WHOLESALING AND WHOLESALE MANAGEMENT
This presentation begins with a discussion of the definition and functions of wholesalers. Various types of wholesalers for both consumer and industrial products are discussed. Finally, strategic decision areas involving location, product/service mix and pricing and some legal dimensions of channel retail, and wholesale management. In addition agencies that facilitate wholesaling and trends in wholesaling are also discussed.
Wholesalers are marketing intermediaries who buy in large quantity and sell to other intermediaries, who buy for resale or for industrial use. According to this definition, a manufacturer may not be part of the wholesale trade but may perform a wholesale function if it sells its products to other manufacturers. A retailer could not be a wholesaler, although the retailer may perform a wholesale function marketing to other retailers.
Wholesalers perform a variety of functions essential to the marketing process; and frequently they are able to perform these functions more effectively and at lower cost than are other members of the distribution channel. A great variety of wholesalers perform some of all their functions, depending on their role and the needs .of the other members in the channel.
Buying and Breaking Bulk
The primary function of the wholesaler is to purchase in large quantities and then sell smaller quantities to other intermediaries – a process called bulk braking, the wholesalers interacts with many suppliers and tries to select an assortment of goods that best meets the needs of the wholesalers customers,
Wholesalers frequently assume the function of delivering products to retailers. Since the wholesaler is physically located close to the retailer than the manufacturer is, he can perform the delivery function more quickly. Besides delivering the product, the wholesaler may also the retailer’s shelves. For example, the rack jobber, the newest types of wholesalers, stocks the shelves for retailers and frees the retailer’s personnel from this task. Rock jobbers usually serve supermarkets and drug stress and such lines household items, cosmetics, trays, and novelty items.
Storage and Inventory Maintenance:
Wholesalers provide a warehousing or storage function that benefits both manufacturers and retailers. Manufacturers benefit because the warehousing done by the wholesaler reduces manufacturers cost on physical distribution and the capital needed to store larger inventories; The retailer benefits because the similar inventory that can carried results in higher turnover and less inventory investment.
The manufacturer of a product often has no regular direct contact with its customers. The wholesaler can serve as a communication link. Supplying information to manufacturers about customer’s reaction on products, competitive new products and price changes in the market place. And the wholesaler provides its customers valuable product information from the manufacturer.
Wholesalers provide two important financial functions; they often provide credit to their customer usually for a period of 30 days, with a discount for early payment. And wholesalers also provide financial assistance to manufacturers by placing orders early and by paying their’ bills promptly
Wholesalers engage in several promotional activities including personal selling, advertising, and sales promotion. Of these, the personal selling function is often the most valuable to manufacturers. Advertising usually involves developing sales catalogues for convenient inspection of product items and placing advertisements in trade journals. A common sales promotional activity is to set up point of purchase display and shelf stage informing retailers’ customers of price-reduced specials.
The wholesaler assumes the risk associated with taking title and physical possession of goods and thus relieves the manufacturer of some risks. Wholesalers’ risks in the possible obsolescence of the product, theft and destruction by fire or other natural disasters. When granting credit, the wholesaler assumes the risk of the retailer or industrial buyer not paying for the goods.
Management Advice and Services:
Wholesalers frequently have contact with hundreds or even thousands of industrial accounts, wholesales thus learn great deal about successful and unsuccessful business practice, and this experience and knowledge is often passed to the wholesaler’s customers.
Some wholesalers conduct seminars to discuss trends id present new products and techniques to improve business operations. In addition wholesalers provide many other services, such as assisting in store layout, training sales leeks, setting up in-store displays. And inventory control.
II TYPES OF WHOLESALERS:
1. FULL-FUNCTION WHOLESALERS
Different type of wholesalers have developed to meet the peculiar needs of customers, some wholesalers provide full range of services discussed earlier, others provide the almost no services other than order taking and processing. In the following section we discuss the various wholesales: beginning with the three basic types of full-function wholesalers, merchant wholesalers, sales offices and branches, and agents, brokers and commission houses. Thereafter, limited-function wholesalers are discussed.
Merchant wholesalers form the largest group of wholesalers as measured by number of establishment and sales volumes. They represent what is commonly meant when the term “wholesale” is used. They usually sell to retailers and provide the full range of wholesalers’ services. The major types of wholesalers are “general-line” and “specialty-line”. General-line wholesalers carry only one or two lines of products but have great depth within the lines. Hardware wholesalers are good example. Specialist-line wholesalers are even narrower than general-line wholesalers. They carry only part of a product line but they provide greater depth for that product line. Specialty-line wholesales frequently handle products such as packaged foods, beverages, drugs cosmetics etc.
