In turn for giving up some of the control over how their products are sold, they gain the expertise and efficiency of distribution costs. "Intermediaries are specialists in selling. They have the contacts, experience and scale of operation which means that greater sales can be achieved than if the producing business tried run a sales operation itself" (Tutor2u, 2008, pg. 1).
"The main function of a distribution channel is to provide a link between production and consumption. Organisations that form any particular distribution channel perform many key functions" (Tutor2u, 2008, pg. 1). These can include factors such as information, promotion, contact, matching, negotiation, physical distribution, financing, and risk taking (Tutor2u, 2008).
The amount of information an intermediary knows is crucial for market planning. The ability of an intermediary to promote a product tells how efficient it is at communicating product and offer information. Contacts held by a particular intermediary lets a business know how well it can find and communicate with prospective buyers. The ability of an intermediary to match means whether or not it is able to meet the needs of prospective buyers. Negotiation refers to the ability of an intermediary to reach agreements on prices and other terms. The physical distribution for an intermediary refers to its ability to transport and/or store products. The ability to acquire and use funds to cover costs refers to the financing ability of an intermediary. Finally, an activity such as holding stock in other organizations shows an intermediary's willingness to take risks (Tutor2u, 2008).
According to the material presented at Tutor2u (2008, pg. 1), "All of the above functions need to be undertaken in any market. The question is - who performs them and how many levels there need to be in the distribution channel in order to make it cost effective."
Three examples of channel levels include those channel levels which consist of no intermediary, one intermediary, and two intermediaries. When there is no intermediary in a channel, it is known as direct marketing. An example of this is a factory outlet store. A channel with one intermediary is usually a retailer. A channel with two intermediaries could be illustrated through the UK drug market (Tutor2u, 2008).
Oversaturation occurs when the marketplace is crowded of a particular product or service. One relevant example of this in the U.K. is superhero movies. During the summer of 2008, a large number of superhero films were released-such as the Incredible Hulk-leaving the market oversaturated with them (Guardian, 2008).
An example of a conflict occurring over stock levels is the recent release of Mac's iPhone all throughout the world, including the UK. When it was released into the marketplace, consumer demand exceeded the supply available. Therefore, it was hard for distribution channel members to keep them on store shelves (MacRumors, 2008).
An example of conflict involving direct versus indirect channels comes into play with Computer Associates. According to Yirrell (2002, pg. 1), "The world's third largest software vendor has pledged to eliminate the long-standing conflict between direct and indirect and has launched a strategy which it claims will encourage the two sides to work together."
One company that refuses to be locked into a