Industrial distribution is unique as there are several different methods of channeling the products and services to industrial consumers. The type of product, the selling price of the product and technical knowledge required to sell the product all play a considerable role in selecting the proper sales or distribution channel. Unlike consumer organizations, the decisions taken by the industrial organizations on distribution channels is of great significance as the decisions involved are of long-term nature that cannot be changed frequently. The industrial organizations carry on certain important functions till the products reach the consumers like utilizing the services of transportation companies for distribution, the services of warehouses for safe storage of goods, inventory control, order processing and selection of marketing channels. This necessitate taking important decisions like devising effective communication tools, planning promotional activities, managing finances etc that help in serving the consumers better.
- Size: Unlike consumer markets, the industrial markets tend to have fewer channels of distribution. Even the industrial channel is shorter in size as organizational buyers expect immediate product availability, technical expertise and prompt after-sales service. This indirectly demands investment in training and physical facilities for the industrial organizations.
- Geographical Distribution: The industrial distributors are concentrated highly in the industrial markets they serve and certain other places that have large number of industries like large towns and cities.
- Mixed channels: A combination of direct and indirect channels is used by some industrial marketers to cater to different market segments or when they have some resource constraints. To cater to large-volume customers, industrial firms generally use their own sales force, and to cover small scale organizations, they use independent distributors. In case of large geographical territories, due to resource constraints they use their agents called as ‘manufacturers representatives’.
- Intermediary characters: The intermediaries involved in industrial marketing are technically qualified who maintain very close relationship with industrial organizations. Industrial manufacturers tend to depend more heavily on each member of the channel and may do more to support that channel member. Industrial distributors, brokers and agents are some types of intermediaries used by industrial marketers to reach customers.
Types of Industrial Middlemen
The industrial middlemen are the intermediaries used by the manufacturers to deliver their products to the end users. They are categorized based on the number and the extent to which they specialize in the performance of certain functions. Different types of industrial middlemen are manufacturers representatives (also called agents), brokers, commission merchants, industrial dealers or distributors, value-added resellers (VARs), jobbers and drop shippers.
- Brokers: Brokers are the middlemen who represent either the buyer or the seller. They help the manufacturer to find potential buyers and vice versa and take the commission when sales process is complete.
- Manufacturers Representatives: The manufacturers’ representatives (sales agents or manufacturers agents) are very commonly seen middlemen who secure orders from existing and potential customers. They provide relevant information on market conditions to the manufacturers as well as customers. They are paid a certain amount of pre-specified commission on sales and other tasks performed to make the sales. Generally small and medium-sized industrial firms use the services of agents in territories with low market potential. Agents are cost-effective for them because commission is paid as per the orders generated. The agents particularly have good knowledge about the product, their target market apart from excellent contacts with the buyers.
- Commission Merchants: They deal with large quantities of items like raw materials. They are paid commission by the manufacturers when they perform certain functions. Their general functions include getting the raw materials inspected, negotiating during sales and finally close the sales. They receive the commission based on the net sales value as is compensated to agents and brokers.
- Industrial Distributors: Industrial distributors are the important and most preferred middlemen that are typically small and independent serving narrow geographic markets. They perform functions like buying, transportation and warehousing, promotion and selling, and offering credit. Because of such varied functions, they are sometimes referred to as full function intermediaries. They are offered trade discounts on the price list of the products as their compensation. Industrial distributors are categorized as general line distributors or mill supplies houses that stock wide variety of products and sell to a diversified group of customers. They are referred to as the supermarkets of industry. The products stocked by them include maintenance repair and operating (MRO) supplies, original equipment manufacturer (OEM) supplies, and equipment used in the operation of a business, such as hand tools, power tools and conveyors etc. The second type of distributors known as specialized distributors specializes in products they handle or customers they serve. Because of increase in specialized markets, their numbers are increasing. Specialized distributors limit their inventories to specific product range like bearings, office equipment and supplies, electrical equipment and supplies, or abrasives etc. The third category called the combination house sell directly to industrial customers as well as some other retailers or dealers.
- Value-added Resellers (VARs): They add some value or feature to an existing product and sell to end-users as a new package. This is found often in the computer industry, where a company purchases computer components and builds a fully operational personal computer. By doing this, the company has added value above the cost of the individual computer components. Customers would purchase a computer from the reseller to either save time or if they do not have the skills to build a unit themselves.
- Drop Shippers: When an online marketer has certain concerns like where to get the goods from, where to store them until they are sold, and what amount to charge for shipping the goods to the customers, then drop shippers come to the rescue of such marketers who work with merchants to move the products. Drop Shipping is generally used by web site owners, shop owners and mail order firms who do not stock inventory of the products sold for future delivery through mail order, catalog and internet advertising. Middlemen send single unit orders for products to manufacturers, or major stocking distributors, who in turn drop ship the merchandise direct to the customers of the middlemen. Manufacturers providing drop shipping services can gain additional sales, shift advertising costs to middlemen, offer advertising material and reduce inventory requirements. Middlemen who initiate drop ship orders shift the risks of stocking inventory to the supply source, including storage, insurance, overhead, and personnel by spending nothing on inventory.
- Jobbers: They get orders from the customers and pass them to the manufacturers. Though they do not handle the goods physically in any form, they take the title to the products they sell. Jobbers specialize in marketing bulky products like coal, iron ore etc, that are transported in huge quantities and do not require assorting or grouping of products.
