The American Marketing Association has defined the wholesaler as “a business unit which buys and resells the merchandise to the retailers and the merchants or to the industrial, institutional and commercial users but does not sell insignificant amounts to the ultimate consumers.”
“The wholesaler is one who buys goods on a large scale with the objective of selling them at a profit in smaller quantities. He buys from the producers that is the extractor or manufacturer and sells to the retailers, and is, therefore, the connecting link between these two”.
1. Introduction to Wholesalers 2. Definition of Wholesalers 3. Evolution 4. Characteristics 5. Need and Importance 6. Types 7. Functions 8. Role
9. Services Provided by Wholesalers 10. Market Activities. 11. Managing Wholesale Operations 12. Measuring Wholesaler Performance 13. Marketing Decisions 14. Benefits 15. Issues.
Wholesaler: Definition, Evolution, Characteristics, Importance, Types, Functions, Roles, Benefits and Other Details
Wholesaler – Introduction
Wholesalers occupy a pivotal place in the marketing channel set-up. In most cases they perform several critical functions invaluable to the smooth flow of goods, ownership, finance, and information. Several channel systems however, do not involve a wholesaler or distributor and directly connect the manufacturing unit to the retailers who are in contact with the customers. Or else, the system connects directly to the customers.
However, in these instances, either the manufacturer or the retailer (or in certain instances the customer) performs all the activities that a wholesaler will perform. Of course, the nature of the product distributed, and the consumption pattern determine the need for a wholesaler in channel systems.
For instance, high-value items such as cars or laptops can be directly sold to customers without the need for a level between the manufacturer and the retailer. Wholesalers are also known by several different terms such as distributors, dealers, and resellers.
Most of these players perform certain important functions that are essential to the overall consumption experience of the channel. Wholesalers could also vertically integrate downwards and operate retail outlets, in which case they become very powerful.
In fast moving consumer goods (FMCG), wholesalers are often much more powerful than the retailers, as they are much more bigger and the manufacturer relies more on the wholesalers for several critical functions such as finance and ownership, rather than on retailers.
Wholesalers are also often part of the channel information system and are therefore more crucial to the overall information flow in the channel system compared to retailers. Wholesalers can either be multi-brand wholesalers, where they offer their services to several manufacturer (even competing manufacturers), or exclusive wholesalers where they are tied in with just one manufacturer. For a manufacturer, one of the biggest channel decisions is to decide whether to rely on an exclusive wholesaler or a multi-brand wholesaler. There are cost and control implications tied to this decision.
In several cases, wholesalers are quite big in terms of the volume of business they handle, to become extremely powerful in the channel set-up. There are several ways of appointing and controlling wholesalers.
One manner, which is gaining popularity recurrently, is through a legally binding contract signed by the wholesaler and the manufacturer. Such an arrangement is called a franchisee arrangement. A franchisee arrangement has several advantages over conventional transaction-based arrangements.
Wholesaler – Definition of Wholesalers (According to American Marketing Association)
Wholesalers may have some limited retail operations, but they deal with retailers or organizations, which in turn offer products or services to end consumers. This distinction is very crucial because wholesalers sell products or services to entities that have an absolutely rational, business-oriented motive in their transactions. Retailers, in contrast deal with end consumers who may not always purchase goods and services with a completely rational motive.
The American Marketing Association has defined the wholesaler as “a business unit which buys and resells the merchandise to the retailers and the merchants or to the industrial, institutional and commercial users but does not sell insignificant amounts to the ultimate consumers.”
Wholesalers can also be distinguished from retailers based on the bulk or the size of transactions. Wholesalers typically buy and sell in bulk quantities. This is again an important characteristic, as bulk transactions imply handling most of the logistical functions such as storage, finance, and transportation at a much higher volume and scale than typical retailers. Handling such high volume transactions requires specialized skills and capabilities.
For instance, a small retailer certainly would not require a large warehouse with all the attendant risks of managing it, as is in the case of a wholesaler. Of course, large supermarkets are an exception in this case. They purchase in bulk and maintain large storage spaces for the bulk of the purchased quantities to be sold in retail units in smaller quantities. Large supermarkets are therefore both a wholesaler and a retailer rolled into one.
Wholesale trade implies buying and selling goods in huge quantities. The traders involved in the purchase of goods to be used for sale to the retailers are known as Wholesalers. They buy goods in large quantities from the producers and sell them to the retailers or industrial users. They also engage in repacking the goods into smaller batches suitable for their customers.
Wholesalers deal in a limited range of products. However, they keep different grades of the products they deal in. The wholesalers are the connecting links between the manufacturers and the retailers. They are the intermediary entity in the distribution channel. The manufactures largely depend on them for the distribution of the goods in the market.
“All merchants, agents and assemblers who intervene between producers on one hand and retailers or users on the other, are wholesale traders”. – Census Bureau of U.S.A
“The wholesaler is one who buys goods on a large scale with the objective of selling them at a profit in smaller quantities. He buys from the producers that is the extractor or manufacturer and sells to the retailers, and is, therefore, the connecting link between these two”. – Carrad and Oliphant
“A true wholesaler is himself neither a manufacturer nor a retailer, but acts as a link between the two”. – Evelyn Thomas
“Wholesalers buy and resell merchandise to retailers and other merchants and to industrial, institutional and commercial users, but not sell in significant amounts to ultimate consumers”. – E.W. Cundiff and R.R. Still
“Wholesaling or wholesale trade includes the sales and all activities direct by incident to the sale of products or services to those who are buying for purposes of resale or for business”.- William J. Stanton
Wholesalers are merchants who buy the goods in bulk quantities from the manufacturers and sell these goods in relatively smaller quantities to retailers and at times to semi- wholesalers. Wholesalers also sell goods in bulk quantities to institutional buyers, but they do not sell goods to consumers for final consumption.
“Wholesaler is a person or firm that buys large quantity of goods from various producers or vendors, warehouses them, and resells to retailers. Wholesalers who carry only non- competing goods or lines are called distributors”. – Business Dictionary
“Wholesaling, jobbing, or distributing is defined as the sale of goods or merchandise to retailers, to industrial, commercial, institutional, or other professional business users, or to other wholesalers and related subordinated services”. – World Trade Organization
“Wholesale is the resale (sale without transformation) of new and used goods to retailers, to industrial, commercial, institutional or professional users, or to other wholesalers, or involves acting as an agent or broker in buying merchandise for, or selling merchandise to, such persons or companies. Wholesalers frequently physically assemble, sort and grade goods in large lots, break bulk, repack and redistribute in smaller lots.” – United Nations Statistics Division
Wholesaler – Evolution of Wholesaling
Wholesaling is one of the basic business functions and hence it originated in ancient times. It was a natural extension of commerce. As trade expanded between regions, ships bearing cargo brought goods to different shores. Wholesaling was generally international, since goods arrived in ships in large quantities and were sold and offloaded at ports.
