cHANNEL iNSTITUTIONS

1. UNIT V
CHANNEL INSTITUTION
ADVOCATE SUMAN DHUNGANA
LECTURER, SOUTHWESTERN BUSINESS COLLEGE

2. MIDDLEMEN
• A distribution channel is the network of businesses or intermediaries through which a good or service
passes until it reaches the end consumer.
• Middlemen refers to, such institutions or business concerns situated in the marketing channels at points
between the producer and the final buyers.
• An intermediary, agent between two (or more) parties. An intermediate dealer between the manufacturer
and the retailer or customer.
• A middleman, or intermediary, will facilitate interaction between parties, typically for a commission or
fee.
• In the supply chain, an intermediary may represent a distributor who purchases goods from the
manufacturer and sells them to a retailer, often at an increased price. Salespeople are often considered
middle-people, such as real estate agents who match homebuyers with sellers.
• Certain industries, either by policy, infrastructure, or mandate, include an intermediate layer of business.
• For example, automobile makers typically do not sell vehicles directly to consumers. Instead, their
products are sold through auto dealers, which may include various accessories, options, and upgrades
to upsell cars at a higher premium. Auto dealerships try to sell pricier versions of cars in order to turn a
greater profit for themselves, as a large portion of the sales revenue goes back to the manufacturer.

3. • In certain states, the sale of alcoholic beverages may be structured to require retailers, bars, and
restaurants to purchase products through a liquor distributor. Under such policies, a winery
cannot sell its products directly to retailers, thus making a middleman essential.
• Such constraints may also extend to the sale and shipment of their products from one state to
another. Some states allow the sale and shipment of products such as wine directly to the
consumer through online purchases, thus eliminating the layers of middlemen while other states
prohibit this practice.
• According to American Marketing Association, “ A middlemen is one who specializes in
performing operations or rendering services that are directly involved in the purchase and sale of
goods in the process of their flow from the producer to the final consumer.”

4. FUNCTIONS OF MIDDLEMEN
• Middlemen’s functions are known as marketing functions. The marketing functions are the
functions of exchange, functions of physical supply and facilitating functions.
The functions of middlemen are:
• The middlemen are the connecting link between the sellers and buyers. They help the sellers and
buyers to enter into a contract of sale or purchase.
• They direct the flow of goods from the producer to the ultimate consumer.
• Merchant middlemen perform the function of merchandising by making the goods fit for the
market segmentation.
• Middlemen is responsible for the flow of goods.
• Large scale production is possible with the help of middlemen. They collect huge orders and large
purchases of products lead to large scale production.

5. CLASSIFICATION OF MIDDLEMEN
• There are two types of middlemen in distribution.
• They are
I) Agent middlemen.
II) Merchant middleman

6. KINDS OF AGENT MIDDLEMEN
1. Commission Agent
2. Broker
3. Manufacturer’s Agent
4. Selling Agent

7. 1. Broker:
• A broker is an agent.
• He represents the buyer or the seller in negotiating purchases or sales without having physical control
over the goods involved.
• His main service is to bring the buyer and the seller together. He is the agent of the owner of goods,
seeking a buyer other than the agent of a buyer who is seeking for supply.
1. Commission Agent:
• Commission agent is an agent – individual, firms or even companies.
• It negotiates the sales of goods belonging to the principal.
• It customarily exercises physical control over the sale of goods. It has the power on price, and terms of
sale under the condition that it must obey the instructions of the principals

8. 1. Manufacturer’s Agent:
• Manufacturer’s agents are employed by the manufacturers to sell their products. The agent
receives a percentage of commission based on his sales. He uses his techniques.
• He employs his sales representatives, who work for him. Selling is his main function. This type of
middlemen are important in the marketing of industrial goods.
1. Selling Agents:
• Selling agent is an independent middlemen. He operates on a contractual basis. He negotiates all
sales of a specified line of merchandise or the entire output of its principal.
• He has authority over the price, terms and other conditions of sale. He is the sole selling agent for
the line

9. MERCHANT MIDDLEMEN
• Merchant middlemen buy and sell goods on their own account and risk. They take the title
to goods. They resell the goods at profit. They are of wholesalers and retailers.
FUNCTIONS OF MERCHANT MIDDLEMEN
• They are the connecting link between the producers and consumers and goods are supplied
where they are in demand.
• They match the demand with production.
• They perform the important functions of advertisement, display etc.
• They know the purchasing powers of customers and by informing the producers, fix
reasonable price.
• They offer too many communications between producers and customers.

