Wholesaling

As 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.

Concerns of Wholesalers

The wholesale industry has served an important role in the distribution process for well over 100 years, yet the challenges they face today are raising the stakes as many wholesalers fight to maintain their market position. Some of the issues facing today’s wholesalers include:

• Disintermediation – The growth of the Internet as a communication and distribution channel has lead many to conclude that wholesaling will lose its importance as manufacturers and final buyers learn to transact directly. This so called “disintermediation” of marketing channels is a real concern to some wholesalers, especially those that do not function as a dominate party within a distribution channel. For example, assume a retailer operating a gift card store uses a wholesaler only to purchase a specific manufacturer’s products. In this situation if the manufacturer begins to offer direct purchasing to smaller customers the wholesaler may have little leverage in efforts to retain the retailer as a customer. In instances of disintermediation wholesalers face the challenge of creating greater value for their services, thus making the retailer’s decision to switch more difficult.
• Facility Location – Wholesalers who are heavily involved in product shipment may spend considerable time evaluating sites for locating facilities. For organizations needing very large facilities, the decision as to where to locate becomes more difficult and more expensive the closer the location is to major metropolitan areas. In fact, land costs in some regions of the world have risen so high that utilizing this space for wholesaling operations may not be feasible. In addition to land costs, facility location is also affected by access to adequate transportation, such as roads, seaports, airports and rail terminals. Areas with available land often lack the infrastructure needed to run wholesale facilities unless expensive and time-consuming improvements (e.g., build highway, extend rail line, etc)

• Ways to Categorize Wholesalers

  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.
  

  
  

  Wholesale Categories: Product Ownership

  Wholesalers can be classified based on whether they do or do not become the owners of the products they sell. By ownership we mean that title (i.e., legal ownership) has passed from the party from whom the wholesaler purchased the product (e.g., manufacturer) to the wholesaler. It also means the wholesaler assumes any risk that may arise with handling the product.
  

  • Do Take Title – Wholesalers taking title own the products they purchase.
  • Do Not Take Title – Wholesalers who do not take title are focused on activities that bring buyers and sellers together. Often these wholesalers never physically handle products.