Which of the following intermediaries takes title or ownership of the goods?

Unless customers are buying a product directly from the company that makes it, sales are always facilitated by one or more marketing intermediaries, also known as middlemen. Marketing intermediaries do much more than simply take a slice of the pie with each transaction. Not only do they give customers easier access to products, they can also streamline a manufacturer's processes. Four types of traditional intermediaries include agents and brokers, wholesalers, distributors and retailers.

The Importance of Intermediaries

In an age where it is easy for any company to set up shop with an e-commerce website, it may be tempting for a small business to eliminate intermediaries to maximize profit. For a scaling business, however, this can create a lot of work in logistics and customer support.

For example, if 1,000 customers were to buy a product directly from the producer in a single month, this would entail 1,000 separate shipments to 1,000 locations, and with a minimum of 1,000 customer interactions. If you added customer inquiries about the product, returns and after-sale support – and all the customers who initiate a purchase without following through – you would have several thousand interactions with customers for every 1,000 sales. Selling through three or four intermediaries with a weekly shipping schedule, the manufacturer would have only a dozen shipments to schedule each month with a fraction of the interactions.

1. Agents and Brokers

Agents and brokers are nearly synonymous in their roles as intermediaries. In fact, when it comes to real estate transactions, they are synonymous to any client, despite the differences in their roles in the industry. In most cases, however, agents serve as an intermediary on a permanent basis between buyers and sellers, while brokers do this on a temporary basis only. Both are paid in commission for each sale and do not take ownership of the goods being sold.

In addition to real estate, agents and brokers are also common in the travel agency. Companies routinely use agents and brokers when importing or exporting products across the border.

2. Merchant Wholesalers and Resellers

Merchant wholesalers, which are also simply called wholesalers, buy products from manufacturers in bulk and then resell them, usually to retailers or other businesses. Some carry an extensive range of different products, while others specialize in a few products but carry a large assortment. They may operate cash-and-carry outlets, warehouses, mail order businesses or online sales, or they may simply keep their inventories in trucks, and travel to their customers.

3. Distributors and Functional Wholesalers

Also called functional wholesalers, distributors do not buy products from the producers. Instead, they expedite sales between the manufacturer and retailers or other businesses. Like agents and brokers, they can be paid by commission, or they can be paid in fees from the manufacturer.

4. Traditional and Online Retailers

Whenever a consumer buys a product from anyone other than the company that makes it, the consumer is dealing with a retailer. This includes corner stores, shopping malls and e-commerce website. Retailers may buy directly from the producers or from another intermediary. In some markets, they may stock items and pay for them only after they make a sale, which is common for most bookstores today.

Any e-commerce website that's not owned by the company that makes a product, which it then sells to a consumer, can also be called a retailer. However – with companies such as Amazon, which make their own products and sell them directly to customers in addition to products made by other companies – the line between producers and retailers is becoming increasingly blurry.

While the retail channel is most familiar to students, wholesalers play an important role as intermediaries. Intermediaries act as a link in the distribution process, but the roles they fill are broader than simply connecting the different channel partners. Wholesalers, often called “merchant wholesalers,” help move goods between producers and retailers.

For example, McLane Company Inc. is among the largest wholesalers in the United States. The breadth of its operations is described on the company Web site:

McLane Foodservice and wholly owned subsidiary, Meadowbrook Meat Company, Inc., operates 80 distribution centers across the U.S. and one of the nation’s largest private fleets.  The company buys, sells, and delivers more than 50,000 different consumer products to nearly 90,000 locations across the U.S. In addition, McLane provides alcoholic beverage distribution through its wholly owned subsidiary, Empire Distributors, Inc. McLane is a wholly owned unit of Berkshire Hathaway Inc. and employs more than 20,000 teammates.

Let’s look at each of the functions that a merchant wholesaler fulfills.

Purchasing

Wholesalers purchase very large quantities of goods directly from producers or from other wholesalers. By purchasing large quantities or volumes, wholesalers are able to secure significantly lower prices.

Imagine a situation in which a farmer grows a very large crop of potatoes. If he sells all of the potatoes to a single wholesaler, he will negotiate one price and make one sale. Because this is an efficient process that allows him to focus on farming (rather than searching for additional buyers), he will likely be willing to negotiate a lower price. Even more important, because the wholesaler has such strong buying power, the wholesaler is able to force a lower price on every farmer who is selling potatoes.

The same is true for almost all mass-produced goods. When a producer creates a large quantity of goods, it is most efficient to sell all of them to one wholesaler, rather than negotiating prices and making sales with many retailers or an even larger number of consumers. Also, the bigger the wholesaler is, the more likely it will have significant power to set attractive prices.

Warehousing and Transportation

Once the wholesaler has purchased a mass quantity of goods, it needs to get them to a place where they can be purchased by consumers. This is a complex and expensive process. McLane Company operates eighty distribution centers around the country. Its distribution center in Northfield, Missouri, is 560,000 square feet big and is outfitted with a state-of-the art inventory tracking system that allows it to manage the diverse products that move through the center. It relies on its own vast trucking fleet to handle the transportation.

Grading and Packaging

Wholesalers buy a very large quantity of goods and then break that quantity down into smaller lots. The process of breaking large quantities into smaller lots that will be resold is called bulk breaking. Often this includes physically sorting, grading, and assembling the goods. Returning to our potato example, the wholesaler would determine which potatoes are of a size and quality to sell individually and which are to be packaged for sale in five-pound bags.

Risk Bearing

Wholesalers either take title to the goods they purchase, or they own the goods they purchase. There are two primary consequences of this, both of which are both very important to the distribution channel. First, it means that the wholesaler finances the purchase of the goods and carries the cost of the goods in inventory until they are sold. Because this is a tremendous expense, it drives wholesalers to be accurate and efficient in their purchasing, warehousing, and transportation processes.

Second, wholesalers also bear the risk for the products until they are delivered. If goods are damaged in transport and cannot be sold, then the wholesaler is left with the goods and the cost. If there is a significant change in the value of the products between the time of the purchase from the producer and the sale to the retailer, the wholesaler will absorb that profit or loss.

Marketing

Often, the wholesaler will fill a role in the promotion of the products that it distributes. This might include creating displays for the wholesaler’s products and providing the display to retailers to increase sales. The wholesaler may advertise its products that are carried by many retailers.

Wholesalers also influence which products the retailer offers. For example, McLane Company was a winner of the 2016 Convenience Store News Category Captains, in recognition for its innovations in providing the right products to its customers. McLane created unique packaging and products featuring movie themes, college football themes, and other special occasion branding that were designed to appeal to impulse buyers. They also shifted the transportation and delivery strategy to get the right products in front of consumers at the time they were most likely to buy. Its convenience store customers are seeing sales growth, as is the wholesaler.

Distribution

As distribution channels have evolved, some retailers, such as Walmart and Target, have grown so large that they have taken over aspects of the wholesale function. Still, it is unlikely that wholesalers will ever go away. Most retailers rely on wholesalers to fulfill the functions that we have discussed, and they simply do not have the capability or expertise to manage the full distribution process. Plus, many of the functions that wholesalers fill are performed most efficiently at scale. Wholesalers are able to focus on creating efficiencies for their retail channel partners that are very difficult to replicate on a small scale.

Which intermediaries take ownership of the goods they distribute?

Which market intermediary takes ownership of the product?

What are the 4 types of intermediaries?

What is the intermediary who acts between owners and clients called?