Consequently, wholesaling was largely associated with importing and exporting. The shipping companies and owners of stock needed a trader who could take delivery of the entire load at the docks. It is here that wholesalers helped. They would take the ship’s cargo and then sell in smaller lots to local traders.
Sometimes the ship owners took over this task themselves. We find a reference to wholesale in the Middle Ages (500-1500 AD), when markets and fairs in Europe made a distinction between wholesale and retail trade. Dealers Sold both en gros (at wholesale) and en detail (at retail) as per the opportunity available.
Later, wholesalers made a powerful guild and determined who could enter the trade. Such a system was portrayed in the movie Guru, where the protagonist finds it difficult to enter the trade initially. Trade was conducted in markets or mandis, or transacted at fairs. The wholesaler was a large-scale dealer who sold goods to retailers, and sometimes directly to consumers.
Mercantilism followed the Commercial Era (1500-1800 AD). The importance of wholesalers grew, as it suited the then existing system of trade. The wholesaler organized and controlled the selling functions. Wholesaling institutions evolved, including brokers, who made bargains between merchants and traders.
Financing evolved too, as trade was financed through bills of exchange. Auctions were held when the goods arrived and became an important method of wholesale trade.
The Industrial Revolution ushered in mass production of goods, and with it, changes in the wholesaling business. Modern wholesale trade emerged as factories were setup, along with other changes such as the faster modes of transport, improvements in communication technology, and development of organized banking. Wholesalers linked manufacturers to retailers and then on to customers. The marketing concept encouraged the fulfillment of consumer needs.
Wholesaling is the back end of marketing, but it is also its backbone—since without wholesaling, factories would find it difficult to move goods. However, even as the trade evolved into building of supply chains, the basic functions of wholesale remained the same.
Wholesaler – Important Characteristics of Wholesalers
The followings are the characteristics of wholesalers:
i. Wholesalers buy goods directly from producers or manufacturers.
ii. They buy goods in large quantities and sell in relatively smaller quantities.
iii. They sell different varieties of a particular line or product. For example, a wholesaler who deals with paper is expected to keep all varieties of paper, cardboard, and card.
iv. Wholesalers may employ a number of agents or workers for distribution of products.
v. They invest in the products of companies and need large amounts of capital.
vi. They provide credit facilities to retailers.
vii. They provide financial assistance to the producers or manufacturers by buying in bulk.
viii. Wholesalers are normally clustered in one particular area. For example, in many Indian towns one there is a gur mandi (market for sugar and allied products) or anaj mandi (market for food grains). Cloth or paper merchants cluster in one area, making it easy for retailers to approach them.
i. The wholesaler is mainly concerned with the assembling and dispensing function in marketing. The products assembled from different manufacturers are kept in stock by the wholesalers and are distributed to retailers who may be widely scattered.
ii. They deal in large quantities of goods.
iii. They deal in a particular commodity.
iv. They also arrange, grade, transport, finance, etc.
Wholesalers’ Services to the Manufacturer:
The wholesaler places large orders for goods to the manufacturer. Thus large-scale production is possible and the manufacturer is benefitted.
The producers also get financial help in the form of advances from the wholesaler.
As the wholesaler stocks the goods for future sales, the manufacturer need not stock the goods. This gives great relief to the manufacturer.
They study the trends in the market—changes in tastes, fashion and demand—and keep the manufacturer informed of the preferences of consumers as revealed to him by the retailers.
Wholesalers’ Services to the Retailer:
i. A retailer with small capital deals with a large variety of goods. Since the goods are kept by the wholesaler in large quantities, a retailer can get all his requirements conveniently from the wholesaler.
ii. The retailer usually makes only small orders. Most of the large producers do not entertain small orders. But the wholesalers take this trouble of selling the goods in small quantities to retailers.
iii. The wholesalers also provide financial facilities to retailers. They are given credit facilities by wholesalers. This enables the retailers to manage their business with a small amount of capital.
iv. The retailers easily come to know of any new product from the wholesalers.
v. The wholesalers are specialized businessmen. Therefore they take advantage of the favourable price movements. A part of these benefits is passed on to the retailer by the wholesaler.
vi. The retailer can personally inspect the goods at the wholesaler’s warehouse. Thus selection of goods is made possible to retailers.
vii. As the wholesaler alone keeps large stock of goods, the risk of falling prices and spoilage involved in goods will not affect the retailer.
viii. The wholesalers are experts and specialists. They create a market for the goods by undertaking sales promotion measures. They provide the retailers a ready market.
Wholesalers are one of the important links in the supply of goods to customers. They buy goods in bulk from the producers and sell them in smaller quantities to retailers. In some cases, they may also sell goods directly to the consumers if the quantity is large enough.
Wholesalers deal with a limited number of items and specialize in specific product lines. For instance, a wholesaler of electrical appliances is unlikely to stock FMCG goods as well.
Wholesaler – Need and Importance of Wholesaler
Position of the Retailer in the Absence of the Wholesaler- We may realise the indispensability of a person much more when he is absent rather than when he is present and serving us in different ways. This is true in the case of the wholesaler, who is acting as a connecting link between the manufacturer and the retailer.
In the absence of wholesaler, the retailer will suffer from the following inconveniences:
1. He will have to hold large stocks of varied articles, and for this he must have adequate space and ample capital. Very few retailers can command both space and capital.
2. He will have to assemble stocks from different manufacturers.
3. He will have to arrange for their carriage, packing, warehousing, etc.
4. He will have to bear the risk of fluctuations in prices, changes in public taste and demand. Very few retailers are capable of bearing such risk of loss.
Goods are supplied for distribution within the country by manufacturers, producers and importers.
These suppliers of goods may employ any one of the following channels distribution:
1. Sale to wholesalers.
2. Sale to wholesale selling agents who may be appointed as sole agents or who may work simply as commission agents.
3. Direct sale to the retailers employing travelling salesmen or establishing contact with department stores.
4. Direct sale to consumers through — (a) house-to-house canvassing, (b) mail order selling, (c) multiple shop system.
5. Sale to cooperative wholesale society.
Recently consumers’ wholesale co-operative societies in many countries have established direct relations with the manufactures and producers. Growth of departmental stores, multiple shop system and co-operative stores have brought about tendencies towards the elimination of the wholesaler from the normal channel of distribution.
The multiple shop system and co-operative organisations are trying to eliminate all middlemen between the producer and the consumer. Any party, desiring to eliminate middlemen in the machinery of distribution, can secure independence and saving of middleman’s profit. The shorter the chain of middlemen, the smaller will be the gap between the producer’s price and consumer’s price.
However, elimination of middleman does not mean elimination of his functions and service. There is an old and popular concept in marketing that “you can eliminate the middlemen but you cannot eliminate their functions or activities”. We may eliminate the wholesaler but not his functions.