10. WHOLESALER
• A wholesaler is a businessman who specializes in performing wholesale activities.
The word wholesaler means to market goods in relatively large quantities.
• Wholesaling is defined as purchasing goods directly from the manufacturer at a
discount and then selling it to retailers for a comparatively higher price.
• Following this, they package such goods in small quantities as per the
requirements and then sell them. Here, the goods are bought in large quantities
from the manufacturer; hence wholesalers can provide some discounts to
retailers too. The final cost of doing business for the product is determined by the
retailer’s final price.

11. • These groups of people are not manufacturers. They are just middle agents in
the supply chain who buy bulk quantities of goods from manufacturers and
undergo distribution to their respective retailers.
• Wholesalers may provide discounts to the retailers if they buy goods in quantity.
These people, in turn, sell these goods directly to the consumer.
• In the banking domain, this term is the cluster of financial services provided to
financial institutions in place of individual customers.

12. • There are specific places where both wholesalers and customers gather for transactions for some
goods like certain edible items.
• Many wholesalers provide their services in national as well as international markets, directly to
businesses.
• They provide their services in the form of financial solutions for a large pool of financial clients.
• Wholesaling revolves around a concept in which an intermediate stage comes into play in between
the manufacturer of a product or service and its final distribution or delivery to an end-user via
different retail trade channels.
• According to American Marketing Association,” Wholesalers buy and resell merchandise to retailers
and other merchants and to industrial institutions, and commercial users, but do not sell in
significant amounts to ultimate consumers.”

13. FUNCTIONS OF THE WHOLESALERS
1. Buying and Assembling: The wholesalers procures varieties of goods from various producers
regularly and preserves them in his shop for resale.
2. Warehousing: The wholesaler stores goods in large quantities in his own or hired warehouses.
This ensures uninterrupted supply of goods to the retailers.
3. Transporting: Transportation involves the bringing of goods from the plant door to his godown
and also from his godown to the retailer’s shop.
4. Financing: He offers financial assistance to the retailers through extension of credit facilities.
On the other hands, he buys from the manufacturers for cash or for relatively shorter period of
credit.
5. Risk bearing: Since he acquires the title over the goods in which he deals, he assumes the risk
arising out of changes in demand, spoilage and deterioration in quality of the goods kept in
his godown.

14. LIMITATIONS OF THE WHOLESALERS
• Wholesaling goods of is selling goods in large quantities at lower prices so that others can mark
up the good's price and sell it for retail.
• Depending on business goals and needs, you may want to engage in wholesaling, however it's
important to bear in mind that this sales strategy does carry some distinct disadvantages like
A) Limited Quantity
• Wholesale contracts often come attached with a minimum quantity that must be purchased or
the order will not be fulfilled.
• For example, a clothing company may dictate that a retailer must purchase a minimum of 100
pairs of jeans at a time or else they face paying a higher price per item, thus reducing the overall
profit margin that can be obtained through retail sales.

15. B) Higher Production Levels
• Wholesaling goods also requires manufacturers to increase their output and production levels.
• For unprepared companies, this can come at a high cost that sinks the company into debt.
• Higher production levels typically require more money to be spent across the board on staff, raw
materials, capital expenditures and delivery.
c) Production Consistency
• As wholesaling scales up and wholesalers take on more customers, there is an increasing need for
production consistency.
• Ensuring quality when producing any type of good can contribute to increased production costs.
• It's important that wholesalers be able to maintain a consistent quality and quantity when working
with their customers otherwise the customers may grow impatient.

