The wholesaler carries out the following functions:
- Negotiates with suppliers.
- Some promotional activities: advertising, sales promotion, publicity, providing a salesforce.
- Warehousing, storage and product handling.
- Transport of local and sometimes long-distance shipments.
- Inventory control.
- Credit checking and credit control.
- Pricing and collection of pricing information, particularly about competitors.
- Channel of information up and down the distribution network, again particularly with regard to competitors’ activities.
All of these functions would have to be carried out by each manufacturer individually if the wholesaler did not exist; by carrying them out on behalf of many manufacturers the wholesaler achieves economies of scale, which more than cover the profit taken.
The wholesaler also provides services to the retailers, as follows:
- Information gathering and dissemination.
- One-stop shopping for a wide range of products from a wide range of manufacturers.
- Facilities for buying relatively small quantities.
- Fast deliveries – often cash-and-carry.
- Flexible ordering – can vary amounts as demand fluctuates.
Again, from the retailer's viewpoint it is much more convenient and cheaper to use a wholesaler. Only if the retailer is big enough to order economic quantities direct from the manufacturer will it be worthwhile to do so. For example, few hairdressers are big enough to order everything direct from the manufacturers, so a large part of a salon's stock-in-trade is bought from wholesalers.
There are many different types of wholesalers:
- Merchant wholesalers buy in goods and sell directly to the retailers, usually delivering the goods and having a salesforce calling on retailers in their area. 195
- Full-service merchant wholesalers provide a very wide range of marketing services for retailers, including shop design, sales promotion deals, advertising (sometimes nationally), coupon redemption, own-brand products, and so forth. A good example is Spar, the grocery wholesaler, which supplies corner shops throughout the UK and parts of the rest of Europe. The shops carry the Spar logo and stock Spar’s own-brand products, but each shop is individually owned and managed.
- General-merchandise wholesalers carry a wide product mix, but little depth,dealing mainly with small grocery shops and general stores. They operate as a one-stop shop for these retailers. Cash-and-carry warehouses are a good example.
- Limited-line wholesalers offer only a limited range of products, but stock them in depth. They are often found in industrial markets, selling specialist equipment (such as materials handling equipment) and offering expertise in the field.
- Speciality line wholesalers carry a very narrow range, for example concentrating on only one type of food (e.g. tea). They are typically found dealing in goods that require special knowledge of the buying, handling, or marketing of the product category.
- Rack jobbers own and maintain their own stands or displays in retail outlets. Typical products might be cosmetics, tights or greetings cards. The retailer pays only for the goods sold, and usually does not take title to the goods – this can be a big saving in terms of capital, and since the rack jobber undertakes to check the stock and restock where necessary, the retailer also saves time.
- Limited-service wholesalers take title to goods, but often do not actually take delivery, store inventory, or monitor demand. A typical example might be a coal wholesaler, who buys from a producer and arranges for the coal to be delivered direct to coal merchants, without the coal first being delivered to the wholesaler.
- Cash-and-carry wholesalers offer a way for wholesalers to supply small retailers at minimum cost. The cash-and-carry wholesaler operates like a giant supermarket: retailers call, select the cases of goods needed, and pay at a checkout, using their own transport to take the goods back to their shops. This is an extremely flexible and efficient system for both parties.
- Drop shippers (or desk jobbers) obtain orders from retailers and pass them on to manufacturers, buying the goods from the manufacturer and selling to the retailer without ever actually seeing the goods. The drop shipper provides the salesforce and takes on the credit risk on behalf of the manufacturer, but does not have the storage costs or the overheads of a merchant wholesaler.
- Mail order wholesalersuse catalogues to sell to retailers and industrial users. This avoids the use of an expensive salesforce, and works best for dealing with retailers in remote areas. Goods are dispatched through the post or by commercial carriers; these wholesalers take title to the products.
To summarize, wholesalers perform a wide variety of functions, all aimed at making the exchange of goods easier and more efficient. This leaves the manufacturer free to concentrate resources on improving production efficiencies and the physical product offering, and retailers to concentrate on providing the most effective service for the consumer.
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