The manufacturer or the retailer will have to perform his functions and services. In the absence of the wholesaler neither the manufacturer nor the retailer can exclusively concentrate his attention on the manufacturing or retailing side respectively. The party trying to avoid the wholesaler will have to devote sometime and energy in looking after specialised functions of the wholesaler.
There are two important disadvantages of the elimination of wholesaler:
1. The wholesaler specialises in wholesale trade. There will be a loss of his expert services which he renders to the manufacturers or retailers.
2. Risk-bearing due to change in the prices or change in the demand is impossible for small retailers. Majority of the retailers are small traders.
When we cannot eliminate functions and services of the middlemen, there is no sense in eliminating a specialist who specializes in these functions. These are the days of specialisation and the wholesaler is an important specialist in home trade. He has a definite position in the machinery of commerce.
To the small retailer, small manufacturer and producers of perishable goods and export goods, the wholesaler seems to be essential. In the light of his services to the manufacturer and retailer and in the light of the position of the retailer in the absence of the wholesaler, we/can conclude that the wholesaler is necessary and cannot be eliminated.
Wholesaler – 2 Main Types: Merchant Wholesalers, Agent and Brokers
Depending on the type of industry and the type of market, different types of wholesalers can be found. In highly fragmented industries as with unbranded clothes or farm produce, there could even be different levels of wholesalers. Wholesalers could also specialize in one function.
For instance a wholesaler could specialize in warehousing. Such a wholesaler maintains a big warehouse and specializes in the storage function and depends on others for other functions such as transportation or financing. Dibb et al. (2006) classify wholesalers into two broad classes- (i) merchant wholesalers and (ii) agents and brokers.
Merchant wholesalers buy goods from manufacturers and sell them to retailers or industrial buyers. Such wholesalers therefore take up the tide to the goods. This is an important function that has to be performed for the flow of goods from the manufacturer to the ultimate customer.
Merchant wholesalers can be classified as either full-service wholesalers or limited-service wholesalers. Some of the types of merchant wholesalers that are seen around the world are- (a) general merchandise wholesalers, (b) limited line wholesalers, (c) cash-and-carry wholesalers, (d) truck wholesalers, and (e) drop shippers.
Each is explained below:
(a) General Merchandise Wholesaler:
General merchandise wholesalers deal with a large variety of items without much depth in each category. A wholesaler could, for instance, deal in grocery items, selling products from a few manufacturers to retailers. Such a merchandiser provides all the services including warehousing, transportation, and financing to the manufacturer.
Such large general merchandisers typically dominate a geographic region, supplying merchandise to most of the retail outlets in a particular region. A general merchandiser typically deals with multiple brands, though some of them may deal with just one large manufacturer for a particular line of merchandise.
(b) Limited Line Merchandisers:
A limited line merchandiser typically specializes in just one product category and can either be an exclusive wholesaler—representing a particular firm—or a multi- brand merchandiser. Limited line merchandisers deal with products such as pharmaceuticals, hardware, paint, cement, and steel. Some limited line merchandisers serve a niche market (for example, laboratory equipment to be sold to medical laboratories).
In certain markets where manufacturers are small and fragmented, limited line merchandisers can be powerful. The industry must rely on the wholesalers to sell to their customers. Such wholesalers typically have in-depth knowledge about the market and its players. These limited line merchandisers are very useful for small niche manufacturers who serve a small but important market.
(c) Cash-and-Carry Wholesalers:
Cash-and-carry wholesalers are a new wholesale category in India, but have existed for quite a long while in other countries. The Wal-Mart group’s entry into India is through a cash-and-carry wholesaling format.
In cash-and-carry wholesaling, retailers could buy goods in bulk (often carton loads) at a reduced price, to be resold at a higher price in their retail outlets. Cash-and-carry set-ups are typically large Warehouses with little display and fewer staff. Goods are only sold in bulk and without any credit lines.
Cash-and-carry wholesalers are hence classified as limited service merchant wholesalers. Small retailers who can rely on cash-and-carry retailers benefit, as they get access to goods without any waiting time and at a cheap rate. Cash-and-carry wholesalers only deal with high turnover items such as groceries and stationery items. With the entry of large wholesale groups into India in the future, more such cash-and-carry wholesalers can be expected.
(d) Truck Wholesalers:
Many small wholesalers in the Indian FMCG sector which serve small independently-owned retailers are actually truck wholesalers (sometimes called truck jobbers). These truck wholesalers typically transport small quantities of typically perishable commodities (such as bread or biscuits) to retail outlets where the retailer could inspect and purchase goods from the truck.
Such truck wholesalers are typically small operators and could carry a variety of multi-brand items. They often do not provide credit lines and are typically owned by other large wholesalers. These wholesalers provide critical transportation and stocking services to the distribution channel. They are also involved in managing the inventory of small retailers.
(e) Drop Shippers:
These intermediaries are sometimes called desk jobbers. They take the tide to the goods and negotiate sales. They do not take physical possession of the goods. They collect orders from retailers or industrial buyers and arrange for these to be transported to the customers from the manufacturer. The ownership of the goods will pass on to drop shippers from the time the contract is signed with the manufacturer, until the goods are received in proper condition by the buyer.
Such wholesalers are typically seen in commodity markets, where transaction volumes are typically very large, such as markets for oil, coal, and iron ore. Drop shippers provide value by linking several fragmented customers to suppliers who are often based in a totally different continent.
An interesting case is that of ‘rack jobbers’ who are involved in owing and displaying goods at a retail location on behalf of a manufacturer. Such ‘rack jobbers’ own the inventory and act on behalf of the manufacturers.
Agents and brokers do not take the tide to the goods they provide, even though they may take physical possession of the goods. Agents and brokers typically provide sales support for the manufacturers by offering the services of a sales force network and related infrastructure.
Agents and brokers thus enable manufacturers to expand their markets without the overhead associated with establishing a sales force. Agents could represent just one manufacturer or a group of manufacturers who have complementary products. Clearing and forwarding (C&F) agents are quite common in Indian markets as they provide a means to avoid multiple sales tax regimes.
Different types of wholesalers therefore facilitate the transactions between different players in the market. They provide value by performing several activities that are important to the smooth flow of goods and services from the manufacturer to the end consumer.
In certain industries, the nature of demand and supply provide opportunities for wholesalers to grow in stature and become the most powerful entity in the market.
Wholesaler – 8 Important Functions of Wholesalers
A wholesaler occupies a very important place in the chain of distribution and also performs several important functions as follows:
1. Linking – Large scale manufacturers on the one hand and retailers on the other cannot deal with each other directly. Therefore, the wholesaler acts in between them by purchasing the goods from the manufacturer and selling them to the retailers.
