Wholesaling Tutorial

Wholesaling TutorialAs we discussed in the Retailing tutorial, it is more the rule than the exception that marketers are not able to handle all distribution activities on their own. Instead, to get products into the hands of customers often requires the marketer to seek assistance from third-party service firms. In addition to retailers, marketers should be aware of other resellers whose expertise in certain facets of distribution can prove quite beneficial. Additionally, other activities associated with moving products must also be well understood and often requires the help of others.

In this section of the Principles of Marketing Tutorials we examine another reselling group - wholesalers - and see how they come into play when a marketer attempts to reach the final customer. We will show that wholesalers exist in many formats, affect a wide range of industries, and offer different sets of features and benefits depending on the markets they serve.

We will conclude our discussion of wholesaling with a summary chart that makes it easy to compare various types of wholesaling formats.

Wholesaling is a distribution channel function where one organization buys products from supplying firms with the primary intention of redistributing to other organizations (but, in general, not to the final consumer). A wholesaler is an organization providing the necessary means to: 1) allow suppliers (e.g., manufacturers) to reach organizational buyers (e.g., retailers, business buyers), and 2) allow certain business buyers to purchase products which they may not be able to otherwise purchase. According to the 2002 Census of Wholesale trade, there are over 430,000 wholesale operations in the United States.

While many large retailers and even manufacturers have centralized facilities and carry out the same tasks as wholesalers, we do not classify these as wholesalers since these relationships only involve one other party, the buyer. Thus, a distinguishing characteristic of wholesalers is they offer distribution activities for both a supplying party and for a purchasing party. For our discussion of wholesalers we will primarily focus on wholesalers who sell to other resellers such as retailers.

In the Retailing tutorial we showed how retailers can be categorized using different operational characteristics. Wholesalers can likewise be grouped together, though the characteristics are slightly different.

For our purposes we will separate wholesale operations based on four marketing decisions:

  • Products Carried
  • Promotional Activities
  • Distribution Method
  • Service Level

and one legal factor:

  • Product Ownership

As we discussed with our retailer categorization, these grouping schemes are not meant to be mutually exclusive. Consequently, a wholesaler can be evaluated on each characteristic.

The benefits wholesalers offer to members of the channel can be significant and involve most of the ones we discussed in the Distribution Decisions tutorial, though specific benefits vary by type of wholesaler. 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:

  • 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.
  • 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 yield 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.

Similar to how retailers can be categorized, wholesalers can also be classified by the width and depth of product lines they handle. The categories include:

  • General Merchandise – Wholesalers carrying a very broad line of products fall into the general merchandise wholesaler category. Like general merchandise retailers, the product lines these wholesalers carry may not offer many options (i.e., shallow depth). These wholesalers tend to market to the smaller general merchandise retailer such as smaller convenience or general stores.
  • Specialty Merchandise – Wholesalers focusing on narrow product lines but offering deep selection within the lines fall into the specialty merchandise category. Most specialty merchandise wholesalers direct their marketing efforts to specific industries. For example, specialty wholesalers supply such industries such as electronics, seafood, and pharmaceuticals.