In this session,
we will try to know who is an agent and what his tasks in the distribution
channel are. We already know some basic
facts about wholesaler and distributor.
The business man
cannot go places to find market for his product. Production itself is such a huge task that he
has to give all his energies and time; therefore, he chooses someone and gives
him power to act on his behalf so that he can find market for his product. So
an agent is appointed by the business man; here, the business man who appoints
an agent is commonly called in business language the Principal. The agent
represents the Principal.
The agent does
not do business for himself but for the Principal only. On behalf of the
producer, he can buy and sell but always within the guidelines set by his
Principal. For him, his income, his revenue is the commission he gets for his
services. From one point of view, the Principal, the producer of the product
may not be efficient in marketing his product and he needs some efficient man
to carry out marketing for him and for his products. Generally, agents do those
efficient tasks of marketing. Today, in mercantile purchasing, agents have
become extremely important.
Of course, there
are some kinds of agents. There are General Mercantile Agents. Their actions
bind the Principal. There are Special Agents. They are appointed for some
particular task and when the task is over, they are no more agents for the Principal.
You might have
come across Brokers in your life at one point of time or another. There is a
difference between an agent and a broker. An agent normally works for his Principalís
products finding market. But a broker makes a seller and a buyer meet. He does
not buy or sell anything but arranges a meeting between a seller and a buyer
for some business. When the deal is over, his task is finished and he gets some
commission, some money from both. The broker works for his brokerage
independent of both the seller and the buyer. The agent gets his commission
normally from the Principal only. He works according to the agreement he has
come into with the Principal.
This is the
business process. You can now see that everyone in the business process has to
make money and they all get their shares, ultimately, from the consumers only.
For example: the producer produces soap and the cost of production of a single
soap happens to be Rs 10, including all expenses beginning from the cost of
materials to salaries for the employees covering all establishment
expenses. He sells one soap at a profit
of One rupee to the wholesaler meaning the cost of the soap now is Rs 11. The
wholesaler sells the soap at a profit of, say, 50 paise to the distributor. Now
the cost of the soap is Rs 11.50. The distributor sells the soap at the cost of
Rs 12.50 to the retailer with a profit of one rupee. And the retailer sells the
soap to the final consumer, the end-user for Rs 13.50. From the money the retailer spends on a
single piece of soap, the distributor, the wholesaler and the producer get
their share. This is just an example; at every stage there is some money added
to the cost of the product and the money added depends on the market conditions
which normally include the demand and supply issue.
Here, one thing
you must make note of. The cost of a
product for the consumer and for all always includes the logistics cost. The
product has to be transported from the place of production to the place of
consumption through various stages of storing necessity.
This is enough
for the time being and we shall move on to the next component of logistics: