What is a Middleman?
Trade involves many intermediaries between the producer and consumer. A middleman is a person who buys goods from a producer and makes a profit by selling them to a shop or a user, e.g. a wholesaler, retailer, or agent.
Distribution Channels
A distribution channel is the route intermediaries take goods through, from producer to consumer. Since production is only complete when goods reach the final consumer, distribution is one of the most important functions of commerce. The longer the channel, the higher the price, since each middleman adds a margin to cover their cost and profit.
Common Distribution Channels
- Producer → Wholesaler → Retailer → Consumer (the traditional method): used when the wholesaler completes part of production (e.g. packaging tea), or when a small manufacturer lacks the means to market directly to consumers.
- Producer → Large-Scale Retailer → Consumer (the modern channel): common today, chosen when goods are well-branded and advertised, expensive with slow turnover, perishable, or require after-sales service, and when large retailers can buy in bulk.
- Direct sales through the manufacturer’s own retail store: expensive for producers with small output and unit profit, but suits goods of high unit value, local markets, and perishable goods like ice cream.
Factors in Choosing a Distribution Channel
- Producer’s financial capability: a well-funded producer may open their own retail outlets.
- Nature of the product: perishable goods need a short channel; non-perishable goods can use a longer one.
- Value of the product: expensive goods use a short channel to minimize cost; cheap goods often use a longer one.
- Size of the market: local consumption favours a short channel; international markets often need a longer one.
- Size of the order: small orders go through a retailer; large orders may go directly to the producer.
- Type of customer: home consumers buy from retailers; businesses often deal directly with the producer.
