Channels of Distribution

A channel of distribution is the combination of middlemen that a

company uses to move its products to ultimate purchasers. The two ma-

jor types of middlemen that can be used are wholesalers and retailers.

Wholesalers purchase goods and resell them to retailers, other

wholesalers, industrial users, institutes, commercial firms and govern-

ment agencies. Wholesalers do not sell directly to ultimate consumers,

but retailers do. There are three major types of wholesalers. Merchant

wholesalers take title to the products they purchase and often offer a

wide range of services. Merchandise agents and brokers bring buyers and

sellers together; they do not take title to merchandise. Manufacturers

establish sales branches and sales offices in order to perform the whole-

saling function themselves.

Middlemen make a number of contributions to the economy. They

reduce distribution costs by minimizing the number of transactions re-

quired. They perform all the marketing functions. Because they are spe-

cialists, they efficiently perform these marketing functions. Their opera-

tions result in increased value because time and place utility are created.

They bring buyers and sellers together and act as information sources.

Middlemen can be especially valuable for companies that are going into

new markets, small firms, companies that are

Bringing out new products, and companies that do not have suffi-

cient financial resources.

Firms that market consumer goods tend to use middlemen exten-

sively. In all, approximately 95% of all consumer products flow through

wholesalers and retailers. Industrial goods, however, tend to go directly

to purchasers and not through middlemen. Around 80% of all industrial

goods are marketed directly.

There are four major types of retailing establishment in the United

States. By far the most dominant of these are stores. Automatic vend-

ing, direct selling, and mail order are much less important than stores.

Within the store category, chain operations (operations that have two or

more establishments under one ownership) tend to dominate.

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