and breaking the bulk into smaller units.
• Warehousing: wholesalers hold inventories, there by reducing the inventory costs and risks to
suppliers and customers.
 Cont.d
• Transportation: wholesalers provide quicker delivery to buyers because they are closer than the
manufacturer.
• Financing: wholesalers finance their customers by granting credit, and they finance their suppliers
by ordering early and paying their bills on time.
• Risk Bearing: wholesalers absorb some risk by taking title and bearing the cost of theft, damage,
spoilage, and obsolescence.
• Market Information: wholesalers supply information to their suppliers and customers regarding
competitors' activities, new products, price development, and so on.
• 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
 i. Merchant Wholesalers
• are firms engaged primarily in buying, taking title to, usually storing, and physically handling
products in relatively large quantities and then reselling the products in smaller quantities to
retailers; to industrial, commercial, or institutional concerns; and to other wholesalers.
• Modern well-managed merchant wholesalers perform the following types of distribution tasks for
producers and manufacturers:
• Providing market coverage;- it is provided by merchant wholesalers to manufacturers because the
markets for the products of most manufacturers consist of many customers spread over large
geographical areas.
• To have good market coverage so that their products are readily available to customers when needed,
manufacturers often rely on merchant wholesalers to secure the necessary market coverage at
reasonable cost.
• Making sales contacts;- is a valuable service provided by merchant wholesalers. For manufacturers, the
cost of maintaining an outside sales force is high. If a manufacturer’s product is sold to many customers
over a large geographical area, the cost of covering the territory with its sales force can be prohibitive.
 Cont.d
• Holding inventory;- is another crucial task performed by wholesalers for manufacturers. Merchant
wholesalers take title to, and usually stock, the products of the manufacturers whom they
represent.
• By doing so, they can reduce the manufacturers’ financial burden and reduce some of the
manufacturers’ risk associated with holding large inventories.
• Moreover, by providing a ready outlet for manufacturers’ products, wholesalers help manufacturers to
better plan their production schedules.
• Processing orders;- performed by wholesalers is very helpful to manufacturers because many
customers buy in small quantities.
• Yet manufacturers both large and small find it extremely inefficient to attempt to fill large numbers of
small orders from thousands of customers.
• Many of the original dot-com firms engaged in E-commerce were undermined by the high fulfillment
costs associated with thousands of small orders. For most of them, order processing costs were a major
cause of their demise because the costs were very high relative to the value of the products being sold.
 Cont.d
• Gathering market information;- is another task of substantial benefit to manufacturers.
• Wholesalers are usually quite close to their customers geographically and in many cases have
continuous contact through frequent sales calls on their customers. Hence, they are in a good position
to learn about customers’ product and service requirements.
• Such information, if passed on to manufacturers, can be valuable for product planning, pricing, and
the development of competitive marketing strategy.
• Offering customer support;- a customer may require setup, adjustment, repairs, or technical
assistance.
• For manufacturers to provide such services directly to large numbers of customers can be very costly.
Instead, manufacturers can use wholesalers to assist them in providing these services to customers.
• This extra support by wholesalers, often referred to as value added services, plays a crucial role in
making wholesalers vital members of the marketing channel from the standpoints of both the
manufacturers who supply them and the customers to whom they sell.
• 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 wholesalers 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.
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).
Limited Service Wholesalers
• Limited service wholesalers offer fewer services to their suppliers and customers. There are several
types.
1. Cash and Carry Wholesalers: have a limited line of fast moving goods and sell to small retailers
for cash and normally do not deliver.
2. 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.
3. 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.
4. 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 order are fill and sent by
mail, truck, or other efficient means of transportation.
ii. Brokers and Agents
• 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.
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.
Agents
• Agents represent either buyers or sellers on a more permanent basis. There are several types.
 Cont.d
• 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.
• 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.
• 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
and provide helpful market information to clients as well as obtaining the best goods and prices
available.
• 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.
5.4.2 Retail Intermediaries
• Retailers: Businesses or individuals that sell more of their goods and/or services to final consumers
in small quantities.
• 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 for
their suppliers.
• 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:
• Providing an assortment of products and services.
• Breaking bulk – offering products in small quantities tailored to the consumption pattern of
individual consumers and households.
• Storing products (holding inventory) so that consumers can buy products when they want them and in the
quantities they want.
• Providing services to improve the ease with which consumers can purchase and use products.
• Retailers are especially suited to the following distribution tasks:
• 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.
• Providing personal selling, advertising, and display to aid in selling supplier’s products.
• Interpreting consumer demand and relaying this information back through the channel.
• Dividing large quantities into consumer-sized lots, thereby providing economies for suppliers and
convenience for consumers.
• 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.
• Removing substantial risk from the producer/manufacturer by ordering and accepting delivery in
advance of the season.
5.5 Distributor
• They can be classified by one or more several characteristics like amount of service, product line,
relative prices, control of outlets, and store cluster.
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 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 can benefit from improved cash flow.  
Selective Distributors
•  This type of distribution is where manufacturers select specialized distributors who are
experienced at distributing their products. Manufacturers may restrict the number of retailers that
a distributor can supply to in order to effectively reach the target market, maintain a 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 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.
This allows exclusive distributors to sell to all their suitable retailers.
Direct Distributors
• With this type of distributor the manufacturer 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.
 The end

"The world suffers a lot. Not because of the violence of bad

people, But because of the silence of good people!" 

By

Napoleon.