2. Communication – A wholesaler acts as a two way communication channel-from the manufacturer to retailer and from the retailer to the manufacturer. He communicates information about new products, production trends etc. from wholesaler to the retailer. He also communicates information about the market, the market trends, consumer preferences and tastes etc. from the retailer to the manufacturer.
3. Assembling – Certain types of goods (agricultural goods, goods manufactured by small and cottage industries etc.) are available only in small lots over widely scattered sources. A wholesaler buys goods in small quantities from all these sources, assembles them into large quantity and offers them to the retailers.
4. Warehousing – A wholesaler buys the goods from the manufacturers at the time of their availability, warehouses them and sells them to the retailers as and when the retailers want the goods.
5. Transporting – Wholesalers arrange for the transportation of goods from the manufacturers to their own places and from there on to the places of the retailers.
6. Financing – Wholesalers finance the retailers indirectly by selling goods on credit and they also finance manufacturers by purchasing goods on cash and paying cash in advance.
7. Risk bearing – Wholesalers bear the risk in goods from the time of purchase from the manufacturers and the sale of the same to the retailers.
8. Grading, packing and packaging – When wholesalers buy goods from agriculturists and from small and cottage industries, they also perform the function of standardization, grading, packing and packaging.
Wholesaler – Role of Each Types of Wholesalers
Wholesalers can be described in general terms as merchants, jobbers, dealers, or distributors. It is important for any marketing manager to understand the role of wholesalers in a distribution system—what functions they provide, and the strategies they use—so that he/she can choose the distribution system that best suits the company.
The role of each type of wholesaler is described as follows:
Role # 1. Merchant Wholesalers:
These wholesalers take delivery and tide to the products they sell. For example, a wholesaler for P&G who takes delivery of goods from the company for supplies to retailers is a merchant wholesaler. He takes tide to and, therefore, owns the products that are stored in his warehouse for some time before selling to its retailers. About 80 per cent of the wholesalers in India are merchant wholesalers.
Merchant wholesalers specialize themselves by dealing in certain types of products or category and they have a fixed geographic area, called territory, that they serve. Several wholesalers compete for the same customers.
For example, it is common to find several wholesalers of paper products in a city, and each wholesaler has similar product lines with the same kind of paper products, and they compete to get the business of printers, packers, individual customers, magazines, and manufacturers of paper products in that city. Wholesalers for food products compete with other wholesalers with similar products to get business from restaurants, caterers, and hotels.
Role # 2. General Merchandise Wholesalers:
These wholesalers are the most common type of traders in India – wholesalers who carry a wide variety of non-perishable items and have a broad line of convenience and shopping products. They deal in product lines such as hardware, electrical supplies, plumbing supplies, furniture, medicines, cosmetics, etc. These wholesalers serve the common type of retail, the general stores, hardware stores, medicine stores, electric appliance shops, small department stores, and practically all types of retailers in the market.
Role # 3. Single-Line Wholesalers:
When service wholesalers carry a narrower line of merchandise than general merchandise wholesalers, they are called single-line wholesalers. For example, some wholesalers may supply only milk products such as milk, butter, ghee, ice cream; and not carry other food products even though they have freedom to do so.
Similarly, there are single-line wholesalers who stock only a certain type of apparel or a particular type of industrial tool. If you visit a wholesale market and want to buy paper for wedding cards, you will be guided to certain wholesalers. It helps them specialize and build their reputation in their chosen line of business.
In consumer products, they serve retailers within their territory and in business products they cover a wide geographic area and offer more specialized service. For example, there may be only a few wholesalers for camera equipment in an entire city.
Role # 4. Specialty Wholesalers:
Service wholesalers, who carry a very narrow range of products and offer technical expertise as well, are called specialty wholesalers. They offer more information and service than other service wholesalers. For instance, a consumer products specialty wholesaler might carry only herbal products rather than a full line of groceries.
It is common to find wholesalers dealing only in a certain type of steel products, machine tools, food products, and various types of equipment. Specialty wholesalers often know a great deal about the final target markets in their channel and maintain a relationship with the retailers who they serve.
Role # 5. Cash-and-Carry Wholesalers:
Cash-and-carry wholesalers serve a large number of small establishments who buy their requirements and pay in cash. Some retailers, such as small repair shops, neighbourhood retail outlets, and paan and tobacco kiosks are too small to be served profitably by a service wholesaler, since the service wholesaler fixes a minimum quantity for purchase.
Traditional cash-and-carry wholesalers operate through salesmen who go around their beats and supply small quantities of products to these outlets and collect cash. This is done very frequently so that none of the outlets have a stock-out. Alternately, the wholesaler sets up a cash-and-carry department to supply the small retailer. The wholesaler can thus operate at a lower cost because the retailers take over many of the wholesale functions.
Cash-and-carry operations are especially common in less-developed nations, including India, where very small retailers handle the bulk of retail transactions. The system works for the retailer too, since using cash- and-carry outlets enables the small retailer to stay in business.
Drop-shippers are mainly involved in selling. They get orders from wholesalers, retailers, or other business users, and pass these orders over to producers who, in turn, ship the orders directly to the customers. Since drop-shippers do not handle the products, their operating costs are lower. The system is used commonly to sell products that are bulky so that additional handling can be avoided; having evolved to enable trade in products in which handling is expensive or could even be damaging. Drop-shippers take tide to the products they sell, but they do not actually handle, stock, or deliver them.
Role # 6. Truck Wholesalers:
Truck wholesalers work in the perishable-goods, trade. They specialize in delivering products that they stock in their own trucks. The system works for perishable products with a daily demand, such as fruit, vegetables, poultry, and food products. Truck wholesalers provide almost the same functions as full service wholesalers and have the advantage that they deliver perishable products that regular wholesalers do not carry.
Retailers know where these trucks are parked (such as vegetable mandi) and gather in the early morning and collect their requirements. In several towns, farm mandis are organized where farmers or wholesalers bring their trucks, and retailers and hawkers pick up their requirements on a daily basis.
Traditionally, these wholesalers would print catalogues and distribute them widely to smaller industrial customers or retailers, operating in the hardware, jewellery, sporting goods, and specialty goods. However, now they have evolved into online wholesalers. Websites such as indiamart(dot)com and others, provide wholesalers a platform to showcase their goods and retailers can place orders on them directly.
India has a large number of producer cooperatives, with the most famous one being Amul. Cooperatives usually develop in agricultural markets where there are many small producers. In India, milk cooperatives have been very successful in many states.
Examples of such organizations are Indian Coffee House, Indian Farmers Fertiliser Cooperative Limited (IFFCO), Kaira District Co-operative Milk Producers’ Union, Karnataka Milk Federation, Krishak Bharati Cooperative Limited, and Mother Dairy.
