Channel Institutions-

Wholesaling

Digvijay MauryaMBA (4th Sem) Marketing

IMS, BHU

The Importance of Distribution• Most producers use intermediaries to

bring their products to market. They try to develop a distribution channel (marketing channel) to do this. A distribution channel is a set of interdependent organizations that help make a product available for use or consumption by the consumer or business user. Channel intermediaries are firms or individuals such as wholesalers, agents, brokers, or retailers who help move a product from the producer to the consumer or business user.

Definition- Wholesaling• Wholesaling is all activities involved in selling products to

those buying for resale or business use. Wholesaling intermediaries are firms that handle the flow of products from the manufacturer to the retailer or business user.• Wholesaling intermediaries add value by performing one or

more of the following channel functions:Selling and PromotingBuying and Assortment BuildingBulk-BreakingWarehousingTransportationRisk BearingMarket Information – giving information to suppliers and

customers about competitors, new products, and price developments

Types of Wholesaling• The three types of wholesalers are:I. merchant wholesalers;II. agents, brokers, and commission merchants;

andIII. manufacturers' sales branches and offices.

• MERCHANT WHOLESALERSMerchant wholesalers are firms engaged primarily in buying, taking title to, storing (usually), and physically handling products in relatively large quantities and reselling the products in smaller quantities to retailers, industrial, commercial, or institutional concerns, and to other wholesalers. They go under many different names, such as wholesaler, jobber, distributor, industrial distributor, supply house, assembler, importer, exporter, and many others.

• BROKERSAgents, 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 negotiatory functions of buying and selling while acting on behalf of their clients. They are usually compensated in the form of commissions on sales or purchases. Some of the more common types go under the names of manufacturers' agents, commission merchants, brokers, selling agents, and import and export agents.

• MANUFACTURERS' AGENTSManufacturers' 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 wholesale. 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.

Benefits of Wholesaling• Wholesaling provides 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. 

• Secondly, for most small producers, an immediate geographic location is typically insufficient to provide and maintain an on-going customer base for their operations. As a means to sell their goods, smaller producers must have avenues to develop market segments of potential customers and must make sure their goods are of the quality customers want at prices they are willing to pay. The role of wholesalers is to provide links to an expanded market base, i.e., to discover where customers are located and how best to reach them.

• Finally, wholesalers act as distribution channels and interface with markets and producers within markets. Whereas wholesaling and retailing provide similar functions in that they receive, store, and distribute goods, the importance of wholesaling is in its ability to moderate supply and demand fluctuations and cope with larger transactions with less emphasis on selling techniques and services and product promotion. Wholesaling has the capability to adjust the distribution of goods from surplus to deficit areas.

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 are:providing producer's goods in an appropriate

quantity for resale by buyersproviding wider geographical access and diversity

in obtaining goodsensuring and maintaining a

quality dimension with the goods that are being obtained and resold

providing cost-effectiveness by reducing the number of producer contacts needed

providing ready access to a supply of goodsassembling and arranging goods of a compatible

nature from a number of producers for resaleminimizing buyer transportation costs by buying

goods in larger quantities and distributing them in smaller amounts for resale

working with producers to understand and appreciate consumerism in their production process.

OUTLOOK New technology, global competition, and retail consolidation have been forcing many wholesalers to modify their business practices in order to remain competitive. • TECHNOLOGICAL CHANGETwo general classes of technology have had a major impact on wholesaling: logistics management technologies and the Internet. Logistics technology is a broad category of devices and software used to make distribution more efficient and reliable. These include implementation of sophisticated automatic identification systems for tracking stock, personnel, and equipment; satellite tracking systems for wholesalers who must manage a fleet of delivery trucks; and integrated computer systems to manage inventory, distribution, and customer services. The best of these technologies, although they require substantial investments, help keep costs down while improving the quality of service. Meanwhile, the Internet is having a profound effect of giving wholesalers' customers more opportunities to compare prices and obtain goods from alternative sources, making wholesaling more price competitive and signalling danger for inefficient wholesalers who may have enjoyed a near monopoly in local markets.

• GLOBAL COMPETITIONRelated to the Internet's leveling power are the benefits and drawbacks of heightened international competition, which is likely to be aided by the Internet. Again, competition from abroad will tend to add downward pressure on prices and hurt inefficient and low-margin wholesalers the most. Conversely, however, when wholesalers are able to expand into new markets while keeping costs under control, they may be able to at least recoup any loss of sales domestically and possibly improve sales and profits overall.

• RETAIL CONSOLIDATIONA significant threat to wholesalers has been the rise of large and lean national retailers in sectors such as supermarkets, home electronics, office supplies, and do-it-yourself supplies. These large chain stores tend to rely less on wholesalers for their own inventories, and at any rate are gradually snuffing out the independent retailers who are more likely to need wholesalers. Wholesalers have little hope of gaining the big chains as customers because often the chains have cost advantages of both scale and scope over wholesalers.

Thank you