Type and nature of middlemen

by admin on April 1, 2006

TYPE AND NATURE OF MIDDLEMEN

There are three types of middlemen that facilitate the flow of goods and services from the manufacturer to the customer.

Merchant Middlemen

These are the intermediaries who take title to the goods and services and resell them. We know them as dealers, wholesalers and retailers. These middlemen get margins and bonuses as compensation. They share the risk with the manufacturers when they take title and physical possession of the goods.

Agents

These are those intermediaries who do not take title to the goods and services but help in identifying potential customers and even help in negotiations. The typical example is that of C&F agents, brokers, jobbers, etc. who act on behalf of the producer only to the limited extent of prospecting, warehousing and redistributing the products. They do not share risk with the manufacturers as they do not take the title to goods and services.
Agents earn a commission and are reimbursed for all expenses by the manufacturer.

Facilitators

These are independent business units that facilitate the flow of goods and services from the producer to the customer without taking a title to them or negotiating for them on behalf of the producer. Transport companies, banks and independent warehouses are an example of these institutions. These institutions are paid for their service charges. For example, a transporter get paid in the form of freight charges, while a banker gets paid service charges in the form of bank commission and warehouses and cold storages earn rent.

Number of Channel levels

One of the important decisions that the firms have to often take is the number of channel levels appropriate to serve a given market. The channels level represents channel members who have a specific role to play. From as low as zero, i.e. directly from manufacturer to the customer, one can have as high as 4 to 5 levels involved in distribution.

Typically, zero level exits in most industrial product marketing, particularly in capital equipment or project marketing. This type of distribution works well in product markets characterized by few and large customers concentrated in a specific geographical area. These customers want prompt after sales services and they are considered to have high service expectations. In such cases most products require service support and the point of differentiation between competing firms is the service quality. Furthermore, these customers buy in large lots or in other words their average order size in value terms is high and hence these purchase decisions have high perceived risk. To reduce any post purchase dissonance in the customers mind, the firm uses direct marketing or zero level of distribution.

When the number of customers is high and they are concentrated in specific geographical areas without any uniform pattern in their order lot size, i.e. some buy in smaller volumes and others in bulk, the firm adopts a one channel level of distribution. Here the firms sells its goods to a wholesaler or large dealer or transfers them to an agent. This channel member then distributes the product in his area. An example of this pattern of distribution is industrial chemicals. It’s economical for the company and the buyer to deal through the middlemen. The customer’s prime requirement in such cases is the ready availability of the product in the desired lot size.

To reach to the customers all over the country, the firm increases length of the channel i.e. through four levels of distribution i.e. from firm, to wholesaler, to retailer, and finally to the customers. In most consumer goods, their availability often becomes the reason to buy.

In the Rural Markets there is a increase in income levels and demand for branded and packaged goods. The customers’ awareness level is on the increase following the spread of television. Therefore the firms have to ensure that their products are readily available even in the remotest corner of the markets. For this purpose the company has to take care of sufficient retailing outlets and distributors. This will eliminate speculation by the distributors (if very few) hoarding and selling the goods in demand at higher prices. This will also preclude the increase in the market share of competitors. Thus adequate distribution system will sort out all the availability and market share problems.

Increasing the length of the distribution often distances the customer from the manufacturer. This can affect the quality of feedback To overcome this problem of feedback, most firms now insist on their channel members to give information on customer preferences and expectations. Some of them even directly contact opinion leaders among customers to get a direct feedback. In the automobile component industry, a mechanic meet is a common promotional tool used by many firms. These firms also use these meets to understand how their products are working vis-à-vis competition and gauge the expectations of these mechanics. These meets are also used to generate new product ideas. In consumer product companies, this problem is sought to be overcome through periodic market researchers, consumer panels and the likes.





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