What are marketing intermediaries? Definition and types
Updated 19 December 2022
It's rare for manufacturers to produce, distribute and sell their products to customers directly, as these processes require many specialised employees. Marketing intermediaries, also known as distribution intermediaries, help manufacturers and producers sell products to consumers by assisting them with distribution and other specialised supply chain operations. If you'd like to develop your professional knowledge, you may benefit from learning more about these business mediators and how they apply to your career. In this article, we discuss what these distribution intermediaries are and why they're important, explain how they help businesses and examine the advantages they provide for manufacturers.
What are marketing intermediaries?
Marketing intermediaries, or distribution intermediaries, are companies, organisations or individuals that assist manufacturers with operations to distribute products to consumers. These firms typically specialise in one aspect of a business's operations, such as logistics, marketing or product management. Some large corporations may hire many intermediaries, depending on the length of the supply chain. Sometimes corporations integrate intermediaries vertically to gain more control over the talent pool and more in-depth knowledge of the distribution process.
These intermediaries act as go-betweens. They use specialist knowledge and skills to help manufacturers and producers access larger customer bases and, in return, receive a percentage of each transaction or a lump sum. Since there are many stages involved in distribution, including packaging, transportation, sorting and warehousing, these go-betweens may choose to specialise and streamline one stage in the process.
Why are marketing intermediaries important?
The introduction of the modern Internet, or Web 2.0, empowered individuals and businesses to set up websites, contact producers directly and sell straight to customers. This may be tempting for smaller business ventures, as business owners can cut high costs by dealing with producers and customers directly. As a business expands, employees may find it challenging to balance their workload as the requirements for logistics, customer support and marketing increase. Intermediaries can help expanding or established companies outsource operations to focus on their core competencies.
These distributors are important for introducing customers to new products and rival competitors to stimulate a competitive marketplace. Intermediaries may have access to popular retail locations that allow customers to browse products, or they may assist producers to move inventory quickly and efficiently along the supply chain. Although goods may be cheaper without intermediaries, having no intermediaries severely limits the choice available to consumers in any given market and maybe even makes it non-existent.
4 types of marketing intermediaries
There are four main types of intermediaries. These are:
1. Agents and brokers
Agents and brokers represent manufacturers and serve their interests when trying to attract buyers. These intermediaries manage the supply of the physical product without owning it. For example, real estate agents represent home sellers as they look to match prospective buyers with houses that are for sale. These agents don't own the houses they sell but merely represent the sellers and earn commissions from the sales of the properties. Agents and brokers exist throughout a product's supply chain, seeking to find and attract distribution units for manufacturers and producers.
2. Wholesalers and resellers
Wholesalers purchase inventory in bulk straight from the manufacturer and resell it at a marked-up price, usually to retailers or other merchants. Some wholesalers choose to specialise in selling a selection of related products. Others may purchase and resell products across a vast range of markets, diversifying their inventory and distribution channels. Wholesalers often own warehouses where they can store large quantities of products and have an extensive fleet of trucks to transport goods. Manufacturers may prefer to do business with wholesalers, as they can sell large inventories at once.
Distributors, or functional wholesalers, don't purchase products themselves. These intermediaries are responsible for transporting goods from the manufacturer to the retailer or other business locations. Distributors maintain very close relationships with manufacturers and may carry only one line of products and focus solely on its promotion and transportation. Distributors may have warehouses if they carry a large inventory and invest in a fleet of trucks to transport goods. These intermediaries often ship products directly from the manufacturer to retail locations or merchants.
4. Physical and online retailers
Retailers have traditional physical locations, such as supermarkets and corner shops, and online platforms, such as e-commerce websites. Unless a consumer purchases a product directly from the manufacturer, they purchase it from a retailer. Retailers may buy inventory directly from manufacturers or other intermediaries, such as wholesalers. Recently, many retailers have begun creating their own lines of goods to compete with more expensive branded products. For example, you may see that a supermarket's line of bread is significantly cheaper than the equivalent branded product, as there's less logistical processing and marketing.
Any company with a website that sells products that it doesn't directly produce is an online retailer. Many large online retailers also create their own lines of goods to cut costs and encourage customers to purchase goods with higher profit margins, despite also selling competitors' products. Therefore, large online retailers are increasingly acting more as wholesalers of their manufactured goods than retail intermediaries for other manufacturers.
Advantages of using distribution intermediaries
Here are some advantages of partnering with these intermediaries:
Manufacturers specialise in producing goods, so they may find the distribution process challenging, as their workforce doesn't have the necessary skill set to handle these operations optimally. Intermediaries help alleviate this problem so manufacturers can concentrate on increasing their production rates. With distribution intermediaries handling the logistics and supply chain, producers can develop new goods and try to lower manufacturing costs to increase their profit margins.
Manufacturers may not have the necessary knowledge or workforce to promote products and develop relationships with retailers to encourage them to carry inventory. Few customers contact manufacturers directly to purchase products, as manufacturers often have minimum order quantities to justify the production of a product. If an intermediary purchases inventory wholesale, it can then distribute it as necessary to many retailers in several locations to increase customer reach for the manufacturer. In return, the intermediaries add their own markups or share the profits with the producer.
Intermediaries can act as go-betweens for many brands and sometimes even direct competitors. They can store inventory from many sources and distribute it to various locations across the country or world. This provides variety in retail locations, giving customers a greater choice of products when shopping. An increase in competition also encourages manufacturers to improve the value of their products to customers by lowering prices, improving the quality or adding extra features. Healthy competition increases the overall quality of a market and stimulates the industry.
Limitations of intermediaries
Although intermediaries can provide many benefits to an industry or business, they can also create some challenges, such as:
More expensive products
When the process of distributing and promoting goods involves more mediators, this incurs additional costs that raise the overall price of a product. Manufacturers produce goods at a set price to sell with the minimum markup to wholesalers for distribution. The intermediary pays for warehouse storage, transportation costs and handling charges. Ensuring all parties receive fair compensation creates more expense, making the product more expensive to customers.
To reduce costs, increase competition and provide more value to customers, many intermediaries become manufacturers themselves. Many large online retailers produce their own versions of branded products at a lower price to reduce expenses and increase profit margins. Many supermarkets also provide their own cheaper brand of goods to customers. This means the intermediary takes on the producer role through vertical integration while maintaining its distribution and selling capabilities.
In a competitive market, manufacturers can't increase the cost to customers, so incurring more expenses when hiring intermediaries to manage the distribution process may result in lower revenue. Lower revenue may mean that producers have more incentive to focus only on their best-selling products, increasing their quality to maintain profit margins and increase market share. Therefore, less revenue may result in better quality products becoming available from more retail locations.
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