A distribution channel is a set of interdependent organizations involved in the process of making a product or service available for use or consumption by the consumer or business user.
Why are marketing intermediaries used?
Most producers use intermediaries to bring their products to the market and in so doing forge a distribution channel.
• Intermediaries make goods available to target markets more efficiently – through their contacts, experience, specialization and scale of operation, they offer more than the firm can achieve on its own.
• They also provide economies of scale and reduce the number of contacts; this reduces the amount of work that must be done by both producers and consumers.
• They also transform the assortment of products made by producers into assortments wanted by customer thus playing a very important role of matching supply and demand.
• Many producers lack financial resources to carry out direct marketing
• In some cases direct marketing is not feasible to producers because if they establish retail shops, they have to sell a lot of products as well.
THE FUNCTIONS OF CHANNEL INTERMEDIARIES
Members of the marketing channel perform the following functions:
• Information: gathering and distributing marketing research information about factors and forces in the marketing environment needed for planning and aiding exchange e.g. potential customers and competitors.
• Promotion: developing and spreading persuasive communications about an offer
• Contact: finding and communicating with prospective buyers.
• Matching: shaping and fitting the offer to buyers’ needs including activities as manufacturing, grading, assembling and packaging.
• Negotiation: the attempt to reach final agreement on the price and other terms so that transfer of ownership can be affected.
• Ordering: involves communicating the intentions to buy to the manufacturer.
• Financing: the acquisition and allocation of funds required to finance inventories at different levels of the marketing channel.
• Risk taking: the assumption of risks connected with carrying out the channel work.
• Physical distribution: transporting and storing goods.
• Title: the actual transfer of ownership from one organization or person to another.
Intermediaries are necessary; if a manufacturer performs channel functions, his costs go up and the prices become higher. When some functions are shifted to intermediaries, the producers’ costs and the prices become lower. The use of intermediaries should not be viewed negatively to be a way of placing a firm’s destiny in their hands because both producers and buyers do gain several advantages from these intermediaries who do a lot to smoothen the flow of goods and services.