B. Sales Offices and Sales Branches:
A manufacturer-owned sales office may operate with only one or two employees. No inventory is held, and all deliveries of merchandise go directly from manufacturer to buyer. Firms may choose this method for economic reasons or because an efficient wholesaler is not available. A sales office gives the manufacturer complete control of the marketing of its products.
Manufacturer sales branches are similar to sales offices except that the branches do carry inventory, which allows quicker delivery to the customers. Because branches are often much larger than sales offices, they can provide more services. They differ from other wholesalers because they carry primary company’s products.
C. Agents, Brokers, and Commission Houses:
Sell part of a manufacturer’s output on contractor basis. They have little or no influence on price and usually have exclusive selling rights in a region since payment is not on a salaried basis, these agents offer advantages to small manufacturer and to firms whose markets are too geographically dispersed to make a company sales force economical. Manufacturer’s agents are familiar with buyers,| and they can be influential in opening new markets.
Handle a firm’s entire output they usually have more authority over price and may have some financing responsibilities. Because they are reimbursed on the commission or fee basis, selling agents are especially advantages to the small manufacturer. But selling agents are responsible for the entire selling and distribution task: firms using them give most of their control over marketing activities.
Specialize within some particular line and provide intermittent buying and selling services for a principal (manufacturer). They have Sitter, if any, authority over price or terms of sale but act as a liaison between buyers and sellers until an agreement is reached. Brokers can offer professional advice to firms as well as economic advantages to manufacturers.
Take physical possession of merchandise, arrange delivery to buyers, negotiate prices, and collect and remit proceeds of sales to manufacturer (principal). They are (common in the marketing of perishable goods (primary fronts and regulatable) and in the marketing of livestock such as pigs, and cattle.
2. LIMITED-FUCNTIQN WHOLESALERS
There are six basic types of limited-function wholesalers;. Drop shippers, truck distributors, mail-order wholesalers, cash-and-carry wholesales, cooperatives, and rack jobbers.
The Drop Shipper:
Takes title goods and extends credit to customers but does not handle stock, or deliver the goods. This wholesaler is merely an assembler of transactions, ordering goods directly from the manufacturer to be shipped directly to buyers. A drop shipper commonly sells products that are so bulky that additional handling would be expensive and possibly damaging. Because drop shippers do not handle the goods, they can operate at lower mark-up than full-service wholesalers.
Provide most of the same functions as the full-service wholesaler. They deliver goods stocked in their own trucks – usually perishable goods such as confectioneries, cigarettes, and sale dressing, truck wholesalers often carry goods that regular wholesalers prefer not to carry, and they call on small services stations who often forget to order small from a full-services wholesaler. Because of the amount of service they provide, truck wholesalers operating costs are relatively high.
Do everything full-services wholesalers do except send a saqles force into the field. Instead, they distribute catalogs to their customers, who are often small industrial buyers or retailers who might not be called on by other wholesalers. Mail-order wholesalers are common in hardware, jewelries, sporting goods, and general merchandize lines.
Do not send out sales representative but require customers to come to the warehouse, price up orders, pay cash and transport their own purchases. The shifting of thesis costs to retailers reduces the wholesalers’ costs and prices and is an economical way to serve low volume liters who are too small to be served profitably by a full-rice wholesaler.
Operate much like service wholesalers, but profits go the co-operatives customer members. Successful cooperatives emphasize the sorting out process to improve the quality of products offered to the market.
Specialists in non-food items sold through grocery and supermarkets. They concentrate on narrow hires such as house wares, cosmetics; toys and novelties, often displayed .them on racks that they own in the retailing stores. Rack jobbing is a fairly expensive service, with high operating costs; but his service frees retail management from merchandising the items involved.
3. INDUSTRIAL WHOLESALERS
Many wholesalers used in consumer product marketing are also used in industrial product channels. Examples are manufacturer’s sales offices and agents. Sales branches maintain an inventory to meet a substantial portion of demand from a given geographic area. Many branches also include service installation when pre-sale of post-sale services is part of the marketing program, sales branches are usually used by big manufacturing firms; they offer the possibility of lower marketing costs than other types individual wholesalers. These savings could be passed on to customers to gain a competitive advantage.
