What Is the Middleman in Marketing?

A middleman is a person or company that connects buyers with sellers. Wholesalers are a type of middleman. They buy goods from a manufacturer and then resell them to a retailer. A retailer is also an example of a middleman, as is a real estate agent. The middleman does not produce anything but has extensive market knowledge. With the growth in technology and its capabilities, Internet companies have also become a type of middleman. Auction sites, for example, bring sellers into contact with buyers they usually wouldn't reach.

A middleman's purpose in the marketing process is to be more cost efficient when transferring goods or services. By being more cost efficient, a middleman creates and fulfills a need. If the seller could locate, advertise and distribute to potential buyers as efficiently as middlemen, the middlemen would not exist. For example, a real estate agent has an established network of colleagues who know potential home buyers. A real estate agent also has access to a broad range of market information and advertising outlets.

Wholesalers and retailers are merchant middlemen. This means these companies purchase and take ownership of inventory. Wholesalers and retailers assume the expense of buying, storing and distributing product. Merchant middlemen make money by selling the product for more than its purchase price. This difference is the "markup" or cost the buyer ends up paying. Merchant middlemen can be small companies run by one owner or large corporations with an international presence. Larger middlemen may focus on a core competency or market segment, such as low prices and value shoppers.

Agents are middlemen that do not take ownership of what they sell. An agent makes income by charging a fee or a commission for helping to facilitate a sale. Brokers or agents provide a service instead of a product. An agent's clients maintain control and ownership of the product that is on the market. The clients may take advice from an agent or broker regarding pricing and product attributes. For instance, a real estate agent may recommend a list price for a home, but it is up to the seller to decide whether to sell.

Middlemen assume market risk that buyers and sellers may not be willing to do. A middleman takes on inventory in hopes that it will eventually sell. Knowledge of sales trends makes it easier for a middleman to gauge an estimate of how much inventory to carry. In a similar fashion, an agent assumes the cost of marketing a client's product to potential buyers. The agent may not sell the product, which is a risk of his time and resources.