Type of Channel Members

Channel activities may be carried out by the marketer or the marketer may seek specialist organizations to assist with certain functions. We can classify specialist organizations into two broad categories: resellers and specialty service firms.

Resellers

These organizations, also known within some industries as intermediaries, distributors or dealers, generally purchase or take ownership of products from a marketer with the intention of selling to others. If a marketer utilizes multiple resellers within its distribution channel strategy the collection of resellers is termed a reseller network. These organizations can be classified into several sub-categories including:

  • Retailers – Organizations that sell products directly to final consumers (see Retailing Tutorial).
  • Wholesalers – Organizations that purchase products from suppliers, such as manufacturers or other wholesalers, and in turn sell these to other resellers, such as retailers or other wholesalers (see Wholesaling Tutorial).
  • Industrial Distributors – Firms that work mainly in the business-to-business market selling products obtained from industrial suppliers.

Specialty Service Firms

These are organizations that provide additional services to help with the exchange of products but generally do not purchase the product (i.e., do not take ownership of the product):

  • Agents and Brokers – Organizations that mainly work to bring suppliers and buyers together in exchange for a fee.
  • Distribution Service Firms – Offer services aiding in the movement of products, such as assistance with transportation, storage, and order processing.
  • Others – This category includes firms that provide additional services to aid in the distribution process, such as insurance companies and firms offering transportation routing assistance.

Importance of Distribution Channels

As noted, distribution channels often require the assistance of others in order for the marketer to reach its target market. But why exactly does a company need others to help with the distribution of their product? Wouldn’t an organization that handles its own distribution functions be in a better position to exercise control over product sales and potentially earn higher profits? Also, doesn’t the internet make it much easier to distribute products, which then lessens the need for others to be involved in selling a marketer’s product?

While, on the surface, it may seem to make sense for an organization to operate its own distribution channel (i.e., handling all aspects of distribution), there are many factors preventing them from doing so. While companies can do without the assistance of certain channel members, for many marketers some level of channel partnership is needed. For example, L.L. Bean, which sells a large percentage of its products through catalogs and over the internet, is successful without utilizing other resellers to sell their products. However, L.L. Bean still needs assistance with certain parts of the distribution process, primarily with its free shipping program (e.g., FedEx, UPS and USPS). In L.L. Bean’s case, creating its own transportation system makes little sense given how large such a system would need to be in order to service their customer base. Therefore, by using shipping companies, L.L. Bean is taking advantage of the benefits these services offer to the company and to its customers..

When choosing a distribution strategy, a marketer must determine what value a channel member adds to its products. As we discussed in Product Decisions Tutorial, customers assess a product’s value by looking at many factors, including those surrounding the product (i.e., augmented product). Several surrounding features can be directly influenced by channel members, such as customer service, delivery, and availability. Consequently, selecting a channel partner involves a value analysis in the same way customers make purchase decisions. That is, the marketer must assess the benefits received from utilizing a channel partner versus the cost incurred for using their services.