Explain the role of channel intermediaries in the product distribution process.
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. (Jennifer Lombardo, "Channel Intermediaries: Definition and Function in Business")
Starting with definitions, the product distribution system is a product flow channel that begins with logistical transportation to outlets, such as retailers, and ends with transportation to end customers. In between are facilitational and transactional functions, such as selling on commission or for fees, marketing promotion, price setting, payment negotiation (e.g., credit card versus cash, online PayPal or bank card, etc), and delivery modes and schedules (e.g., USPS versus UPS/FedEx, 2-day versus 7-day delivery etc).
Channel intermediaries are defined as entities that facilitate one or more steps in the product flow channel and perform transactional, logistical, and facilitational functions required by the manufacturer. There are four types of channel intermediaries: distributors, agents, wholesalers, retailers. According to Władysław Pękała Ph.D. and Piotr Szopa M.Sc. of Częstochowa University of Technolog, the most important functions in the role of channel intermediaries are (quoted):
- physical movement of completed products or services
- actual transfer of ownership laws among participants of the channel
- information about potential buyers, competition and demand
- payments of invoices
- realisation of orders
- risk taking (Szopa, "Distribution Channels and Their Roles in the Enterprise")
In summary, channel intermediaries perform tasks that channel finished products--within the marketing mix category of physical distribution--from manufacturers to end consumers by providing distribution services in transactional, logistical, and facilitational functions, examples of which are:
- transactional: marketing contact, marketing promotion, negotiating, risk-taking through ownership (e.g., retailers) and inventory storage.
- logistical: transportation, product storage and other time and space problems.
- facilitational: an agent of broker who delivers, for a fee or commission, a product to consumers, such as stockbrokers and insurance or real estate agents.
The role of channel intermediaries is to serve as something of a middleman between the supplier and the ultimate consumer. In today's economy, channel intermediaries have come to play a more important role than they once did.
The basic role of the channel intermediary is to get goods from the supplier to the consumer. Thus, UPS can be a channel intermediary as it is the way that many businesses get their goods to the people who buy them. However, the role of the channel intermediary goes beyond that. Amazon now acts as a channel intermediary in many ways. It provides sellers with a "storefront" from which to sell to customers. It collects payment and handles the shipping (perhaps through UPS). In these ways, it shows how important channel intermediaries have become in today's economy.
A channel intermediary, then, is any organization that helps in any way to get goods from a supplier to the consumers.
The product distribution process refers to the course followed by finished products from the manufacturer to reach the consumer. The channel intermediaries refer to the different entities taking part in the actual process of delivering the product to the end consumer. Wholesalers and retailers make up a portion of an ordinary product distribution channel.
Channel intermediaries are responsible for ensuring the product is available at the right quantities, at the right time and place for end user consumption. They also serve as a channel of communication between the consumer and producer regarding such issues as product quality. Intermediaries may sometimes provide transport and logistics management for the distribution process. They also offer storage and handling of the product as it makes its way towards the consumer. Channel intermediaries may also facilitate payment processing for certain products.