A manufacturer may choose between industrial distributors, agents, and brokers. Industrial distributors are full-service merchant wholesalers selling principally to industrial markets. They perform all or most of the marketing functions and stock the products they sell, their products include maintenance, repair, and operating supplies, original requirement supplies; operating equipment; and machinery, for the manufacturer, they provide intensive market courage and advise on local markets, convenient warehousing, and customer credit and billing. For the customers, industrial distributors act as purchasing agents, store and deliver goods, extend credit, provide services, and supply information. There are three types of industrial distributors:
General-line Distributors, which carry a complete assortment of goods in one line.
Specially Distributors, which concentrate on a limited range of products in a given line (such as bearing, abrasives nuts and bolts, or culling tools); and
The Combination House, which is involved in other forms of wholesaling in addition to industrial distribution. An example of the latter is an electrical distributor who sells to the construction industry, manufacturers, and retailers.
Are the most numerous of all intermediaries and second in total sales. The typical agent handless several brands of related but competitive goods and provide technical sales development as a principal service. The manufacturer sets Price, sales tertiary and terms of sales. Manufacturers’ agents are often used where sales potentials are sufficient to warrant direct-sales efforts, in cases of new product introduction, and when seasonal demand fluctuations occur.
Are the most important function intermediaries in terms of sales volume. They buy or sell on behalf of their principals. A broker operates on a single-transaction basis or on a service of related transaction. The principal service provided is price negotiation, so brokers tend to be concentrated in highly standardized lines that can be bought sold by description, such as agricultural raw materials. Circumstances favouring the use of a broker are wide mal variations in output and the desire for buyer or seller anonymity.
STRATEGIC WHOLESALERS MANUFACTURERS
The two major decisions confronting the management wholesaler operations involve the general area. Wholesalers usually concentrate in highly populated areas. Wholesalers are concentrated because the industries they are concentrated. Wholesalers locate near their target market to meet their customers’ needs quickly and reliably. Wholesalers need the warehousing, financing, and transportation facilities available in the metropolitan markets to provide these services
Wholesalers usually waste in the low-rent areas of the community. Every effort is made to hold down the costs of building and land-those aspects of wholesale operations, usually not visible to customers, who are most interested in the lowest possible price. Inexpensive facilities help wholesales maintain their net profit margins. In summary, the wholesale strategic location decision is to locate near their customers, on a tactical level, the decision is to minimize the land and building costs of the particular location.
2. Product/Service Mix
The types of products wholesalers usually handles
i) Non- perishable.
ii) Simple (not technically complicated), and can be
iii) Purchased from stock rather than customer-made.
Products without these characteristics usually cannot be handled effectively and efficiently by wholesales for example, technical equipment like a computer is usually sold -directly by the manufacturer to the industrial user.
A major strategic decision facing the wholesaler involves the completeness of the product in this decision its profitability of sportance of given customer who requests a specific product or service.
The service that a wholesaler provides is determined by the needs of its customers. For example, as retailers trim costs in order to compete in the discount segment of retailing, poor shelf displays and out-stock problems increase, manufacturers then have an increased needs for in store service such as replenishment of shelf stocks, checking inventory in retail out lets, and tidying displays, often these wholesalers services produce a doubling or tripling of retail sales for manufacturers clients.
At the wholesale level is a coxt-onaited approach in which wholesales mark up the products they purchase from manufacturers and suppliers. The mark up varies according to the type of product and services performed; it commonly ranges from 20 percent-to- 40 percent of the wholesalers’ costs of good sold for the full-services wholesaler such as the merchant wholesaler.
From a manufacturers’ perspective, establishing the price at which to sell products to wholesalers involves setting functional trade discounts, these discounts are based in the wholesalers’ place in the channel; they represent payment for performing certain marketing functions. A wholesaler may also received large discounts based on the competitive situation; if competition has reduced the wholesalers margin on product, the wholesaler might be able to negotiate a greater discount in return for helping implement the product manufacturers programme.
Wholesalers are often squeezed between manufacturers or suppliers (who demand lower prices). In fact, research indicates that industrial distributors believe too much emphasis on price is the problem most often encountered with their customers. As wholesalers improve operation through the use of computers, they should grow more sophisticated in their products.
