Distribution Management Page 1 of 13

Channel Participants

Topic: The Channel Participants

Welcome Notes:
WELCOME BSBA STUDENTS!!!
Get ready to be challenge…
Learn something new every day by adapting the
‘New Normal’

I. INTRODUCTION:

In this module you will be learn the three basic divisions of the marketing channel are: producers and
manufacturers, intermediaries and final users.

II. OBJECTIVES:

At the end of this module, you should be able to:

1. Familiarize yourself with the major participants in marketing channels, namely the
manufacturers/producers, wholesalers and retailers;
2. Recognize the task performed by the channel participants; and
3. Appreciate the role played by facilitating agencies in marketing channels.
III. PRELIMINARY ACTIVITIES:

Before you proceed to the main lesson, test yourself in this activity.

Give examples of the following.

1. Manufacturer - __________________________________________
2. Wholesaler - ____________________________________________
3. Retailer - _______________________________________________

What is your idea on the relationships of the given entities to marketing?

_____________________________________________________________________________________
_____________________________________________________________________________________
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GREAT!!!
You may now proceed to the main lesson.

IV. LESSON PROPER

Based on the preliminary activities, what did you notice about it?
_______________________________________________________
CONGRATULATIONS!
You may now proceed to the lesson.

Let’s Begin!
Channel Participants
An Overview of Channel Participants
The three basic divisions of the marketing channel are: producers and manufacturers, intermediaries and
final users.
 Channel participants are defined as participants that engage in negotiatory functions linked
together by the flows of negotiation or ownership.
 Producers and manufacturers and intermediaries are further broken down into wholesale and retail
intermediaries and consumer and industrial users.
 Final users are defined as target markets and are excluded from further discussions of channel
members.
Producers and Manufacturers
 Producers and manufacturers consist of firms that are involved in the extracting, growing, or
making of products. For the needs of the customers to be satisfied products must be made
available to customers when, where and how they want them.
 This theme is expanded to illustrate that producers and manufacturers often do not have the
expertise in distribution as they do in manufacturing or producing. The section then goes into a
detailed explanation regarding the firm Binney & Smith, the makers of Crayola® crayons. Figure
2.2 deals with hypothetical average cost curves for Binney & Smith.
 The message to be derived from Figure 2.2 is that Binney & Smith would never be able to sell
enough crayons to individual consumers to absorb the enormous fixed costs associated with the
performance of the distribution task.
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 Intermediaries then because they distribute the products of many producers are able to spread
their fixed costs and achieve the desired economies of scale. Producing and manufacturing firms
often face high average costs for distribution tasks when they attempt to perform them by
themselves.
Intermediaries
Key Terms and Definitions
 Intermediaries: Are independent businesses that assist producers and manufacturers in the
performance of negotiatory functions and other distribution tasks.
 Wholesalers: Consist of businesses that are engaged in selling goods for resale or business use to
retail, industrial, commercial, institutional, professional, or agricultural firms, as well as to other
wholesalers.
A) Types and Kinds of Wholesalers
Three major types of wholesalers as defined by the Census of Wholesale Trade. These are:
1. Merchant wholesalers
2. Agents, brokers, and commission merchants
3. Manufacturer’s sales branches and offices
1. Merchant Wholesalers are firms engaged primarily in buying, taking title to, usually storing, and
physically handling products in relatively large quantities and then reselling the products in smaller
quantities to others. They go under many different names such as: wholesaler, jobber, distributor, industrial
distributor, supply house, assembler, importer, exporter, and others.
2. Agents, brokers, and commission merchants are independent middlemen who do not take title to the
goods in which they deal, but who are actively engaged in the buying and selling functions on behalf of
others. They are usually compensated in the form of commissions on sales or purchases. They also go
under other names such as selling agents and import and export agents.
3. Manufacturer’s sales branches and offices are owned and operated by manufacturers but are physically
separated from the manufacturing plants.
B) Structure and Trends in Wholesaling
Figures 2.4 and 2.5 show the trends in wholesaling. The key point to emphasize here is that the absolute
sales of all three types of wholesalers increased substantially over a tenyear period from 1987 – 1997.
C) Size and Concentration in Wholesaling
Most wholesalers (40%) are small businesses with sales less than $1,000,000 in annual revenue.
D) Distribution Tasks Performed by Merchant Wholesalers
Modern well-managed merchant wholesalers perform the following types of distribution tasks for producers
and manufacturers:
1. Providing market coverage
2. Making sales contacts
3. Holding inventory
4. Processing orders
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5. Gathering market information
6. Offering customer support
1. Market coverage is performed because the market for products consists of many customers spread
across large geographical areas.
2. Making sales contact is a valuable service provided because the cost of maintaining an outside sales
force for many firms is prohibitively high. This becomes even more apparent if the firm wishes to sell
outside of the United States.
3. “Holding” inventory is when the wholesaler takes title to and possession of the producer and
manufacturer’s product. This can help the producers and manufacturer’s financial burden and help their
production process.
4. Processing orders is very helpful to producers and manufacturers because many customers purchase in
small quantities. The wholesaler can “break down” a large order of product into smaller more manageable
pieces.
5. Gathering market information: Wholesalers are close to their customers through frequent sales contacts.
As such, they are in a good position to learn about a customer’s product or service requirements. Such
information then can aid producers and manufacturers in their product planning, pricing, and the
development of new products.
6. Customer support is the final distribution task performed for producers and manufacturers on their
behalf. Products may need to be assembled, set up or require technical assistance. This allows the
wholesaler to provide “value added services” to the customer thus increasing the competitive advantage of
one wholesaler over another. This extra support plays a crucial role in making wholesalers vital members of
the marketing channel from the standpoint of both the producers and manufacturers and the customers
they serve.
In addition to the above services, merchant wholesalers are equally well suited to perform the following
distribution tasks for their customers:
1. Assuring product availability
2. Providing customer service
3. Extending credit and financial assistance
4. Offering assortment convenience
5. Breaking bulk
6. Helping customers with advice and technical support
1. Assuring product availability: Assuring that both the quantity and the variety demanded by the customer
is available to them when needed.
2. Providing customer service: Services such as delivery, repairs or warranty work saves the customer time
and effort.
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3. Extending credit and financial assistance: Wholesalers provide this service in two ways. First by
extending “open” accounts to customers on products sold to them and second by stocking the needed
inventory for the customer, thus reducing the financial and space expenses for the customer.
4. Assortment convenience: By bringing together a variety of products from hundreds of manufacturers, the
customer need only place one order for many products.
5. Breaking bulk: Shipping costs dictate the shipment of many products by rail or truckload quantities. Most
customers order in single units; thus, the large loads must be “broken” down into single unit sales. A
wholesaler provides this service to its customers.
6. Helping customers with advice and technical support: Even the most unsophisticated product may
require setup or technical support. The wholesaler, being closer to the customer than either the producer or
manufacturer is better able to fulfill this service.
This also allows the wholesaler to differentiate its firm from others by these “value added” services.

