1. What are marketing intermediaries and why do companies use them? Why are they

Question

1. What are marketing intermediaries and why do companies use them? Why are they important?

2. Briefly describe the four systems available to build cooperation in channel systems? Which system you think would be used by a startup company, explain?

Study Case: FedEx

FedEx is the world’s largest express delivery company. Every year the Memphis-based freighter moves more than 4 million packages to 220 countries. All told, the company’s annual payload weighs in at a gargantuan 11 million pounds. By getting products to businesses and consumers quickly, FedEx thrives in its role as a marketing intermediary.

Despite its success, FedEx isn’t as self-sufficient as it might appear. After all, much of FedEx’s income is dependent on other businesses using the freighter to ship their wares. If these clients become big enough, though, they could start to look for ways to consolidate their business. Oftentimes that means getting rid of intermediaries like FedEx. Once these outside ties are cut, the companies are then free to establish their own in-house distribution systems.

However, companies like FedEx provide businesses with more than just delivery services. Although marketing intermediaries do not create stand-alone value for their clients, they add vital utility to existing products and services. In fact, many companies find that they’re better off improving their current services with the help of outside firms rather than build their own departments from scratch.

For instance, a shipping company that specializes in transporting massive loads of raw materials may try to cut costs by taking control of its small-scale shipping as well. Items on the large-scale side of the supply chain are normally freighted by trains or cargo ships, which are a far cry from the small, individually driven trucks that FedEx uses. Because of this huge difference in operations, even the most efficient freighters would be hard pressed to juggle both large- and small-scale shipping successfully. In this way, FedEx’s ability to ship lots of smaller volume orders quickly makes it an ideal partner.

A typical transaction works like this: Manufacturers purchase a label from FedEx’s website and place it on their shipment, which can be anything from a single box to a whole palette full of products. A company driver then picks up the delivery at a scheduled time and scans it into a tracking system. She then takes it to the nearest FedEx processing center to be flown to a transport hub. The hub sends the package to another airport, which sends it to another FedEx processing center. From there, it’s put on a truck and delivered to the wholesaler who ordered it. The process is so efficient that a product ordered in the evening may be at the wholesaler’s door by the next morning. And throughout the process, the package’s location can be tracked, the shipment insured, and the time of delivery predictably guaranteed and protected by a requirement of face-to-face delivery.

This fast-acting infrastructure is FedEx’s greatest asset. Because of its speed, its retail clients don’t need to waste precious sales floor space by overstocking products. What’s more, FedEx can keep its prices below what it would cost the wholesaler to maintain its own fleet of delivery vehicles. That’s because FedEx controls each step of the process from pickup to drop-off. Through its strong commitment to logistics, FedEx stands to be successful for a long time.

Explanation / Answer

1. Marketing intermediaries are those organizations which assist in moving goods/services from the producers to the consumers or the industrial users. So, they help in both B2B (Business-to-business) and B2C (Business-to-customers) movements of the goods/services and act as a linking entity in the supply chain.

Following are the types of marketing intermediaries:

It is not necessary for all the companies to use marketing intermediaries. The need varies according to various factors like the size of the company, its products/services, its industry, etc. But if used, marketing intermediaries do provide a lot of benefits to the companies. Some such benefits or reasons for their use could be:

Above mentioned benefits could be very well observed in the case-study of FedEx, and from there we can derive that how intermediaries are important for the companies. Instead of establishing their own departments for transportation, storage, etc.; companies can employee intermediaries thereby reducing a lot of time and investment.

Among all the options available above, a startup cannot go for Corporate or the Supply Chain Systems, since these comprise of highly capital intensive and time-consuming methods. So, a startup has an option to opt for Contractual System by having on a franchise model. It can also go for Administered System by doing the production itself and then doing direct selling or having its own retail store.

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