In the years we have published IF View, we have found that there is often confusion as to words used to describe various marketing channels. We hope the definitions below will provide a clearer focus of exactly what various channel members do.
Suppliers of goods and services deliver their offerings to the marketplace through a myriad of channel partners. The structure of these channel partners varies considerably depending on industry, product type, positioning of the supplier and functions provided by channel members. Following are a few examples of the form taken by channel partners.
Glossary of Channel Partners
Agents are individuals or companies who sell products on behalf of a supplier. Agents do not take physical title to the goods they sell and are typically remunerated on a commission basis. Suppliers may legally stipulate the price at which agents sell to their customers. Agents often provide a cost-effective method of supplementing a direct sales force or of penetrating a new market.
Distributors (or wholesalers) by definition are intermediaries who sell products to other channel members who in-turn resell the products. Distributors typically offer broad market coverage and reduce costs for their suppliers by providing regional warehousing and customer services (sales support, credit, etc). However, distributors require low pricing from suppliers to be successful and are more difficult to influence than other channel members. Their added value often focuses on logistical elements – they provide cost-effective coverage that is not obtainable elsewhere.
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Dealers are channel members who purchase products from suppliers for direct resale to end-users. Because suppliers have direct relationships with dealers, they play a stronger role in demand generation than distributors. The number of dealers serving a particular market may be large and it can be costly for suppliers to directly service dealers.
Original Equipment Manufacturers (OEM)
OEMs are channel members who integrate a supplier’s product into a large system or "re-badge" the product for sales through the channels of the OEM. OEMs can be competitors for product sales through the supplier’s other channels. Sales to OEMs provide a lower margin than sales through any other channel; but OEMs can provide extensive market coverage.
Franchisees are independent companies who share a common identity licensed (for a fee) by the franchisor or supplier. Franchisees provide the efficiency benefits of "owner-operators", and also provide the supplier more control than any other independent channel. To be successful, franchise structures require a unique product, identity or operating system. More time is required to establish a successful franchise structure than any other channel.
Co-operatives (or buying groups) are companies that provide a centralized purchasing function for a group of independent resellers. Co-operatives may also perform other activities including warehousing, marketing and branding. Co-operatives exert a large influence in some industries including hardware and pharmaceutical supplies. Like distributors, co-operatives provide extensive market coverage but are difficult for a supplier to influence or control. Commonly, co-operatives will progress from a "buying group" focus to a "marketing group" as they look for ways to add value to their members.
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Other Names of Channel Members
The examples listed here identify the most common structural forms taken by channel members. Many other terms are also used to refer to different types of channel members, including: stockists, retailers, value added dealers (VADS), value added resellers (VARS), mass merchants, licensees, jobbers and demonstrators.
Suppliers have many channel relationships to choose from. Each channel type has its own strengths and weaknesses. Tradeoffs must be made when establishing or revamping a channel of distribution. Those tradeoffs can be summarized in three questions:
- How much market coverage does the channel offer?
- What does it cost to distribute through the channel?
- How much influence or control can be exerted over the channel?
The key to success in marketing channels is to determine the relative importance of each of these elements and to understand how the various channel options match up with the priorities.