HOW WHOLESALING BENEFITS YOUR BUSINESS
Wholesaling is the selling of merchandise to anyone, either a person or an organization, other than the end consumer of that merchandise. Wholesalers, who are sometimes referred to as middle agents, represent one of the links in the chain along which most goods pass on the way to the market place. As intermediaries between producers and consumers of goods, wholesalers facilitate the transport, preparation of quantity, storage, and sales of articles ultimately destined for customers.
Wholesalers are extremely important in a variety of industries, including such diverse product areas as automobiles, grocery products, plumbing supplies, electrical supplies, and raw farm produce. They are particularly vital to the operations of small retailers. Whereas large retail companies buy directly from the manufacturer and often have their own intermediate warehousing operations, the limited resources of independent retail outlets makes alliances with wholesalers a practical necessity.
Strictly speaking, although a wholesaler may own or control retail operations, wholesalers do not sell to end customers. Indeed, many wholesale operations are themselves owned by retailers or manufacturers. Even in these instances, however, the enterprise’s wholesaling branch exists to facilitate the movement of goods from one area to a market demand in another area.
Wholesaling provides manufacturers with an expanded consumer market potential in terms of geographical locations and consumer purchasing power while at the same time providing a cash flow for the manufacturer.
Wholesalers are successful only if they are able to serve the needs of their customers, who may be retailers or other wholesalers. Some of the marketing functions provided by wholesalers to their buyers include:
- Provide producer’s goods in an appropriate quantity for resale by buyers.
- Provide wider geographical access and diversity in obtaining goods.
- Ensure and maintain a quality dimension with the goods that are being obtained and resold.
- Provide cost effectiveness by reducing the number of producer contacts needed.
- Provide ready access to a supply of goods.
- Assemble and arrange goods of a compatible nature from a number of producers for resale.
- Minimize buyer transportation costs by buying goods in larger quantities and distributing them in smaller amounts for sale.
- Work with producers to understand and appreciate consumerism in their production process.
Types of wholesalers
The three types of wholesalers are 1) merchant wholesalers; 2) agents, brokers, and commission merchants; and 3) manufacturers’ sales branches and offices.
Merchant wholesalers are firms engaged primarily in buying, taking title to, storing, and physically handling products in relatively large quantities and reselling the products in smaller quantities to retailers; industrial, commercial, or institutional concerns; and other wholesalers. These types of wholesaling agents are known by their different names, including wholesaler, jobber, distributor, industrial distributor, supply house, assembler, importer, and exporter, depending on their services.
Merchant wholesalers account for the large majority of wholesaling establishments and wholesale sales. Based on the large number of merchant wholesalers, they often specialize by certain types of products or services. They also tend to service relatively small geographic areas. Merchant wholesalers also differ in how many of the wholesaling functions they provide.
There are two basic kinds of merchant wholesalers: 1) Service (sometimes called full-service wholesalers) and 2) limited function or limited service wholesalers. The latter category of wholesalers, which itself is divided up into little niches, offer varying levels of service in such areas as product delivery, credit bestowal, inventory storage, provision of market or delivery information, and sales.
Agents, brokers, and commission merchants
Agents, brokers, and commission merchants are also independent middlemen who do not (for the most part) take title to the goods in which they deal, but instead are actively involved in negotiating and other functions of buying and selling while acting on behalf of their clients (commission merchants typically are limited to agricultural goods). They are usually compensated in the form of commissions on sales or purchases. Agents, brokers, and commission merchants usually represent the noncompeting products of a number of manufacturers to several retailers. This category of wholesaler is particularly popular with producers with limited capital who cannot afford to maintain their own sales forces.
Manufacturers’ sales branches and offices
Manufacturers’ sales branches and offices are owned and operated by manufacturers but are physically separated from manufacturing plants. They are used primarily for the purpose of distributing the manufacturers’ own products at the wholesale level. Some have warehousing facilities where inventories are maintained, while others are merely sales offices. Some of them also wholesale allied and supplementary products purchased from other manufacturers.
Keys to successful wholesaling
For many wholesalers, the ultimate key to success will be an ability to establish closer alliances with retail specialists that offer solid, long term growth prospects or concentrate on merchandise categories where chains still must use wholesalers because of needed buying efficiencies. Most wholesalers are busy changing quickly to offer much more to their retailers than the assembly and conveyance of products. Most are mobilizing groups of independent retailers into virtual chains of stores that use a common banner and hew to uniform standards.
Wholesalers must actively collect sales data from affiliated retailers to aggregate and make it known to manufacturers. Wholesalers must also make known to their retailer affiliates that the retailers are partners with their wholesaler, their vendors, and even their fellow retailers, all of whom must join the quest for overall low-cost operation.
In addition to establishing good working relationships with independent retailers, wholesalers can also take several other steps to give them the best chance of surviving, and even thriving, in today’s competitive marketplace. These include smart, customer oriented marketing programs, superior customer service, efficient operations management processes, and innovative business strategies for expanding into new product lines, industries, or geographic territories.
Error free management of a wholesale operation is impossible due to the wide variety of items that most wholesalers handle, and the many imponderables (such as delays in shipment from vendors, unforeseen spurts in consumer demands, and even the vagaries of weather) that wholesalers are subjected to. But all wholesalers have the same problems. What distinguishes successful wholesalers is how well they manage the variables under their control.
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