THE FUNCTIONS OF MIDDLEMEN IN DISTRIBUTION SYSTEM

 THE FUNCTIONS OF MIDDLEMEN IN DISTRIBUTION SYSTEM

INTRODUCTION

In many situations goods are usually taken to the markets by middlemen who come in to buy the goods and eventually take them to the market directly or through other intermediaries. In many trades, there are people or organization who specialize in distribution and selling of producers products depending on each trades, such person or organizations may be called agents, wholesalers,  retailers etc. the way a product reaches the ultimate consumers from the producers is called the distribution channel. It can be defined as the series of business firms which together facilitates distribution of products from their manufacturers to the end customers and users.

Mc McCarthy also defined distribution channels as an organized system of marketing institution that facilitates the physical flow of goods and services and ownership title from producers to consumers or end users.   

Channel of distribution refers to the route through which goods and services move from their place at the time of production to the place at the time of consumption.

The channel of distribution are basically grouped into two “Direct Channel of distribution and indirect channel of distribution”.

The direct channel of distribution requires no participation of the intermediaries in the distribution process. In this case, goods move directly from the producer to the final consumer. The producer takes responsibility of all the activities required for effective and efficient distribution ranging from transportation, warehousing, order processing, inventory control and management e.g. banks, hotel industry, restaurant, insurance, company, barbers, dry cleaning etc.

Indirect channel of distribution, it is that channel where goods and services pass to the final consumers through the active participation of the intermediaries (wholesalers, retailers and agent). The responsibility as relate to the activities for effective and efficient distribution of goods and services are shared among the producers and the intermediaries. The producer owners the manufacturing plant, does the production process.

The structure of each channel depends on factors such as company policy, type of product being produced, the choice of competitors, middlemen consideration and environmental consideration and others. The term middlemen refers to those group or distribution traders that exist between the manufacturers and the consumers.

Middlemen are independent business concern standing between the producers and the ultimate consumer as goods and services move from where they are produce to where they are consumed.

THE CONCEPT OF MIDDLEMEN

Middlemen are independent business concern standing between the producers and the ultimate consumers as goods and services move from where they are producer to where they are consume. Middle also referred to as intermediaries play a vital part in ensuring that the distribution channel between producer and the consumers is complete. The more the intermediaries in the supply chain, the higher the distribution channel. Examples of middlemen include: wholesalers, retailers, agents and brokers. Wholesalers and agents are closer to the producers, wholesalers buy the goods in bulk and sell them to retailer in large quantities. Retailers and brokers acquire the goods from the wholesalers and sell them in small quantities to the consumers, consumers may also choose to bypass the intermediaries and buy directly from the producers. This is referred to as dis-intermediation. Middlemen are classify on the basis of whether they own a title to the product or not. In this regard, middlemen are classify basically into two: “merchant middlemen and Agent middlemen”. Merchant middlemen actually take title to the products they help to market. The two groups of merchant middlemen are wholesalers and retailers. Agent middlemen never actually own the products but they do arrange the transfer of title. Real estate brokers, manufacturers of title. Real estate brokers, manufacturers agents, and travel agents are examples of agent middlemen.

DISTRIBUTION CHANNEL

Distribution to Mc McCarthy and Perreault, Jr. (1990:344) is the transporting and storing of goods to match target customers needs with a firms marketing mix. It is the movement of goods from the producers to the consumer through functional activities such as transportation and warehousing. Distribution channel is an organized system of marketing institutions that facilitates the physical flow of goods and services and ownership title from producers to consumers. The various type of marketing channels are:

 

 

2.     Business Goods

FUNCTIONS OF MIDDLEMEN

The functions of the middlemen consists or include the following;

1.       Information provider: - Middlemen have a role in providing information about the market to the manufacturer. Developments like changes in customer demography, psychology, media habit and the entry of a new competitor or a new brand and change in customers preferences are some of the information that all manufacturers wants. Since these middlemen are present in the market place and close to customers they can provide this information at no additional cost.

2.       Price stability: - Maintaining price stability in the market is another function a middleman performs. Many a time the middlemen absorb an increase in the price of the products and continue to charge the customer the same old price. This is because of the intra-middlemen competition. The middlemen also maintains price stability by keeping his overhead low.

3.       Promotion: - Promoting the products in his territory is another function that middlemen perform, many of them design their own sales incentive programmes, aimed at building customers traffic at the other outlets.

4.       Financing: Middlemen finance manufacturer’s operation by providing the necessary working capital in the form of advance payments for goods and services. The payment is in advance even though the manufacturer may extend credit because it has to be made even before the products are bought, consumed and paid for by the ultimate consumer.