Producers’ cooperatives collect the produce and sort them; they may even have processing units and this result in improving the quality of farm products offered to the market. Sometimes the cooperatives have their own brands as well.
These wholesalers specialize in non-food products sold through supermarkets, large stores, and grocery stores. They display the goods on the premises of the retailer and pay them a percentage of sales. This saves the store from buying and stocking, or with reordering and maintaining the displays of goods.
Apart from the above, there are some other agents/ wholesalers who offer different services in the distribution of goods. Some agents do not take possession of the goods but simply dispatch and forward them, whole others take delivery of the goods and process them.
In doing so, they add value to the products and provide invaluable services both to the manufacturer and customer described as follows:
According to the section 65(16) of Finance Act, 1994, as amended, a C&F agent has been defined as ‘any person who is engaged in providing any service, either directly or indirectly, connected with clearing and forwarding operations in any manner to any other person and includes a consigning agent’.
The service provided by them has been defined as any service provided to a client, by a C&F agent in relation to clearing and forwarding agents are engaged/ appointed by manufacturer of goods (both excisable and non-excisable goods).
A C&F agent normally undertakes activities as follows:
a. Receiving the goods from the factories or premises of the principal or his agents
b. Warehousing these goods
c. Receiving dispatch orders from the principal
d. Arranging dispatch of goods as per the directions of the principal by engaging transport on his own or through the authorized transporters of the principal
e. Maintaining records of the receipt and dispatch of goods and the stock available at the warehouse
f. Preparing invoices on behalf of the principal.
Though the C&F agent provides a service to the manufacturer in handling goods, the responsibility for depositing service tax lies with the manufacturer, unlike in the case of other service tax levies where the service provider is the person responsible for collecting the service tax.
Under the Finance Act, 1997, the value of service rendered by a clearing and forwarding agent has been defined as the gross amount charged by such agents from the client for the services of clearing and forwarding operations.
For other services rendered, the C&F agent receives commission or remuneration, which usually consists of two components:
1. Minimum commission on a flat rate or turnover basis depending on the packages/ consignment handled
2. A variable commission based on performance, which is computed on the performance indicators agreed upon between the agent and the principal. This is usually given as a percentage of the turnover.
The above two components constitute the remuneration or commission paid to the C&F agent by the principal.
A stockist is a dealer who undertakes to maintain stocks of a specified product in return for favourable buying terms granted by the manufacturer of the product.
The definition is wide enough to include any firm or persons who stock goods. They may or may not undertake selling activities. A stockist is a way of achieving market penetration because he makes available a company’s products in local areas or small markets.
However, the definition also includes large dealers in cities who have large warehouses. The difference between a stockist and a wholesaler is that the former merely agrees to keep goods from where traders can pick up their requirements.
When companies do not find it profitable to appoint a full service wholesaler, or when volumes are very small, companies prefer to appoint stockists. Sometimes these are retailers who already have some storage facilities. Smaller companies and direct marketing companies may even appoint individuals to carry their stock.
A large company, Hindustan Unilever has appointed women in villages to be their stockists under its ‘Project Shakti’. Sometimes wholesalers too appoint stockists in areas that they cannot serve directly. In rural areas a retailer may agree to be a stockist for a city-based wholesaler.
By appointing stockists, companies and wholesalers can penetrate into the markets where they otherwise cannot. The stockist is assisted for sales by the company salesman and earns commission for stocking goods.
Becoming a stockist is a way of getting employment. Unemployed people find ways of getting an income with a relatively small investment, as the advertisement for a stockist shows. Retailers who already have space can enhance their product lines by becoming stockists for companies.
The system suits specialized products. A cosmetics company, for instance, may appoint a beauty parlour in a city as its stockist. The products are used not only by the stockist herself but other parlours can pick up their requirements from this parlour.
A bread manufacturer, Roberts Bakery in Northwich, UK, appoints bakers as its stockists. It operates a van sales delivery operation for smaller retailers, including independent shops, caterers, cafes, bars, and organizations that regularly purchase bread, including hospitals and schools.
It promises a dedicated Roberts Bakery delivery representative in a branded vehicle. It provides point of sale fixtures, and the bakers are supported by team leaders at the head office and regional development managers. Bakers can make deliveries in the early hours and also place the product on their shelves, thus extending their product line.
A reseller is a company or individual that purchases goods or services with the intention of reselling them rather than consuming or using them.
A reseller buys goods from a manufacturer and may resell them to customers unchanged. Or the reseller may enhance the product by providing additional products or services, in which case he is called a value-added reseller (VAR). A VAR is a channel partner who adds value to a supplier’s product before selling it to the end customer.
For example, dealers of computers are usually VARs. They add value to the customer by loading the desired software on it, without which the machine would be worthless to the customer. They also enhance products by bundling them with printers and power supplies, which are again essential for the customer. Further, they provide after-sales service locally so that the customer does not have to call the manufacturer for every fault.
Resellers are also agents of direct marketing companies who pick up goods from the company depot. In this case, the goods are sold to customers without any modification.
But other products require some modification. For instance, the computer dealer modifies the product by adding an operating system and other software on it. In this case the dealer is modifying the product and adding value to it. Many VARs operate in the technology business, with their added-value being a customized version of software. Some resellers buy domain names in bulk and then sell to individual customers. Value is added by providing add-ons, like assistance in building a website.
Companies realize the power and value of VARs. A company like Motorola is able to use its channel partners’ expertise and offerings combined with Motorola’s technology and support to present a combination to deliver solutions to customers. Other companies too use VARs effectively.
Engineering companies too appoint VARs. General Electric (GE) is able to leverage the expertise of its channel partners by adding value to its own products. Channel partners provide local technical consulting services, system integration services, and training services, add complimentary products based on GE’s Smallworld Core Spatial, Enmac, or hardware technology, and thus enhance the sales of the company’s products. This is because customers look for complete business solutions rather than mere products, and this is where VARs help.
Wholesaler – Services Provided by Wholesalers to Manufacturers and Retailers
Another interesting feature of a wholesaler is defined in terms of the services that they offer to both the manufacturer at one end and to the retailer at the other. Wholesalers offer different types of services to manufacturers and retailers.
Manufacturers employ wholesalers as they expect to gain through the specialization and skills provided by them in performing certain critical functions.
Wholesalers in reality represent the manufacturer to the retailer or the industrial buyer. This is in itself an important service in a large and diverse country like India. Wholesalers negotiate with retailers or industrial buyers and enter into transactions on behalf of the manufacturers.
For instance, if the manufacturer is located in north India and would like to sell to an industrial buyer located in a south Indian state, given the geographic and cultural distance, it will be very inefficient for the manufacturer to deal with the customer directly.
Further, a direct involvement may not lead to an enduring relationship as the manufacturer will not be able to maintain a day- to-day direct relationship with the buyer. In such a scenario, it will be more efficient to use the services of a wholesaler to represent the manufacturer. In practice, wholesalers lend their sales force to manufacturers.
