Distribution Policy
Category: Marketing
Most producers use middlemen to bring their products to market. They try to forge a distribution channel. A distribution channel is a set of interdependent organisations involved in the process of making a product or service available for use or consumption by the consumer or industrial user.
Why Use Middlemen?
Why do producers give some of the selling job to middlemen? Doing so means giving up some control over how and to whom the products are sold. But producers gain certain advantages from using middlemen.
Lack of financial resources. Many producers lack the financial resources to carry out direct marketing. Direct marketing would require many producers to become middlemen for the products of other producers in order to achieve mass-distribution economies.
Earn a greater return. Even producers who can afford to set up their own channels can often earn a greater return by increasing their investment in their main business. If a company earns a 20 percent rate of return on manufacturing and foresees only a 10 percent return on retailing, it will not want to do its own retailing.
Better contacts and specialization. The use of middlemen largely boils down to their greater efficiency in making goods available to target markets. Through their contacts, experience, specialization, and scale of operation, middlemen usually offer the firm more than it can achieve on its own.
Create broader assortments of products. From the economic system’s point of view, the role of middlemen is to transform the assortment of products made by producers into the assortments wanted by consumers. Producers make narrow assortments of products in large quantities. But consumers want broad assortments of products in large quantities. In the distribution channels, middlemen buy the large quantities of many producers and break them down into the smaller quantities and broader assortments wanted by consumers. Thus, middlemen play an important role in matching supply and demand.