5.       Title: - Most middlemen take the title to the goods, services and trade in their own name. This helps in diffusing the risks between the manufacturer and middlemen. This also enables middlemen to be in physical possession of the goods, which in turn enables them to meet customer demand at very moment it arises.

6.       Help in production function: The producer can concentrate on the production function leaving the marketing problem to middlemen who specialize in the profession. Their services can best utilize for selling the product.

7.       Pricing: In pricing a product, the producer should invite the suggestions from the middlemen who are very close to the ultimate users and know what they can pay for the product. Pricing may be different for different markets or products depending upon the channel of distribution.

8.       Matching Buyers and Sellers: The most crucial activity of the marketing channel members is to match the needs of buyers and sellers. Normally, most sellers do not know where they can reach potential buyers and similarly, buyers can reach potential sellers.

9.       Standardizing Transactions: - Standardizing transaction is another function of marketing channels. Taking the example of the milk delivery system, the distribution channels standardized throughout the marketing channel so that consumers do not need to negotiate with the sellers on any aspect. Whether it is price, quality, method of payment or location of the product.

By standardizing transactions, marketing channels automate most of the stages in the flow of products from the manufacturer to the customers.

10.  Matching Demand and Supply: The chief functions of intermediaries is to assemble the goods from many producers in such a manner that a customer can affect purchases with ease. The goal of the marketing is the matching of segments of supply and demand.

The matching process is undertaken by performing the following functions:

a.     Contractual: - Finding out buyers and sellers.

b.     Merchandising: Producing goods that will satisfy market requirements.

c.      Pricing: process of attaching value to the product in monetary terms.

d.     Propaganda: Sales promotion activities.

e.      Physical Distribution: Distribution activities.

f.       Termination: Settlement of contract i.e. paying the value and receiving the goods.

 MARKETING INTERMEDIARIES

Marketing channels which generally have one or more intermediaries can be categorized into agent / broker, wholesaler and retailer.

AGENT

Agent middlemen are specialized wholesalers who do not own the product they sell but only help in buying and selling. Agents can be classified into:

1.         Manufacturer’s Agent: They sell products for several non competition producers for a commission on what is actually sold.

2.         Commission merchant: They handle products shipped to them by sellers complete the sale, and send the money minus commission to each seller.

3.         Auction companies that provide a place for buyers and sellers to meet for transaction.

WHOLESALER

A wholesaler is a marketing intermediary that buys from the producer and sells to other organization such as retailers and hospitals. The functions of the wholesaler include some of the following:

1.     Bulk buying from manufacturer to ease their operations.

2.     Breaking the bulk to make it possible for retailers due to their limited capital.

3.     advance payment or prompt settlement or payment for goods enabling producer to continue operations. Financing retailers through provision of credit facilities.

4.     Warehousing of goods pending when they are needed.

5.     Stabilization of product prices through storage.

6.     Offering professional advice to retailers.

7.     Completion of production process e.g. packaging.

8.     Assisting manufacturers in promotional activities.

A RETAILER

A producer is an individual or an organization that sells to ultimate consumers. The functions of retailer includes:

1.     Selling to consumers at convenient place and time.

2.     Completion of production processes such as labeling

3.     Providing after sales service to customers such as installation and maintenance services.

4.     Provision of wide range or variety of gods to consumers.

5.     Offer of credit facilities to reliable customers.

6.     Passes information from consumers about their complaints and preferences to wholesalers for on ward transfer to the producer.

IMPORTANCE OF MIDDLEMEN

Intermediaries are very important players in the market. Both the consumers and producers gain immensely from the roles of middlemen, who ensure that, there is a seamless flow of goods in the market by matching supply and demand.

Intermediaries provide feedback to the producers about the market, thus influencing the decisions made by the manufacturers. Buyers on the other hand, gain from the services offered by intermediaries such as promotion and delivery. Buyers can get the right quantity they want as intermediaries are able to sell in small units.

CONCLUSION

Marketing intermediaries (middlemen) are indispensable in the distribution of consumers good and services.

People may ask why marketing intermediaries are used, “Why do producers give the selling jobs to intermediaries? Why don’t they distribute these goods themselves? Because giving the rights to middlemen means giving up some control over how and when are sold to. According to Kotler (1998:358) “The use of intermediaries results from their greater efficiency in making goods available to target markets,  specialization and scale of operations usually offer the form and consumers more than it can achieve on its own” but with a price.

These shows that middlemen are very important in the distribution channel.

REFERENCES

Johnson Ugoji (2002): comprehensive Economics 5^th Edition pg 36-144

Olagunju Y.A. (2004): Entrepreneurship and small scale business enterprises development in Nigeria

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