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 goods and services to buyers (e.g., retailers), who may not be able to make their own purchases for one of the following reasons:
- the buyer is unable to purchase directly from suppliers because their purchase quantities are too low to meet suppliers’ minimum order requirements, which are often quite high; or
- the buyer may be able to purchase directly from suppliers but they must pay higher prices compared to other buyers, who obtain better pricing because they purchase in greater quantities
Since wholesalers sell to a large number of buyers their order quantities may match those of large retailers, which may allow 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 the 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.