Channel Participants and

Structure
Lesson 2
A Typical Portrayal of Channel Structure
for Consumer Goods
Two-level Three-level Four-level Five-level
Classification of Channel Participants
All channel
participants

Do they
perform
negotiatory
functions?

Member participants Nonmember participants

Yes No
 Producers and
manufacturers
Wholesale intermediaries
Intermediaries
Contactual
Yes organization Retail intermediaries
(marketing channel)

Consumers

Final users
Do they Industries
perform
negotiatory
functions?
Transportation firms

Storage firms

Advertising agencies
No Facilitating agencies
Financial firms

Insurance firms

Marketing research firm

Three Major Types of Wholesalers

All wholesale
firms

Independent Manufacturer
middlemen owned

Agents, brokers, Manufacturers’

Merchant
and commission sales branches
wholesalers
merchants and offices
Three Major Types of Wholesalers
1. Merchant wholesalers: firms engaged in buying,
taking title, usually storing, and physically
handling products in relatively large quantities
and then reselling the products in smaller
quantities to retailers; to industrial, commercial,
or institutional concerns; and to other
wholesalers.
They can be named: wholesaler, jobber, distributor,
industrial distributor, supply house, assembler,
importer, exporter, and etc.
Three Major Types of Wholesalers
2. Agents, brokers, and commission merchants:
independent middlemen who do not take title
to the goods in which they deal, but are actively
involved in negotiatory functions of buying and
selling while acting on behalf of their clients.
They are usually compensated in the form of
commissions on sales or purchases.
Common type are known as manufacturers’ agents,
commission merchants, brokers, selling agents, and
import & export agents.
Three Major Types of Wholesalers
3. Manufacturers’ sales branches and offices
are owned and operated by manufacturers
but are physically separated from
manufacturing plants. They are used for the
purpose of distributing the manufacturer’s
own products at wholesale.
 Merchant wholesalers’ Distribution Tasks
Performed for Manufacturers
• Manufacturers often rely on merchant wholesalers to secure the
Market coverage necessary market coverage at reasonable cost.

• Manufacturers often rely on merchant wholesalers to reach all

Sales contact significant portion of their customers over large geographical area
at a cheaper cost.
• Merchant wholesalers take title to, and usually stock, the products
of the manufacturers whom they represent and this can reduce
Inventory holding some of manufacturers’ risk associated with holding large
inventories.
• Wholesalers are specifically geared to handle small orders from
Order processing many customers and this can save more costs on order processing
for manufacturers.

• Wholesalers can passed on info. about customers’ product and

Market information service requirements to manufacturers.

• Wholesalers assist customers in providing services on behalf of

Customer support manufacturers: exchange, return, setup, adjustment, repair, or
technical assistance.
 Merchant wholesalers’ Distribution Tasks
Performed for Customers
• By extending open account credit to customers on product sold, so wholesalers
Credit and financial allow customers to use products in their business before pay them.
assistance • By stocking and providing ready availability for many of the items needed by
their customers.

• Wholesalers’ ability to bring together from a variety of

Assortment convenience manufacturers an assortment of products, simplifying customers’
ordering tasks.

• By buying large quantities from manufacturers and breaking down

Breaking bulk these ‘bulk’ orders into smaller quantities, customers can buy only
quantity they need.

Advise and technical • Wholesalers assist customers in providing services to customers:

support advice and assistance for proper use or technical assistance.
When merchant wholesalers perform all of the
distribution tasks, it will result on more
effective and efficient marketing channels
(reflected in margins earned by wholesalers).
 Distribution Tasks Performed by
Agent Wholesalers
• Manufacturing agents (manufacturers’ representatives
or “reps”) specialize in performing market coverage and
sales contact distribution tasks for manufacturers.

• Selling agents perform more distribution tasks such as

providing market coverage, sales contact, order
processing, marketing info., product availability, and
customer services.

• Brokers perform only 1 distribution task: providing

market info. (in practice, they may perform many).
 Retail Intermediaries
• Retailers consist of business firms engaged primarily
in selling merchandise for personal or household
consumption and rending services incidental to the
sale of goods.
 Growing Power of Retailers
Three major developments:

1. Increase in size and buying power

2. Application of advanced technologies
3. Use of modern marketing strategies
 Distribution Tasks Performed by
Retailer
1. Offering manpower and physical facilities that
enable producers/manufacturers and wholesalers
to have many points of contact with customers
close to their places of residence

2. Providing personal selling, advertising, and display

to aid in selling suppliers’ products

3. Interpreting consumer demand and relaying this

info. back through the channel
 Distribution Tasks Performed by
Retailer
4. Dividing large quantities into consumer-sized lots,
thereby providing economies for suppliers (by
accepting relatively large shipments) 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 (or wholesaler) by ordering
and accepting delivery in advance of the season
 Facilitating Agencies
• Facilitating agencies are business firms that
assist in the performance of distribution tasks
other than buying, selling, and transferring
title.
– They may be viewed as subcontractors to whom
various distribution tasks can be “farmed out”
based on the principle of specialization and
division of labor.
 Common Types of
Facilitating Agencies
• Transportation agencies: all firms offering
transportation service on a public basis, such
as United Parcel Service (UPS) and Federal
Express.
 Common Types of
Facilitating Agencies
• Storage agencies consist mainly of public
warehouses that specialize in the storage of
goods on a fee basis.
 Common Types of
Facilitating Agencies

• Order processing agencies are firms that

specialize in order fulfillment tasks. They
relieve manufacturers, wholesalers, or
retailers from some or all of the task of
processing orders for shipment to customers.
 Common Types of
Facilitating Agencies

• Advertising agencies offer the channel

member expertise in developing promotion
strategy.
– This can range from providing a small amount of
assistance in writing an ad to complete design and
execution of the advertising campaign.
 Common Types of
Facilitating Agencies

• Financial agencies consists of firms such as

banks, finance companies, and factors that
specialize in discounting account receivable.
Common to all of these firms is that they
possess the financial resources and expertise
that the channel manager often lacks.
 Common Types of
Facilitating Agencies

• Insurance companies provide the channel

manager with a means for shifting some of
the risks inherent in any business venture,
such as fire and theft losses, damage in transit
of goods, and in some cases even inclement
weather.
 Common Types of
Facilitating Agencies

• Marketing research firms: The channel

manager can call on these firms to provide
info. when his/her own firm lacks the
necessary skills to obtain marketing
information relevant to distribution.
 Channel Structure
• Multi-channel strategy: the firm has chosen
to reach its customers through more than 1
channel.

• This will result in multi-channel structure

because distribution tasks have been allocated
among more than 1 channel structure.
 Some firms also developed multi-channel
structures that include online channels.
 Multichannel distribution
• Companies are increasingly using multiple channels.
• Regardless of how well a manufacturer administers its
channel system, some amount of channel conflict is
inevitable.

Multi-channel conflict occurs

when multiple distribution channels participate in selling the
same brand

• Some conflict is essential if members are to adapt to change.

• Conflict should result in more effective and efficient channel
performance, provided it does not become destructive.
 Learning Activities
1. Recreate the Typical Portrayal of Channel Structure for Consumer
Goods by providing actual examples of products that
are distributed through each structure.
i. Structure can be found at the beginning
ii. Examples must be provided for all levels.
2. Think of a real life example of multi-channel
conflict. Explain how these channels conflict?
i. Examples must be existing
ii. Brands and companies to be mentioned will be for
educational purposes only.
iii. Explanation must be in 3-5 sentences only.