Distribution Channels and Intermediary Strategies

Distribution Channels and Intermediaries

A distribution channel consists of the set of intermediaries who get products from their origin or place of production to final consumption. According to the position in the distribution channel, intermediaries can be wholesalers (purchase from manufacturers or other wholesalers to sell to retailers; they do not sell to final consumers and usually sell in large quantities) or retailers (buy from manufacturers or wholesalers to sell to consumers; they are the only ones that sell to final consumers in small quantities).

Channel Types by Number of Intermediaries

Depending on the number of intermediaries, channels can be:

• Long channel: manufacturer → wholesalers/brokers (at least one or more) → retailer → consumer.
• Short channel: manufacturer → an intermediary who is the retailer.
• Direct channel (direct-to-consumer): there are no middlemen; the manufacturer is the distributor (consumidor).

Role of Intermediaries

Role of intermediaries: Intermediaries (including brokers) perform functions that can increase costs, which in turn may raise final prices. Their main functions include:

• Setting supply and demand

  Brokers represent products from different manufacturers and classify them, enabling consumer choice and the sale of products in smaller quantities.

• Logistics

  Brokers and intermediaries transport, store, and preserve the product. Warehousing allows them to maintain regular stocks, avoiding the risk of stockouts (rupture of stocks).

• Sales advocacy and promotion

  Intermediaries act as salespeople: they report on product features and contribute to dissemination and promotion.

• Reduce the number of contacts

  The number of contacts is reduced because the manufacturer only needs to deal with its dealers, not every potential end customer.

• Additional services

  Intermediaries may provide consulting, installation, warranty services and other servicio adicionales (additional services).

Distribution Strategies and Modes

Distribution strategies decide whether distribution is made directly or through intermediaries. When intermediaries are included, the company must decide which mode of distribution to use:

• Exclusive distribution

  Choose a single intermediary per geographic area and grant exclusivity in that territory. This strategy is used to maintain a prestigious image or when the product requires additional services (servicio adicionales).

• Intensive distribution

  Use as many dealers as possible so that the product is available in all outlets. This modality is used for mass consumer products (masivo).

• Selective distribution

  An intermediate option: select a limited number of intermediaries per geographic area to foster strong relationships with chosen distributors. This modality is commonly used for home appliances and IT products.

Note: The inclusion of intermediaries and the chosen mode of distribution affect costs, market coverage, brand image, and the level of service required.