Wholesalers also manage the manufacturer’s inventory to a large extent. Even when a manufacturer has a well-developed inventory management system, it is often not adequate while dealing with thousands of small retailers spread across the length and breadth of the country.
Many small retailers do not have the capacity or inclination to stock a large inventory, and hence would prefer to make frequent orders of small quantities of items. Servicing such retailers is very costly and difficult for a medium-sized manufacturer with its manufacturing activity concentrated in a single location. In such cases, the manufacturer has no option but to rely on the services of a wholesalers to provide the inventory management services for the last mile.
Wholesalers sometimes provide a cushion for the manufacturers against defaults from buyers, by assuming the losses from such buyers. A manufacturer may not be willing or able to assume the losses created by defaulting buyers, since it may be operating on a thin margin. Occasional defaults by a significant percentage of large buyers could lead to substantial losses.
Wholesalers often buy in bulk from the manufacturer under immediate payment terms and thee sell to buyers. Some of these buyers may end up as defaulters, leading to losses for the wholesaler. But the manufacturer is protected, as the wholesaler has already made the payment for the goods. The wholesalers may therefore charge a higher margin from the manufacturer, in case they have to deal with potential defaulters.
Wholesalers are also an important conduit of information for manufacturers. Since retailers typically have no contact with the manufacturers, it is the wholesalers who are in a position to collect up-to-date information from the retailers. Information collected in this manner is then passed on to the manufacturer.
Such information may include crucial information about customer opinion about the product, market intelligence that deal with the competitor actions, and even persistent problems with the product. Without such information it will be difficult for the manufacturer to modify its products or develop a meaningful strategy for the future. In several instances, the manufacturer’s channel information system is linked to the wholesaler through a proprietary electronic data interchange (EDI) system.
Several wholesalers provide after-sales services or installation services to industrial buyers on behalf of the customers. When the manufacturer is located much further away from the customer’s location, a facility to receive after-sales service at a nearby location may be required in order to attract customers. Wholesalers also provide services to retailers, or the industrial buyers they sell to.
Buyers who buy from the wholesalers are either retailers who have to then sell the goods to the end consumers, or industrial buyers who use the purchased item in one form or the other for another product that will then be sold to a consumer.
As in the case of manufacturers, the most crucial service provided by wholesalers to a buyer is inventory management. Often small retailers do not have the resources or the capabilities to effectively manage their inventory. Hence they often order small quantities frequently so that they do not have to maintain an inventory. A wholesaler who is willing to serve such small retailers is effectively managing their inventory.
Wholesalers also provide a communication channel between retailers, industrial buyers, and manufacturers. This is required when the manufacturer is either too big or is located too far away from the buyer. As the wholesalers directly deal with the manufacturer on a regular basis and its organizational capacity and resources are larger than the retailer, a manufacturer is more willing to communicate with a wholesaler, rather than entertain communication from individual retailers.
Wholesalers often provide credit lines to retailers or industrial buyers, thereby helping them to purchase goods without risking their profits. This is often important in the case of perishable commodities where the probability of a certain quantity of stock being sold cannot always be predicted.
Wholesalers either take back the unsold items, or charge only for those items that were eventually sold to end customers. Wholesalers also help in reverse logistics. In several industries, it is important to take back unsold goods or other accessories (e.g., bottles) and return these to the manufacturer so as enable the retailer to restock new items in the storage space available.
Wholesaler – Market Activities of Wholesalers
The wholesaler conducts various market activities. Activities related to market information and promotional activities have been described above.
In addition, wholesalers provide market coverage, hold stocks, and provide services at the local level, as described below:
i. Market Coverage:
How much market penetration in a city is achieved by the company, depends upon how effective is the wholesaler. In the case of consumer goods, companies can usually assess the effectiveness of the wholesaler by asking certain questions about him or her. Does the wholesaler reach all the retail shops in the city?
Does the coverage include kiosks and small retailers? Does it include all the neighbourhoods? These questions will determine market coverage and, consequently, market share of products. Consumer goods companies will usually pressurize their wholesalers to increase their market coverage.
ii. Retail Contacts:
Retailer-contacts and relationships are best managed by the wholesaler. Retailers begin to recognize the salesmen who come to visit them and this leads to efficient services and long-term relationships. Many issues like spoilage or damages are resolved on the ground by salesmen. When a company wishes to expand its area or reach, it will look to wholesalers to identify further retail outlets.
iii. Holding Stocks:
The wholesaler holds adequate stocks to meet the retail demands for a period of time. This calls for warehousing in an area from where goods can be dispatched quickly. Sometimes retailers collect the goods themselves in case they have a stock-out. Urgent requirements of goods by retailers can be met locally through wholesaler warehouses.
iv. Order Processing:
The wholesaler collects orders from various retailers in his territory— sometimes for various products—and arranges for delivery in lots. At the same time, he keeps track of holding stocks and places an order on the company considering the transport and delivery time from the factory. Thus, order processing is an important task that must be done effectively in order to prevent stock-outs.
v. Market Information:
Market information is an important input provided by the wholesaler. His salesmen must keep track of hoardings or posters put up by rivals, sales schemes offered by them, customer demand based on feedback from retailers, margins offered by competitors, and other activities being conducted in the market.
vi. Customer Support:
The wholesaler provides information and support to retailers. For instance, small retailers may need credit facilities; so also in poor neighbourhoods, the wholesaler can extend such facilities. Sales promotion support and point of purchase (POP) publicity can also be provided by salesmen.
Wholesaler – How to Manage Wholesale Operations?
From the manufacturer’s point of view, managing wholesalers is undoubtedly the most important issue in the overall channel management task, as manufacturers might not always have direct contact with retailers. However, from the point of view of the wholesaler, there are several dimensions unique to managing their relationship with the manufacturer.
Unlike retailers, wholesalers do not have much of an interface with the end consumers and hence, both their supplier and customers have absolutely commercial and economic motives in their interactions with the wholesaler. Wholesaler management in that sense basically involves balancing the relationship with the supplier and customers in the most profitable and sustainable manner.
A wholesaler therefore has to protect the interests of both the supplier and the customer in the best possible manner without sacrificing its own profits. For the wholesaler, several strategic issues assume importance. Some of these issues include- (i) fixing the operational margin and (ii) tackling issues of asset specificity and opportunism.
These are given below:
The ability to fix the operating margin depends upon the relative power of the wholesaler in the channel set-up. For a wholesaler, profits are made through the margin provided by either the manufacturer or the customer for the services rendered. Often, in channel systems where the manufacturer is the most powerful entity by virtue of either the brand equity or size, wholesalers are supplied items at a certain discounted price.