4. Target – Market Decisions
Wholesalers need to define their target markets and try to sell to everyone. They can choose a target group customers according to size criteria (e.g. only large retailers), types of customers (e.g. convenience food stores f), need for service (e.g. customers who need no credit), or other criteria. Within the target group, they can identify more profitable customers and design stronger offers and build better relationship with them. They can propose automatic reordering system, set up management training advisory systems, and even supervise a voluntary chain. They can discourage less profitable customers by requiring e order or adding surcharges to smaller ones.
Wholesalers rely primarily on their sales force to achieve promotion objectives. They can benefit from adopting some of the image making techniques used by retailers. They need to develop ban overall promotional strategy involving trade advertising, sales promotion, and publicity. They also need to make greater use of supplier/manufacturer promotional materials and programmes.
IV. AGENCIES THAT FACILITATE WHOLESALING
The total marketing channel is more than a chain linking the producer, intermediaries, and buyer. Facilitating agencies – transportation comprises, insurance companies, advertising agencies, marketing research agencies, and financial institution-may perform activities that enhance’ channel function. However, any of the functions that these facilitating agencies perform may be taken over by the] regular marketing intermediaries in the chain.
The basic difference between channel members and] facilitating agencies is that channel members perform the negotiating functions (buying, selling, and transferring title), whereas facilitating agencies do not. In other words, facilitating agencies assist in the operation of the channel but do not sell products. The channel member may view the] facilitating agency as a subcontractor to which the various] distribution tasks can” be formed out according to the principle specialization and division of labour. Channel members (produces, wholesalers, or retailer) rely on ting agencies because they believe that these independent businesses will perform various activities more efficiently and more effectively than they could. They following sections describe the ways in which facilitating agencies provide assistance in expediting the flow of products through marketing channels.
Public warehouses are storage facilities available for a producers, wholesalers, and retailers may rent space in a warehouse instead of constructing their own facilities of using a merchant wholesaler’s storage services, many
warehouse also order, deliver, collect accounts, and maintain display room where potential customers can inspect products.
To use goods as collateral for a loan, a channel member (producer, wholesalers, or retailers) may place products in a boarded warehouse. If it is too impractical or expensive to “physically transfer goods, the channel member may arrange for a public warehouse to verify that goods are in a member’s own facilities and then issue receipts for lenders. Under this arrangement, the channel member retains] possession of the goods, but the warehouse had control, Many public warehouses know where they can borrow working capital and are sometimes able to arrange low-cost] loans.
Wholesalers and retailers may be able to obtain1 financing by transferring ownership of products to a sales finance company, bank or savings and loan association while retaining physical possession of the goods, often called) “Floor planning”. This form of financing enables wholesalers and retailers – especially automobile and appliance dealers to offer a greater selection of products for customers and thus increase sales when a product is sold, the: dealer may have to pay off the loan in immediately. The products financed through floor plans are usually well known, sell relatively easily, and present little risk.
Other financing functions are performed by factors – organizations that provide clients with working capital by buying their account receivables as collateral. Most factors minimize their own risks by specializing in particular industries factors usually lend for a longer time than banks, may help client improve their credit and collection and may also provide management expertise.
Rail, truck, air, sea, and other carriers are facilitating agencies that help manufacturers and retailers transport products. Each form of transportation has its own advantages. Railroaders ship large volumes of bulky goods at how cost. Air transport is relatively expensive but often preferred for shipping high-volume perishable goods. Trucks, which usually carry short-haul, high-value goods, carry more and more products because factories are moving closer to the markets. As a result of technological advances, pipelines how transport powdered solids and finished solid materials, as well as petroleum and natural gas.
Transportation companies sometimes take over functions of other middlemen. Because of the ease speed of using air transportation for certain types of product airfreight companies, can eliminate the need of maintain^ large inventories and branch warehouses. In other cases freight forwarders perform accumulation functions combing less-than-full shipments into full loads and passing in the saving to customer.
Trade Shows and Trade Marts:
Trade shows and trade marts enable manufacturers wholesalers to exhibit products to potential buyers and thus help the selling and buying functions.
