Do intermediaries increase the cost of products?

Expanding Marketing & Sales With Intermediaries

Intermediaries may seem as though they increase cost but in contrast they actually lower costs for producers and manufacturers. The intermediary serves a vital function in which they provide specialized services and due to their competency in these services they are better able to perform the service then if the producer were to do it. For example, Coca Cola works with thousands of different distributors because they are able to provide the distribution of the Coca Cola products more efficiently and to wider market than if Coca Cola tried to perform this activity. For instance, restaurants and other vendors sell the Coke products in places that would be impossible for Coke to reach. Having vendors in this way increases the market share for Coke and allows Coke to maintain low prices by not having a tremendous infrastructure for selling.

This form of intermediary is known as a distribution franchise (Solomon, Marshall, & Stuart, 2011). This form of franchise is limited to selling the products of the company and limited use of the trademark. For example, when restaurants choose to serve certain cola products they will be able to display those particular products with the names and brands such that people can see them. Coca Cola has a long successful history with its products so when companies choose to carry Coke in their product lines they are receiving the benefit of a highly popular soft drink company. This form of franchising is also beneficial to the franchise because it reduces the cost of infrastructure such as having stores to sell the products.

Without these forms of intermediaries product would be considerably more difficult to obtain and possibly much more expensive. We see examples of this when we look at small companies. Many small companies such as a single location bakery would be limited to delivering its products to a very small local area unless some form of intermediary was used. The bakery might expand its delivery radius if it was able to use a food delivery service. This would of course depend on the demand for the product.

References

Solomon, M.; Marshall, G.; Stuart, E. Marketing: Real People,Real Choices. Textbook. 7th edition. Pearson Prentice Hall. 2011. ISBN 978–0–13–217684–2

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Article Updated: 11/04/2021