E) Distribution Tasks Performed by Agent Wholesalers

 These wholesalers do not take title to the products they sell and as a rule do not perform as many
distribution tasks as a typical merchant wholesaler. They do however perform a variety of key
functions.
 Manufacturer’s agents (manufacturer’s representatives) specialize in performing the market
coverage and sales contact and distribution tasks for manufacturers. Manufacturing agents
generally represent several manufacturers at the same time and operate in a wide range of product
and service categories.
 Selling agents are another type of agent wholesaler performing more distribution tasks than
manufacturing agents. Selling agents may perform many, if not most, of the other distribution tasks
such as: market coverage, sales contacts, order processing, marketing information, product
availability and customer services.
 Brokers, the second major category of non-title-taking wholesalers offers another example of the
wide deviation between definitions based on performance presented in marketing literature and
actual practice.
 Commission merchant, the third major category of agent wholesalers, is mainly significant in the
agricultural markets. Their distinction from the other merchant agents is that commission
merchants typically take possession of the goods although not title.
 The key points of these definitions of agents is that the terminology used to define an agent is often
misleading as to the actual services provided by the agent.

Retail Intermediaries
Key Term and Definition
 Retailers: Consist of business firms engaged primarily in selling merchandise for personal or
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household consumption and rendering services incidental to the sale of goods.
A) Kinds of Retailers
Retailers in the United States comprise an extremely complex and diverse conglomeration ranging from
mom-and-pop neighborhood stores to giant mass merchandising chains such as Wal-Mart®.
B) Structure and Trends in Retailing
Here it is important to note that in 1997 (latest year for which data are available) there were 1,118,447 retail
establishments in the United States. This was a decline from 1992 of approximately 27% but sales
increased from $1.9 trillion to $2.5 trillion dollars a 32% increase in that same time period. This indicates
that the size of the retail establishments has increased significantly.
C) Concentration in Retailing
From strictly an economic standpoint, large firms increasingly dominate retailing in the United States.
 Figure 2.10 illustrates that large firms represent only 4 percent of all firms but represent 80% of
total retail sales.
 Figure 2.11 shows that in 1997, the 50 largest firms accounted for 26% of total retail sales.
 Figure 2.12 shows kinds of retailers where the largest four firms account for at least 50% of total
sales.
 Table 2.8 lists the 100 largest retailers in the United States.
D) Retailers’ Growing Power in Marketing Channels
The power and influence of retailers in marketing channels have been growing mainly due to three major
developments:
a. Increase in size and thus buying power
b. Application of advanced technologies
c. Use of modern marketing strategies
 Since size translates into power, the largest retailers have the capacity to influence the action(s) of
other channel members, wholesalers and manufacturers. In many cases, the giant retailers can literally
dictate to the manufacturers (most manufacturers are considerably smaller than the large retailers) the
terms of sale they want and the product offering they require. These large retailers are referred to as
“power retailers” and “category killers”.
 Growing size and concentration of retailers is the most fundamental reason for greater retailer power in
marketing channels. But two other factors, advanced technology and uses of modern marketing
strategies are also important.
 Modern retailers have become astute followers and ardent users of many new technologies such as
the Internet, scanners, sophisticated inventory management software, shelf management software,
forecasting, and consumer shopping trip studies.
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 Perhaps the most exciting technological development being embraced by retailers is their growing use
of the Internet to enhance the shopping experience. Conventional retailers are integrating Internet-
based E-commerce with their store and catalog operations. A new term called threetailing has emerged
to describe the convergence of in-store, catalog, and online channels.
 Turning now to retailers’ growing emphasis on marketing, a fundamental change has been evolving in
thinking by leading retailers about the application of marketing strategy in a retail setting. In the past,
retailers have been more supplier (vendor) driven than market driven.
 To sum up, retailers in the United States have become much larger, more concentrated, more
technologically adept, and more sophisticated marketers. As a result, they have become far more
powerful members of marketing channels and indeed have come to dominate many of the marketing
channels.
 The implications of the retailer’s new position are potentially ominous. A producer or manufacturer’s
marketing strategies in the areas of product planning and development, pricing, and promotion will be
increasingly constrained and shaped by the considerable demands of the powerful retailers.
F) Distribution Tasks Performed by Retailers
Retailers are especially suited to the following distribution tasks:
1. Offering manpower and physical facilities that enable producers/manufacturers and wholesalers to
have many points of contact with consumers close to their places of residence
2. Providing personal selling, advertising, and display to aid in selling supplier’s products
3. Interpreting consumer demand and relaying this information back through the channel
4. Dividing large quantities into consumer-sized lots, thereby providing economies for suppliers and
convenience for consumers
5. Offering storage, so that suppliers can have widely dispersed inventories of their products at low
cost and enabling consumers to have close access to the products of producers/manufacturers
and wholesalers
6. Removing substantial risk from the producer/manufacturer by ordering and accepting delivery in
advance of the season

