1.0 INTRODUCTION
Let us eliminate the middlemen because middlemen make all the “profits”,
are cries that have been echoed by consumers, business people and legislators
over the years. These complaints are most
often focused on middlemen
(wholesalers and retailers). However, middlemen have been powerful figures in
marketing finished products and/or services. Over the years, some manufacturers
have made attempts to eliminate some of these middlemen, most especially
wholesalers, from their trade channels; yet, wholesaling middlemen continue to
be important and in many cases, dominate the distribution system.
Most manufacturing companies in Nigeria are small in nature and specialize
in all kinds of production. They lack the capital needed to maintain a sales
force large enough to contact their target customers. Even for manufacturers
who have sufficient capital, the end benefits are too small to justify the
necessary sales force costs. Besides, most of these target consumers are in
small number groups, with limited knowledge of the market and the suppliers.
Thus, middlemen bridge these gaps by selling in quantities needed and locating
their wares close to these target customers. This note is designed to appraise
the role of middlemen in a marketing economy and to explain various types of middlemen.
2.0 OBJECTIVES
At the end of this note, you should be able to:
·
explain who is a middleman
·
list types of middlemen
·
appraise the role of middlemen in marketing activities.
3.0 MAIN CONTENT
3.1 The Role of Middlemen in the Marketing of Goods Middlemen are very
important in many cases, in fact, in virtually all cases where consumers are
involved. Usually, it is simple but not practical for a producer to deal
directly with ultimate consumers. For example, think for a moment how
inconvenient it would be if there were no retail middlemen – no drug stores,
newspaper/vendors, supermarkets or fuel stations, hawkers, etc
There is an old saying in marketing that you can eliminate the middlemen,
but not their functions. Wholesalers are those merchants who act as
intermediaries between the primary producers, manufacturers or importers, on
one side, and retailers or industrial consumers on the other. They buy goods
and commodities in large quantities with a view to selling them to retailers in
smaller quantities. They assemble merchandise from many sources warehouses and
regroup the goods for convenient buying by end users. Thus, wholesalers make it
possible for the manufacturers to sell to a large number of retailers to whom
the merchandise cannot be easily sold directly from the factory. The wholesalers
perform the following functions of marketing:
Assembling – The wholesalers collect varieties of products from different
manufacturers and keep them in store for sale to the retailers at the time they
need them.
Dispersion – The products assembled and stocked by the wholesalers are
supplied to the retailers who may be widely scattered.
Warehousing – The goods purchased by the wholesalers from the manufacturers
and producers have to be stocked in warehouses pending their sale to the
retailers. The arrangement for such storage is the responsibility of the
wholesalers.
Transportation – The wholesalers have to move the goods from the various
factories to their own warehouses and from there to the retailers’ stores.
Financing – The wholesalers in most cases sell goods on credit to the
retailers.
Risk Assuming – Wholesalers assume risks arising out of the changes in prices
and demand and as well as losses due to spoilage or destruction of goods in
their warehouses and while in transit.
Grading and Packaging – Wholesalers have to sort out different grades of products
according to quality and other considerations and package the goods into
smaller lots for retailers.
Services provided to the manufacturers by wholesalers include:
The Manufacturers Get the Benefit of Bulk Orders from Wholesalers. Manufacturers need
not take the trouble or incur the expenses of procuring large numbers of small
orders.
Wholesalers Provide Up-to-Date Information for Future Planning. Wholesalers remain
in close touch with the retailers and keep themselves informed about the
changes in the direction and pattern of demand and thus help the manufacturers
in planning their production.
Wholesalers Place Bulk Orders. The wholesalers place bulk orders with
the manufacturer and thus enable him to concentrate on production.
Wholesalers Relieve the Manufacturers: The manufacturers are
relieved of worries by wholesalers through performance of most marketing
functions as discussed in note one.
3.1.1 Classes of Wholesalers
1.
Merchants Wholesalers: Independently owned businesses that take title to the
merchandise they handled. In different trades, they are called different names,
such as Jobbers, distributors or mill supply houses. They fall into two
categories: Full-service Wholesalers and Limited-service Wholesalers.
2.
Full-Service Wholesalers: Provide a full line of services: carrying
stocks, maintaining a sales force, offering credit, making deliveries, and providing management
assistance. There are two types of full-service wholesalers: wholesale
merchants and industrial distributors.
3.
Limited-Service Wholesalers: Offer fewer services to their suppliers
and customers than full-service wholesalers. Limited service wholesalers are of
several types: cash and carry wholesalers, truck wholesalers, drop shippers,
rack jobbers, producers’ cooperatives, and mail-order wholesalers. It should be
noted that there are several other types of wholesalers which you can research
on at your convenience.
3.1.2 Retailers Retailing includes all the marketing activities carried out by the
retailers, aimed to satisfy the consumers’ demands while making profits. This involves
selling of goods or services directly to final consumers for their personal and
business uses.
A retailer is defined as a middleman who sells mainly to the
ultimate consumer. He may sell to institutions but most of his sales are made to
industrial or household consumers. He usually sells in small lots.
The retailer is the last link and the most important intermediary
in the chain of distribution. Mass production in the present day set-up is geared
to the requirements of the ultimate consumers. Retailers are directly and
ultimately in touch with the ultimate consumers and thus occupy a strategic
position in the whole chain of distribution. The basic features of retail
trading are the purchase of goods from wholesalers and selling in small lots to
consumers.
