What Are the Functions of Intermediaries in a Distribution Channel?

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Intermediaries give manufacturers access to a wider market.
Intermediaries give manufacturers access to a wider market. (Image: Ryan McVay/Photodisc/Getty Images)

Intermediaries in a distribution channel provide services that enable manufacturers to reach different types of customers. A channel might include a number of intermediaries, such as agents, wholesalers, distributors and retailers. Intermediaries act as middlemen between different members of the distribution chain, buying from one party and selling to another. They also may hold stock and carry out logistical and marketing functions on behalf of manufacturers.

Direct and Indirect Channels

Manufacturers sell products and services to their customers through direct and indirect channels. Where manufacturers sell direct to customers through their own salesforce or website, they do not require intermediaries. If they wish to sell to customers and prospects their sales teams cannot reach, they appoint intermediaries to act on their behalf. Intermediaries may have additional resources and relationships to supplement to a manufacturer’s own sales and marketing resources, enabling it to reach a wider customer base.

Selling Through Agents

Agents act as independent representatives for manufacturers, selling to other intermediaries such as wholesalers or retailers. These agents can be individuals or companies. Agents earn commission or fees for the sales they make or the services they provide. They form a valuable extension to a manufacturer’s internal sales resources.

Reaching More Customers Through Retailers

Independent stores and retail chains sell products to consumers and business customers. By appointing retailers, manufacturers can reach different areas of the country and target smaller customers they could not afford to serve directly. Retailers buy products for resale direct from manufacturers or from wholesalers. They generally stock goods from many different suppliers, including competitive offerings in the same product category, so manufacturers must use incentives and discounts to encourage retailers to push their products in order to achieve strong sales.

Simplifying Logistics through Wholesalers

Wholesalers buy products in bulk from a number of different manufacturers, stocking them in warehouses and selling them to retailers. By holding stock, wholesalers enable manufacturers to supply customers in different regions without investing in their own warehousing facilities. Wholesalers also help manufacturers reduce their logistics costs by delivering stock to retailers or offering stores a collection service.

Cooperative Marketing Through Distributors

Distributors carry out similar functions to wholesalers, but generally have closer working relationships with manufacturers. Distributors may have exclusive arrangements with manufacturers and do not carry competing products. They may be part of a franchise, only offering the products of one manufacturer. Like wholesalers, they provide valuable warehousing and logistical functions for manufacturers. They may also participate in cooperative marketing programs with suppliers, improving sales for manufacturers.

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