Why Intermediaries Are Necessary

Why would a manufacturer be willing to shift part of the sales burden to intermediaries? After all, this means partially losing control over how and to whom the product is sold. Nevertheless, manufacturers believe that using intermediaries brings certain benefits. This is what we’ll discuss here.

 

Many manufacturers lack the financial resources for direct marketing. For example, General Motors sells its cars through 18,000 independent dealers. Even such a large corporation would find it difficult to buy out all of these dealerships. One such dealership successfully operates in the Kirov region.

To make direct marketing efficient for mass distribution, many manufacturers would have to become intermediaries for other producers' goods. For instance, Wrigley would find it impractical to open small chewing gum shops across the country, or sell its gum door-to-door, or through mail orders. It would have to sell the gum alongside various small products, eventually turning into a chain of convenience stores or grocery shops. So, the company believes it’s far easier to work through a vast network of independent distributors.

 

Even if a manufacturer can afford to create its own distribution channels, in many cases it will earn more by investing in its core business. If manufacturing yields a 20% return, and retail provides only 10%, the company will not want to deal with retailing on its own.

The use of intermediaries is mainly justified by their unmatched efficiency in ensuring product availability and reaching target markets. Thanks to their contacts, experience, specialization, and scale of operation, intermediaries can offer the firm more than it could usually achieve alone.

 

Kirov, Andrey Somov