The retail shops especially in Nigeria are one of the oldest and
most widely used business establishments in a country. Retail business originated
through the use of peddlers engaged in house to house sales. This was followed
by opening up of small retail shops usually owned by sole proprietors or small
partnership firms, which are frequented by customers for obtaining their
requirements. Examples of these retailers are those small business owners
located at our house-step premises. These include Mama Iyabo’s Retail Store,
Alhaji Bala’s Retail Store, Mr. Okoro’s Spare Parts Store, etc. 41
FUNCTIONS OF RETAILERS
The following are some of the functions of retailers:
·
Estimation of the probable demands of the consumers for various types
of goods dealt with.
·
Assembling of various types of goods from different wholesalers.
·
Sale of various kinds of products to the consumers as and when needed
by target consumers.
·
Physical movement of goods from the wholesaler’s warehouses to
their own stores.
·
Storage of goods to maintain uninterrupted supply of goods to the consumers.
·
Assumption of risk of loss of goods by fire, theft, deterioration,
etc. as long as they are not disposed of to the consumers.
·
Extension of credit to some selected regular customers.
·
Providing information about consumer tastes and preferences to wholesalers/manufacturers.
TYPES OF RETAILERS There is a wide variety of retail trading establishments. They
vary from hawkers and peddlers to big departmental stores. Hawkers and peddlers
move from door-to-door or to residential houses to sell their goods. Pavement
shops usually arrange their wares at busy street corners or busy streets as
found in all the streets in Lagos, Kano, Kaduna, Aba, etc. Some traders sell
their wares at weekly markets as applies to the rural markets in our communities
in Nigeria. Our discussion will be limited to some selected retail stores,
namely:
(i) Specialty Stores: Carry a narrow product line with a
deep assortment with limited line: apparel stores, sporting-goods stores,
furniture stores, florists and bookstores. Specialty stores can be
sub-classified by the degree of narrowness in their product line. A clothing
store would be a single-line store; a men’s clothing store would be a
limited-line store; and a men’s custom shirt would be a super specialty store,
etc.
(ii) Department Stores: Carry
several product lines – typically clothing, home furnishing, and household
goods with each line operated as a separate department managed by specialist sellers
or merchandisers.
(iii) Supermarkets: Relatively large, low-cost, low-margin, high volume, self-service
operations designed to serve the consumer’s total needs for food, laundry, and
household maintenance products. Supermarkets earn an operating profit of only
about 1% on their sales and 10% on their net worth. Despite strong competition
from new and innovative competitors like superstores and discount stores,
supermarkets remain the most frequently shopped type of retail store, by
average Nigerians, especially among the bankers, oil workers, politicians, etc.
(iv) Convenience Stores: Relatively small stores that are located near residential areas,
open long hours, seven days a week, and carry a limited line of high-turnover
convenience products. Their long hours and their accessibility by consumers
mainly for fill-in purchases make them relatively high-price operators.
(v) Catalogue-Showrooms:
Sell a broad selection of high-mark-up, fast-moving, brand-name goods at
discount prices. These include jewellery, power-tools, cameras, suitcases,
small appliances, toys, and sporting goods. Customers order the goods through a
catalogue or visit the showrooms, pick these goods as and when visiting such
stores. Catalogue showrooms make their money by cutting costs and margins to
provide low prices that will attract a higher volume of sales.
(vi) Cooperative Stores: Consumers sometimes come together to form cooperative societies to
sell goods on retail basis. The basic purpose is to eliminate middlemen and obtain
their requirements at lower prices. The capital is subscribed by the members through
the purchase of shares of small denominations. Cooperative stores purchase
their requirements in bulk from manufacturers or wholesalers, thus enabling the
cooperative stores to sell their products at lower prices than the ordinary retailers.
It should be noted that there are other types of retail outlets as well. .
ADVANTAGES
(1) Consumers can be sure of the quality of goods in the sense
that there is no possibility of adulteration practiced by some retailers in the
private sector.
(2) These stores are able to offer various products at more
reasonable prices than most other retailers.
(3) Consumers are assured of availability of certain products even
when there is an overall shortage in the market and also at reasonable prices.
WEAKNESSES
(1) Consumers do not patronize these stores regularly.
(2) Large cooperative stores tend to suffer from all the drawbacks
of bureaucratic management.
Brokers A broker brings buyers and sellers together and assists in
negotiation. Brokers are paid by the parties hiring them. They do not carry inventory,
yet involved in financing or assume risk. The most familiar examples are food
brokers, real estate brokers, insurance brokers and security brokers. It should
be noted that brokers’ main function is to aid in buying and selling, and for
these services they earn a commission on the selling price. A broker is an
intermediary whose function is only to establish a link between the
manufacturer and customer.
Agents Agents represent buyers or sellers on a more permanent basis.
There are several types, for example, manufacturers’ agents which are the most common
type of agent wholesaler. They represent two or more manufacturers of related
lines. They usually have a formal agreement with manufacturers: covering
prices, territories, order-handling procedures, delivery and warranties and
commission rates. They know each manufacturer’s product line and use their wide
contacts to sell the products. Most manufacturers’ agents are small entities,
with only a few employees who are skilled salespeople. They are hired by small producers
who want to open new territories or sell in areas that cannot support full-time
salespersons. Apart from the manufacturer’s agent, there are other types
namely: selling agents, purchasing agents, commission merchants, etc.
4.0 CONCLUSION
Blood is vital in the
life of a man, so also middlemen are inevitable in any economy, most especially
in developing countries like Nigeria where technologies for facilitating buying
and selling of goods/services are still low. The existence of middlemen in the
distribution channels creates and actualizes choices of consumers. Even though
they are sometimes criticized as creating artificial scarcity, convenience and
time saving created for consumers are issues to be reckoned with.
5.0 SUMMARY
With an understanding
of the retailing and wholesaling institutional structures as a foundation,
marketing executives are in a position to design and manage distribution
channel systems for their companies. In this note, you learnt who middlemen
are, their roles in marketing of goods/services, types of middlemen and their
functions. 
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