Perreault−McCarthy: Basic
Marketing: A
Global−Managerial
Approach, 14/e- Place and Development
of Channel Systems
Text © The McGraw−Hill
Companies, 2002310 Chapter 11
Middlemen may further reduce a producer’s investment and need for working
capital by buying the producer’s output and carrying it in inventory until it’s sold.
If customers want a good “right now,” there must be an inventory available to make
the sale. And if customers are spread over a large area, it will probably be necessary
to have widespread distribution.Middlemen may reduce credit risk
Some middlemen play a critical role by providing credit to customers at the end
of the channel. This financing function may be very important to small business
customers; it provides their working capital. Even if the producer could afford to
provide credit, a middleman who knows local customers can help reduce credit risks.
As sales via the Internet grow, sellers are looking for faster and better ways to check
the credit ratings of distant customers. It’s an unhappy day when the marketing man-
ager learns that a customer who was shipped goods based on an online order can’t
pay the invoice.
As these examples suggest, there may be a number of reasons why a producer
might want to work with a specific wholesaler or retailer. However, the most
important reason for using an indirect channel of distribution is that an inter-
mediary can often help producers serve customer needs better and at lower cost.
Remember that we discussed this briefly in Chapter 1 (see Exhibit 1-3). Now
we’ll go into more detail so you’ll be able to plan different kinds of distribution
channels.Channel Specialists May Reduce Discrepancies and Separations
The assortment and quantity of products customers want may be different from
the assortment and quantity of products companies produce. Producers are often
located far from their customers and may not know how best to reach them. Cus-
tomers in turn may not know about their choices. Specialists develop to adjust these
discrepancies and separations.^8Specialists often help provide information to bring buyers and sellers together.
For example, most consumers don’t know much about the wide variety of home and
auto insurance policies available from many different insurance companies. A local
independent insurance agent may help them decide which policy, and which insur-
ance company, best fits their needs. In the same vein, a furniture retailer can help
a customer find a producer who has a certain style chair with just the right combi-
nation of fabric and finish.
Middlemen who are close to their customers are often in a better position to
anticipate customer needs and forecast demand more accurately. This information
can help reduce inventory costs in the whole channel—and it may help the pro-
ducer smooth out production.
Most producers seek help from specialists when they first enter international mar-
kets. Specialists can provide crucial information about customer needs and insights
into differences in the marketing environment.Discrepancy of quantitymeans the difference between the quantity of products it
is economical for a producer to make and the quantity final users or consumers nor-
mally want. For example, most manufacturers of golf balls produce large
quantities—perhaps 200,000 to 500,000 in a given time period. The average golfer,
however, wants only a few balls at a time. Adjusting for this discrepancy usually
requires middlemen—wholesalers and retailers.Middlemen may supply
needed information
Discrepancies of
quantity and
assortment