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 5th Edition pg 36-144
Olagunju Y.A. (2004): Entrepreneurship and small scale
business enterprises development in Nigeria