A distributor is a company that serves as an intermediary between manufacturers and retailers. Distributors are able to buy in bulk from manufacturers, and then make smaller quantities available to retailers. In this way, retailers do not need to buy entire pallets (for example), but can instead purchase smaller quantities ("Distributor," 2009).
A retailer sells goods directly to consumers; specialty retailers sell a particular type of good ("Specialty Retailer," 2009). Target is an example of a mass-merchandise retailer; Guitar Center is an example of a specialty retailer.
Net profit, or net income, is the difference between total revenue and total costs plus total expenses. Total costs include all costs associated with producing the good, while total expenses include general and administrative expenses, among other items. Companies need to maintain positive net profits to remain in business ("Net Income," 2009).
NAMM is the National Association of Music Merchants founded in 1901 and now boasting more than 9,000 members. NAMM members include manufacturers, distributors, retailers, and independent representatives of musical products from more than 85 countries around the world ("About NAMM," 2009).
One- and Two-Step Distribution Systems
The "stops" that goods make on their way to their final consumers are called "steps" in the distribution system. A manufacturer who sells directly to retailers without using any distributors or wholesalers uses a one-step distribution system. Traditionally, manufacturers have used at least two-step distribution systems and some have used more than two-steps as goods would be shipped to wholesalers who would then ship to smaller distributors who would ship to the retailer (Tappa, 2007).
Until recently, consumers and retailers were limited in their ability to communicate effectively with manufacturers, and it was often inconvenien...