16. D) Pricing
• While wholesaling can offer lower prices to customers who are buying in bulk, the
company who is producing the goods may not be able to obtain profit margins
that are equal or greater than the margins seen by selling the goods individually
or in a retail environment.
• For example, some companies such as Apple Computer create their own line of
retail stores and ship directly to them, cutting out some of the wholesale
contracts that it may normally carry with retailers.
•

17. CLASSIFICATION OF WHOLESALERS
1) Merchant Wholesalers
• These are the most common type of wholesalers used in the FMCG industry, agriculture industry or
Private label industry. Quite simply, Merchant wholesalers are the ones who buy directly from the
manufacturer, store the product and then sell it to the customer. They might sell in any channel and
they are not restricted to selling to retail only or to online only.
• If there is any loss between the buying and selling of the product, it must be borne by the merchant
wholesaler.
Example – A vegetable wholesaler buys produce directly from the farm and stocks it at his own
warehouse. He then sells these products to the local retail outlets or even to end customers. He may also
sell to restaurants. However, any loss of the produce due to spillage or any other reason is a cost to the
merchant wholesalers.
• These wholesalers have a greater control in the region they operate. They benefit because they buy in
bulk from the company and take charge of the risk they are facing. Plus, they are responsible for the
sales targets, however, they achieve it.

18. 2) Full-service Wholesalers – Retail Wholesalers
• They are most commonly observed in Consumer Durables or Engineering products. The full-service
type of wholesalers is, as the name suggests, giving full service to the end retailer. These
wholesalers mainly operate in the retail market and sell products to a reseller (a retailer in this case)
Everything except service of the product is the responsibility of the full-service wholesaler.
• Example – Samsung wants to expand its operation in region A but it does not have a sales office in
that region. So it appoints a distributor in region A. This distributor is solely responsible for order
picking, delivery, training sales associates, promotions and everything for the Samsung brand. He is
now a full-service wholesaler. However, for service of the product, there is a different service
franchise opened in the same region.
• In real life scenario, Many full-service wholesalers also start a second services related business and
start giving services for the products they are wholesaling. Example – A Samsung wholesaler also
starting a service center of Samsung.
• As a result, they might get both – sales and service orders. However, for theoretical purposes,
Servicing and maintenance of the product is not a part of a full-service wholesaler. He is mainly for
sales, deliveries, and financing. These are the second most common types of wholesalers in the
market.

19. 3) Limited Service Wholesalers
• A limited service wholesaler is someone who stocks the products of the company and sells it in
a limited channel. He does not have a large turnover or does not cover all channels of the
company.
• Example – Company X wants to sell its products online but it knows that if it allows local
distributors to sell online, there will be a huge price war. As a result, Company X appoints an
exclusive online wholesaler. This online wholesaler has only one job – To purchase the product
and stock it and sell it online. So whenever an order comes from Amazon or eBay, this
wholesaler gives the machine to Amazon or eBay. That’s his only job.
• The same way – there are other limited-service wholesalers. 2 are mentioned below.
• Cash and Carry wholesalers – Strong FMCG products are sold as cash and carry. Immediate
payment is demanded on a delivery of material.
• Logistics wholesalers – A milk wholesaler who delivers whole trucks of milk across the market.
His only work is to deliver the milk and not to get orders for the company.

20. 4) Brokers and Agents
• Most commonly observed in the real estate industry or in the chemical markets. A broker assumes
no risk. He has the producer or the manufacturer on one side and he has the buyer on the other
side. The work of the broker is to get the deal done and he gets a commission on the deal.
• Example – A small lab has regular requirement of litmus paper. There is a litmus paper wholesaler in
in their area who is a broker for several companies and who arranges any lab material in bulk. The
lab approaches the broker and wants to purchase huge quantity. The broker then talks to multiple
manufacturers and finally, a deal is struck with one manufacturer. The manufacturer pays 2%
commission to the broker for his work and for bringing the enquiry. Similarly, this broker can pick
an order of Beakers, Petri dishes or any other equipment. He will keep arranging meetings with the
right supplier and keep earning commissions.
• A similar example like above is also observed in the retail industry wherein the broker earns a
commission to sell an apartment.
• The difference between a broker and agent is that a Broker is short-term and he will be there for a
couple of orders. However, an Agent is long-term and specialized in repeated purchase so that he
stays for a longer time with the company and specifically works for the betterment of the company.
Example – Insurance has Agents (repeated buying) whereas real estate has brokers (single buying)

21. • 5) Branches and mini offices
• Although branches and mini offices do not come in the various types of wholesalers,
these are common ways for companies to start selling their products in a region they
are targeting. A branch can also be called a type of wholesaling wherein the branch
directly picks the orders from the end customers in bulk and ensures the supply and
reorders from the customer.
• Example – Paper company like B2B or 3M knows that large companies require a lot of
print paper across the month. These companies then establish branch offices which
also act as the sales office. They pick a bulk order of paper and the company might
transport the complete order from their warehouse to the company.

22. 6) Specialized wholesalers
• These are wholesalers who do wholesale of specialized items only. Example – A used
car wholesaler who sells directly to customers or to other used car dealers. He is
specialized in used cars and knows the ins and outs of selling a used car to consumers
or refurbishing the used cars.
• Similarly, there are other specialized wholesalers who are known for the specific
product that they sell.
• The above were the various types of wholesalers in the market. As E-commerce rises in
sales, there is a lesser requirement of Wholesalers in developing economies. However,
emerging markets still use various types of wholesalers to their advantage

23. RETAILERS
• The word retailer is derived from a French word retailen which mean “to cut again.”
• A retailer is a company that buys products from a manufacturer or wholesaler and sells them to end
users or customers. In a sense, a retailer is an intermediary or middleman that customers use to get
products from the manufacturers.
• According to Cundiff and Still, “ a retailer is a merchant or occasionally an agent whose main
business is selling directly to the ultimate consumer.”
• Retailers are experts in marketing, sales, merchandise inventory, and knowing their customers. They
purchase the goods from the manufacturers at cost and market them to consumers at retail prices.
The retail price can be anywhere from 10 percent to 50 percent higher than the manufacturer cost
• Retailers offer a wide variety of goods and are in direct communication with a large chain of
suppliers, giving them an opportunity to manufacture and develop more sustainable goods
• A retailer does not manufacture any product they sell, but they are the final link in the distribution
chain and the one who connects and delivers the goods and services directly to the customers.

24. • Creates a high annual sale and has a huge impact on the economy.
• Creates employment and offers wide varieties of career opportunity.
• Offers widespread categories of products and services.
• Retail service can improve a product’s image.
• Spread information to customers through display, signs, and sales personnel.

25. IMPORTANCE OF RETAILER
i. Provide Assortments- Supermarkets or small Kirana shops sell different product items
manufactured by different companies. These places enable and give choices to customers to
pick from a vast assortment of goods, sizes, brands, and prices at one location.
ii. Breaking Bulk Orders- Manufacturers and wholesalers sell the products in bulk to the retailers.
The retailers then sell it to the customers in smaller and more useful quantities. This activity of
breaking bulk order into tiny amount according to customer’s requirement is known as breaking
bulk.
iii. Holding Inventory- The significant action accomplished by the retailer is maintaining an
inventory, so the items are available whenever the customers want. This action allows the
customer to buy products in a small quantity as required.
iv. Providing Services- Retailers implement services that make customers shopping journey
favourable. Example, retailers showcase all the products so that the customers can see and buy
them. Retail store’s employee salesperson to assist the customers.

26. In short ,
a. retailer is an intermediary in the marketing channel of distribution.
b. Both a marketer and consumer.
c. Specialist is selling the goods to the ultimate consumer.
d. Retailers create place, time and possession utilities.
e. Supplies the needed goods from the place of production to the place where it is
demanded.
f. Sells the goods at a reasonable price at the time when the customers want the goods.

27. FUNCTIONS OF RETAILERS
• Provide personal services to all.
• Provide two way information.
• Facilitate standardization and grading.
• Undertake physical movement and storage of goods.
• Assemble goods from various sources.

28. SERVICES OF THE RETAILER
• The primary job of a retailer is to assemble different varieties of goods from various
wholesalers.
• A retailer helps in the physical flow of the goods from the producer to the consumer. The
retailer satisfies the daily wants of the people by creating place utility.
• He provides the availability of many varieties of goods from many manufacturers. He
provide varieties of choice enabling the consumers to select the commodities easily.
• A retailer attracts consumer’s attention to new goods and their arrival by personal
salesmanship. He brings new products and new varieties to the knowledge of consumers.
• The retailer gives advice and guidance to the consumers regarding the purchase of
goods. It is essential for him to establish permanent and continuous relationship with
consumers.