Trade Shows are” industry exhibitions that offer both selling and non-selling benefits on the selling side trade shows let vendors identify prospect gain access to decisions makers; disseminate facts about their product services, and personnel, and actually sell products service current accounts through contacts at show. Trade show also allows a firm (manufacturer wholesalers/distributor to reach potential buyers who approached through regular selling efforts. The non-selling benefits include opportunities to maintain the image with competitions, customers, and the
Industry, gather information about competitor’s product and ‘and identify potential channel members. Trade show has a positive influence on other important marketing including maintaining or enhancing company moral, product testing, and product evaluation.
Trade Marts are relatively permanent facilities that firms can rent to exhibit products year round or over a specified period of time. At these marts, such products as furniture, home decorating supplies, toys appliance, toys, clothing, and gifts in Europe and America, trace marts are wasted in several cities. For example. The Dallas Marker Center, which includes the Dakar trade mart, the Home furnishing the world trade center, the decorative center, market n for mart, and the apparel mart, is house in six buildings designed specifically for the convenience of professional buyers.
V CHANGING PATTERNS AND TRENDS IN WHOLESALING
The wholesaling industry is becoming much more competitive since the 1990s. The distinction between wholesaling activities that any business can perform and the traditional wholesaling establishment is blorning. Changes in the nature of the marketing environment itself have transformed various aspects of the industry. The following changes are discussed in the subsequent sections. Technology, manufacturer-wholesaler relationships and competition the trade toward globalization of word markets has regulated in two predominant changes – consolidation and new types of wholesalers.
Wholesalers have brought about increasing reliance on computer technology to expedite the ordering delivery, and handling of goods. This efficient technology is allowing retailers to take over many of wholesalers’ functions. This trade will continue as retailers grow larger and as inventor and computerized systems on the checkout lines of become more sophisticated and effective.
Since the 1990s, wholesale-distributors have been undergoing “aggressive restructuring”, competitive pressures have been keeping sales prices in check, resulting in shrinking gross margins. Consolidation has been reducing significantly the number of firms in the wholesaling industry, while remaining larger firms are using technology-driven operating techniques to improve productivity. Wholesalers are increasingly seeking new services of capital to find these tents investments in technology and market expensive in their pursuit of providing value-added services.
Manufacturers have the option of bypassing wholesalers or replacing inefficient wholesalers with better Manufacturers major complaints against wholesalers are as follows: they do not aggressively promote the manufacturer’s product line, acting more like order takers, they do not carry enough inventory and therefore fail to fill customers orders fast enough; they do not supply the manufacturers with up-to-date market and competitive information; they do not attract high costs; and they charge too much for their own costs; and they charge too much for their services.
Progressive wholesaler – distributors have been adopting their services to meet the changing needs of their suppliers and target customers. They are recognizing that the channel. They are constantly improving their services and / or reducing their costs.
Leading industrial distributors are now strengthening their relationships with their suppliers (manufacturers) through the following four ways:
Seeking a clear agreement with their manufacturers about their expected functions in the marketing channel;
Gaining might-into the manufacturer’s requirements by visiting their plants and attending manufacturer association conventions and trade shows:
Fulfilling their commitments to the manufacturer by meeting the volume targets, promptly paying their bills, and feeding back customer information to their manufacturers; and
Identifying and offering value added services to help ir suppliers.
Like in major industries, the wholesale industry is experiencing a great number of mergers. This trend is drastically reducing the number of independent wholesalers. Wholesaling firms are griming through merger or acquisition. Primarily to achieve more efficiency in the face of declining profit margins. Consolidation also gives larger wholesales more pricing power over producer. On the other hand wholesalers’ larger customers who want to deal with a few suppliers who provide specialized services and deliver products on time are demanding consolidation. In some cases companies are buying everything from one wholesaler. One of the results of the wave of consolidation in the wholesale industry is that more wholesalers are specializing; focusing on a single product line. The new larger wholesalers can afford to purchase and make use of more modern technology to physically manage inventories, provide computerized ordering services even help manage their retail customers’ and
New Types of Wholesalers:
The trade toward larger retailers – superstores and the like – will offer opportunities to, as well as threaten, wholesaling establishments. Opportunities will develop from the expanded product lines of these mass merchandisers. A merchant wholesaler of groceries, for instance, may want to add other low-cost, high-volume products that are sold in superstores. Some limited-function merchant wholesalers, however may no longer have a rule to play. For example, the volume of sales may eliminate the need for rack jobbers, who usually handle show-morning products that are purchased in limited quantities. The future of independent wholesalers, agents and brokers depends on their ability to delineate markets and furnish.
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