The retail price (the price at which the product is sold to the end consumer) is fixed, and the wholesaler has to sell the product to the retailer at a price which provides an attractive business proposition to the retailer even after selling the product at the fixed retail price to the consumer. The wholesaler therefore retains a very thin margin at the best of times.
A wholesaler has to therefore manage its operations such that its fixed costs are completely covered by the margin left between the price paid to the manufacturer and the price at which the products are sold to its customer (i.e., the retailer). It is not always, however, adequate to just cover the direct expenditure and a small profit with the thin margin provided to the wholesalers.
For instance, if the wholesaler is assuming significant risks in the transactions by-way of taking responsibility for unsold goods or loss of goods through breakage or pilferage, the margin commanded by the wholesaler should also cover provision for these unanticipated losses. This is of course a contentious issue in most transactions. Wholesalers are often charged with expropriating unjustified margins much higher than the overheads.
This is usually because the extra margin charged by the wholesalers is by way of assuming the significant risk due to fluctuating demand, or due to possible damage or pilferage. Such contingencies may happen only very rarely, but when it does happen (such as a fire in the warehouse, or goods left unsold due to change in weather conditions), the wholesaler has to meet a huge liability.
Hence the wholesaler has to prepare for such an eventuality. In the entire channel set-up, since it is the wholesaler that assumes this responsibility, they may appear to be charging a higher margin compared to the manufacturer or the retailer who does not have to bear this risk.
Another reason for the wholesaler to charge a higher margin is due to responsibility of payment collection from retailers or industrial buyers with questionable credit risk. Often manufacturers would like to pass on the risk associated with payment collection to wholesalers and collect payments for the goods sold to the wholesaler either in advance, or before the wholesaler is able to collect payments from the retailers or industrial buyers.
In such cases the wholesaler is financing the working capital of the manufacturer and the wholesaler’s margin should reflect this service rendered to the manufacturer. It is therefore clear that a wholesaler’s margin will never be equivalent to the direct cost of the value added by its physical distribution activities.
In those channel set-ups where the wholesaler deals with several small manufacturers, there is immense scope for wholesalers to fix their margins.
Another important issue that could crop up in the relationship between the wholesaler and the manufacturer is the question of asset specificity. Manufacturers often prod the wholesalers to invest in assets that are very specific to the relationship and become worthless outside of the relationship.
For instance, the manufacturer might compel the wholesaler to invest in a proprietary electronic data interchange (EDI) system which is quite costly and cannot be used outside of that particular relationship.
Committing to such investments will restrict the wholesaler’s freedom to break the relationship with the manufacturer in case the commercial terms and conditions of the relationship turn out to be less attractive.
Such a relationship could also make it possible for the manufacturer to indulge in acts of opportunism without much of a risk. A wholesaler should therefore ward off against committing towards investing in specific assets. Ideally, a wholesaler should adopt long-term policies towards asset-specific investments.
Asset specific investments must be assessed not just on the short-term cost-benefit analysis, but on such criteria such as the long-term value of the asset, long-term impact on the firm’s freedom to act, and long-term cost of the investment. Investment in a proprietary EDI might in fact have some positive impact in the long run. For instance, it will help the wholesale firm to learn about operating EDI and larger issues of channel communication.
Equally important for a wholesaler is to protect itself against manufacturer’s opportunism. A manufacturer may indulge in opportunistic behaviour even when there is no asset-specific investment. One of the most used tactics is to appoint additional wholesalers in an area where the existing wholesaler is operating well. Wholesalers should always anticipate possible opportunistic behaviour from the part of the manufacturer and develop contingency plans.
From the part of the distributor, a win-win, functional tactic against manufacturer opportunism is to make itself extremely valuable by operating effectively in an area, and developing close relationships with retailers or industrial customers such that the manufacturer will ultimately lose by indulging in opportunistic behaviour. One of the most important assets as far as a wholesaler is concerned is the knowledge that it has accumulated over the years about the local market.
Such knowledge includes knowledge about the main players in the area, key individuals who are very influential among buyers, and the personal relationships that they have established over the years with these key individuals. Wholesalers are often reluctant to share knowledge about the local market due to the fear that the manufacturer might use this knowledge to independently establish itself in the market, thereby harming the larger interests of the wholesaler.
Wholesaler – Measuring Wholesaler Performance (With Guidelines)
From the manufacturer’s point of view, managing wholesalers so as to achieve maximum efficiency and effectiveness is critical to the success of their marketing strategy, since in many instances wholesalers form the backbone of the distribution channel, and the entire channel strategy is indirectly implemented through the wholesalers.
Further, if wholesalers perform poorly or are not up to the levels envisaged by the manufacturing firm, it is often very difficult to rectify the mistakes promptly as wholesalers are independent of the manufacturer. It is therefore necessary for the manufacturer to constantly assess the wholesaler’s performance possibly even on a day- to-day or weekly basis, in order to detect any deviation from the overall channel strategy before it becomes detrimental.
For instance, if a manufacturer wanted its industrial distributors to promote new products actively to its industrial buyers through the distributor’s sales force, it is necessary that the manufacturer monitor this activity regularly through all possible means before it is too late and the distributor loses several potential orders.
In the absence of a monitoring mechanism fit to purpose, wholesalers will have an incentive to indulge in opportunistic behaviour which in effect will be detrimental to the interests of the entire channel.
Monitoring activities should not, however, be over-intrusive and appear to infringe on the autonomy of the wholesaler. This could lead to a loss of trust and confidence in each other and ultimately result in dysfunctional conflict. The monitoring mechanism should therefore be both effective as well as supported by the wholesaler.
To that extent, the monitoring mechanism should be transparent and well explained to the wholesaler. Ideally, the monitoring mechanism should be set up with active inputs from the wholesalers.
In the first instance, the monitoring mechanism should have a well-defined set of objectives that conform with the overall objectives of the channel system. The set of objectives could be redesigned periodically in order to reflect the changing priorities of the channel.
Ideally, these objectives should either be developed jointly, or after consultation with all or at least some of the wholesalers. Each of the objectives listed should be clear and should have a purpose in achieving the overall channel strategy.
Once the channel objectives are clearly set out, the performance measures corresponding to each of the objectives should also be defined clearly. Performance measure? are well-defined outcomes that benchmark the degree to which the objective were achieved. For instance, if one of the objectives is to reduce overall transportation costs, the performance measure could be the percentage of transportation costs incurred by the wholesaler in comparison with the same time last year.
The performance measures should also therefore be accepted by members of the channel and the logic linking the performance measure to the objectives should be clear and evident. This is necessary, since in several instances the channel objectives could involve activities that cannot easily be defined in terms of clear-cut performance measures. An example of such a situation is the channel objectives towards customer satisfaction.
In most instances measuring customer satisfaction could be contentious and setting a logical performance measure may not always work. A questionnaire-based measure in this instance may be unreliable and invalid if utilized across several wholesalers spread across the country.