29. CLASSIFICATION OF A RETAILER
• A retailer is the last step of the supply chain.
• It is where consumers go to obtain goods and services.
• Without retailers, consumers cannot get what they want, where they want it, and when
they want it.
• To best meet consumers’ needs, there are many types of retail formats, reflecting
different scopes and strategies.
a) On the basis of ownership
b) On the basis of Strategy
c) On the basis of Non store business

30. ON THE BASIS OF OWNERSHIP
• One way to categorize retailers is by their ownership structure. There are five primary ownership
types within the retail industry:
1. Corporate chain
2. Independent
3. Wholesaler
4. Franchise
5. Co-op
• There is a sixth structure, authorized dealerships, but they are not generally present in food
retailing. Instead, they are more frequently seen in home or durable goods, e.g. Hunter-Douglas,
Pella Windows, Harley-Davidson, and so on.

31. • 1. Corporate chain
• Corporate chains generally have multiple stores, central ownership, and consistent
standards for execution. Some national chains have multiple regional banners under
which they operate their stores.
• For example, BhatBhateni , Big Mart
• Corporate chains benefit from operating on a large scale, which allows them to
standardize their operations in buying, advertising, and promoting.
• Because of this standardization, they typically offer lower prices than independents do,
although that ability is fully dependent upon their individual strategies.

32. 2. Independent store
• As the name implies, independent stores are independently owned and operated. Owners
may have multiple stores and operate similarly, but they do not benefit from the significant
scale. Because of their size, independent stores buy product through wholesalers, which
apply an upcharge (typically 6%) for warehousing and handling product.
• This means that independent stores are buying their goods at slightly higher costs than
corporate chains get with direct buying. Thus, independent stores are not generally able to
compete with lower prices. Instead, they may market themselves as “local,” advertising their
their place in the community and customizing their product assortment to reflect local
tastes, brands, or customs.

33. 3. Wholesaler
• As noted above, wholesalers are product distributors focused primarily on supply chain
and logistics. However, some wholesalers also own stores and/or license their store brands
to independent stores as part of franchise agreements. Those agreements often include
clauses saying that the wholesaler will be the exclusive supplier of the independent store.
SuperValu Inc. is a prime example of this type of agreement, as they have corporate stores
and serve franchised stores under several names, including Cub and Shoppers.
• Wholesalers purchase product directly from manufacturers and growers. They re-sell this
product to independent grocers, adding an upcharge for warehousing and shipping.
Typically, the upcharge is 6%. Wholesalers may also coordinate some advertising and
promotion for their customers in an effort to encourage more purchases by independent
stores. However, wholesalers are far less efficient than corporate chains because they
cannot set pricing or require participation.

34. 4. Franchise
• To the consumer, a franchise may look like a corporate chain, as the marketing and
available products is usually consistent between franchise stores. The key difference is
that while corporate chains are centrally owned, franchise stores are owned by
individual business owners who have contracted with a larger company. In exchange
for paying a royalty fee for the larger company’s trademark, training fees, and a
percentage of sales, a franchise owner can run a store under a larger company’s brand,
thus tapping into that company’s customer base. This model is particularly common
for large restaurant companies—for example, most Subway and McDonald’s stores are
franchises. Convenience stores often also follow this model. Popular convenience store
store franchises include 7-Eleven and Casey’s General Store.

35. 5. Co-op
• Co-ops occur when several independent retailers join together to consolidate their purchases. This
increases their buying power and might result in lower costs from manufacturers and growers.
Typically, each member of the co-op has an equal voting right, regardless of the number of stores they
own or the size of their business. Co-op members may also work together to purchase advertising and
store infrastructure like shelving or software. Wakefern, which operates Shop-Rite stores in New Jersey,
is a notable co-op.
• Some exceptions to the above ownership structure exist. For example, the IGA, formerly the
Independent Grocers Alliance, blurs many of the above distinctions. Like a wholesaler, IGA provides a
logistical network to support distribution and the supply chain to independently owned franchise
stores under the IGA brand.
• Regardless of whether a retailer is a corporate chain, independent store, wholesaler, franchisee, or co-
op, the important thing to know is that the ownership structure creates real opportunities and real
constraints on the store, affecting how it competes. For example, corporate chains have scale, which
allows them to standardize their operations and offer lower prices. However, they do not typically have
have the same level of service or connection to the local community that independent grocers enjoy.
And, co-ops, while working together to reduce their Cost of Goods (COGs) have agreements that give
each business a single vote, so members of the co-op with multiple stores are under-represented,
reducing their influence and flexibility.

36. THANK YOU !!!!