Facilitating Agencies
Key Term and Definition
 Facilitating agencies: Are business firms that assist in the performance of distribution tasks other
than buying, selling, and transferring title.
 By properly allocating distribution tasks to facilitating agencies, the channel manager will have an
ancillary structure that is an efficient mechanism for carrying out the firm’s distribution objectives.
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Some of the more common types of facilitating agencies:
 Transportation agencies such as United Parcel Service (UPS®) and common carriers
 Storage agencies which consist mainly of public warehouses that specialize in the storage of
goods on a fee basis
 Order processing agencies which are firms that specialize in order fulfillment tasks
 Advertising agencies which offer the channel member expertise in the development of promotion
strategy
 Financial agencies such as banks, finance companies and factors that specialize in discounting
accounts receivable
 Insurance companies providing the channel member with means for shifting the risks associated
with the industry
 Marketing research firms to help the channel member gain relevant marketing

We had just finished the lesson on Channel Participants. Let’s move

on to the next higher level of activity/es or exercise/s that
demonstrates your potential skills/knowledge of what you have
learned.
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V. ANALYSIS, APPLICATION AND EXPLORATION

Name: ______________________________ Course & Section: __________________

Instructions. Read each questions write your answer on the space provided.
A. Describe the distribution tasks that wholesalers are especially well suited for performing,

B. Describe the distribution tasks that retailers are especially well suited for performing

Finally, let us summarize the lesson of what we had discussed today.

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VI. GENERALIZATION

Name: ______________________________ Course & Section: __________________

Instructions: Read the situation carefully then answer the guided question below. Write your answer on the
space provided.

Situation A: Wrigley is the world’s leading manufacturer of chewing gum, producing literally millions of
packages of gum every day. It is a large, financially strong company whose manufacturing technology for
producing gum is state-of-the-art. It sells its products to millions of gum-chewing consumers all over the
United States and many other countries around the world. Still, Wrigley has never attempted to sell its
chewing gum directly to consumers, but instead uses a wide variety of intermediaries at the wholesale and
retail levels.
Guided Question: Why do you suppose Wrigley has chosen to use intermediaries rather than sell direct to
consumers? Explain.
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________

Situation A: Jacobson Companies, headquartered in Des Moines, Iowa, describes itself on its Web site as
a “can do” third party logistics company. The company is indicative of the new breed of logistics services
firms that can do it all. If a company, whether a manufacturer, wholesaler, retailer or other type of firm,
needs logistical help, they can find “one-stop shipping” for logistical services if they deal with third-party
logistics (3PL)firms. Along with the availability of an almost unlimited range of services, is the capability of
many 3PLs to custom tailor the logistical services they provide to fit the particular needs of their clients.
Guided Question: Why do you think 3PLs have become such an important type of facilitating agency in
market channels? Do you expect this trend to continue?
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
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KUDOS!
You have come to an end of Module 2.
OOPS! Don’t forget that you have still an assignment to do.
Here it is….

VII. ASSIGNMENT

Name: ______________________________ Course & Section: __________________

A. Instructions: Give example, identify and discuss 5 types of facilitating agencies and the role they
play in channels of distribution?
1._________________________________

2._________________________________

3._________________________________

4._________________________________

5._________________________________
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CONGRATULATIONS on reaching the end of this module!

You may now proceed to the next module.
Don’t forget to submit all the exercises, activities and portfolio
on ___________________.
KEEP UP THE GOOD WORK.
Well Done!!!