Once the performance measures are defined, it is also important to define and establish the larger information system that gathers precise and accurate information about these performance measures. In the absence of a credible and accurate system, the entire monitoring effort may falter. Sometimes the scope of the performance monitoring effort may have to be pruned due to the difficulty in gathering credible and periodic information.
An alternative to this problem is to use only easily measurable objectives such as sales growth. Such an approach could be easy to implement and measure, but be too simplistic and eventually fail to capture all the aspects of a complex system. In the end, the manufacturer will have to work out a performance measurement model that is both purposive and easy to implement.
Wholesaler – 5 Main Marketing Decisions Taken by the Wholesalers
The wholesalers have to take following marketing decisions:
1. Selection of Target Market:
The wholesalers can select the most profitable customers (retailers) instead of serving to all. The wholesaler can select specific segment(s) as a target market and design different strategies.
The criteria for the selection could be size (e.g., only large retailers, or only co-operatives, etc.), type of customer (e.g., fixed price retailers, supermarkets, chain stores, etc.), need for service, or some other criteria. They can select the most profitable segments and discourage other customers by offering no or very less credit, imposing large quantity ordering requirements, adding surcharges, etc.
2. Product Assortment:
The manufacturers expect the wholesalers to carry full line and larger stock. However, while maintaining the adequate stock and product lines, the wholesalers have to balance between their profit level and the manufacturers’ expectations. They should be careful in selecting product lines and can carry a large inventory of fast moving, more profitable products. They can use ABC analysis for the inventory control, where A stands for the most profitable item and C stands for the least profitable item.
The wholesalers add their profit margins while fixing the prices of the products. However, a profit percentage may vary from company to company, product to product or time to time. They may compromise on the profits when they want to clear the old stock or outdated products or even when they want to kill their competitors. Depending upon the market situations, the pricing decisions should be changed by the wholesalers.
The customers of the wholesalers are the business buyers and not the end users. Hence the aesthetics, atmosphere of the wholesalers’ outlet is least important. They can locate in low-rent, low- tax areas and pay little attention and amount on the physical set up of their shops. However, progressive wholesalers automate their warehouses and use advanced technologies, especially in material handling and order processing systems. As well as, use of Computers is inevitable in accounting, billing, inventory control and forecasting.
Wholesalers may use different promotion mix than that of the manufacturers.’ They give more emphasis on personal selling and help retailers to undertake various sales promotion schemes. Advertising decisions are mainly taken by the manufacturers. They expect co-operative advertising, i.e., manufacturers should jointly undertake advertising and share the advertising expenses. The wholesalers should develop an overall promotion strategy that includes advertising, sales promotion, publicity, and personal selling.
Wholesaler – Benefits for Suppliers and Retailers
The benefits wholesalers offer to members of the channel can be significant, though specific benefits vary by type of wholesalers.
Yet there are two particular benefits – one for suppliers and one for retailers, that are common to most wholesale operations and are worth further discussion:
1. Provide Access to Products:
Wholesalers are in business to provide products and services to buyers (e.g., retailers) who either cannot purchase directly from suppliers because their purchase quantities are too low to meet the supplier’s minimum order requirements or, if they purchase directly from suppliers, will pay higher prices compared to bigger retailers who obtain better pricing by purchasing in greater quantities.
Since wholesalers sell to a large number of buyers their order quantities may match those of large retailers thus allowing them to obtain lower prices from suppliers. Wholesalers can then pass these lower prices along to their buyers, which can enable smaller retailers to remain competitive with larger rivals. In this way transacting through wholesalers is often the only way certain retailers can stay in business.
2. Provide Access to Markets:
Providing smaller retailers’ access to products they cannot acquire without wholesaler help, offers a benefit for suppliers as well since it opens additional market opportunities for suppliers namely, suppliers can have their products purchased and made available for sale across a wide number of retail outlets.
More importantly, for a company offering a new product, convincing a few wholesalers to stock a new product may make it easier to gain traction in the market as the wholesaler can power with the smaller retailers convincing them to stock the new product.
Considering a wholesaler can serve hundreds of small retail customers, the marketing efforts required to persuade the wholesaler to adopt a new product may be far more efficient compared to efforts needed to convince individual store owners to stock the new product.
Wholesaler – Issues Faced by Today’s Wholesalers
The wholesale industry has served an important role in the distribution process for well over 100 years. Yet the challenges they face today are raising the stakes as many wholesalers fight to maintain their market position.
Some of the issues faced by today’s wholesalers include:
The growth of the Internet as a communication and distribution channel has lead many to conclude that wholesaling will lose its importance as manufacturers and final buyers learn to transact directly. This so called “disintermediation” of marketing channels is a real concern to some wholesalers, especially those that do not function as a dominate party within a distribution channel.
For example, assume a retailer operating a gift card store uses a wholesaler only to purchase a specific manufacturer’s products. In this situation, if the manufacturer begins to offer direct purchasing to smaller customers the wholesaler may have little leverage in efforts to retain the retailer as a customer.
In instances of disintermediation wholesalers face the challenge of creating greater value for their services, thus making the retailer’s decision to switch more difficult.
2. Facility Location:
Wholesalers who are heavily involved in product shipment may spend considerable time evaluating sites for locating facilities. For organizations needing very large facilities, the decision as to where to locate becomes more difficult and more expensive the closer the location is to major metropolitan areas.
In fact, land costs in some regions of the world have risen so high that utilizing this space for wholesaling operations may not be feasible. In addition to land costs, facility location is also affected by access to adequate transportation, such as roads, seaports, airports and rail terminals. Areas with available land often lack the infrastructure needed to run wholesale facilities unless expensive and time- consuming improvements (e.g., build highway, extend rail line, etc.) are made.
3. Transportation Costs:
For wholesalers involved in transporting products, the worldwide rise in fuel costs has forced a close examination of how they handle product distribution. Transportation expense can represent a significant portion of overall distribution costs and these higher costs are often passed on to customers in the form of higher product prices.
This problem also presents opportunities for wholesalers that work hard to control fuel costs with such methods as, using equipment and delivery vehicles that are more fuel efficient; utilizing computer routing software to determine less costly delivery routes, and offering greater incentives to customers to accept deliveries during less congested times of the day.
4. Adapting to New Technologies:
In addition to technologies to lower fuel costs, other technologies that assist the distribution process are offering both advantages and disadvantages to wholesalers. On one hand new technologies, such as radio frequency identification tags (RFID) placed on shipped products allow wholesalers to maintain tighter control over their distribution activities. But gaining the benefits associated with these new distribution technologies can be expensive in terms of acquiring and learning to use.
5. Offering Non-Product Assistance:
Wholesalers are finding that offering products is not the only thing of interest to their buyers. Many customers also want wholesalers to offer additional Value-added services.