What Are the Different Channel Organizations in the Marketing System?
In addition to the direct sales channel, the marketing system includes several types of channel organizations that help sell products to customers. You have to choose the most effective channel for your business, depending on cost and benefits as well as customer convenience. A key factor in channel choice is whether you want to have direct contact with your customers. Knowing what channel organizations are available helps you make the most appropriate choice.
Wholesalers buy your products in bulk and sell them in smaller lots to retail outlets. Your business can focus on production and quality while leaving the selling to others. In return, you only receive a part of the retail selling price, and you have little control over how your products are presented to the public. The channel is especially suited to standard products, because your customers will not need a lot of support. The distribution channel may be lengthy and is less suited to products that spoil. Some wholesalers assume financing and inventory functions to make them more attractive for manufacturers.
Agents fulfill the same distribution function as wholesalers but don't take ownership of your products and don't provide financing. They identify buyers for you and arrange the transaction for a commission. Agents may work for manufacturers on a permanent basis under an agency agreement, or they may act as brokers on a contract-by-contract basis. Manufacturers still have little control over how their products are offered to customers, but they receive a larger part of the retail selling price.
If a manufacturer wants more control over the selling of his products but wants to avoid direct sales, he can establish a branch office that sells products at the wholesale level. By selling directly to retailers through the branch office, the manufacturer shortens the delay until the products are sold to customers and increases his share of the retail selling price. On the other hand, he has to assume the costs of establishing and operating the branch organization.
Retailers are distinguished by the fact that they sell to consumers. They may buy from any of the other channel organizations and directly from producers, and they represent the final channel organization in the supply chain. Manufacturers that sell directly to retail receive the highest percentage of the selling price and have the greatest control over their products. They incur the additional costs of contacting and selling to many small retailers and, as a result, have to organize a substantial sales department in-house.