CHAPTER 11: CHANNEL INSTITUTIONS: WHOLESALING

I. Definitions of a Wholesaler
 Wholesaler buy and resell merchandise to retailers and other merchants and to
industrial, institutional and commercial users, but do not sell in significant amounts to
ultimate consumers – Cundiff & Still
 The wholesaler or wholesale trader, is a trader who purchase goods in large quantities
from manufacturers and resells to retailer in small quantities. – S E Thomas
 A person or firm that buys merchandise and resells it to either to retailers for
subsequent resale to the customer or to a business firm for industrial and business is
called a wholesaler – Mason & Ruth
 Wholesaling is concerned with the activities if those persons or establishment that sell
to retailer and other merchants, and/or industrial, institutional and commercial use, but
do not sell in large amount to final consumer –US Bureau of Cencus
 Wholesale businesses sell physical inputs and products to other businesses. Wholesaling
is closely associated with tangible goods. These entities create value add through
providing the channel flow services.

II. Characteristics of Wholesalers

 Operate on large volumes but with chosen group of products
 Food, grocery, pharma or automobile spares etc
 The company itself, contracted parties or freelancers, can operate as wholesalers
 Mostly B2B business -trade and institutions
 Wholesaler could also be a retailer -in rural markets -W/s sells to other retailers and also
to consumers
 Sell physical inputs or products –tangible goods( Ws in some service industries)
 Optimize results, maximize service(effectiveness)and minimize operating
costs(efficiency)
 Buy goods for resale, keep inventory, take risks of price changes, negotiate terms,
procure orders, deliver and extend credit

III. Delivering Value

 Keep goods accessible to customers instantly
 At times, get together to bargain for better terms
 Pass on benefits or incentives to their customers
 Have a wide trading area

IV. Difference with Retailers

 Not too worried about location, ambience or promotions -prefer to be in the main
market
 Deal with other businessmen and not consumers
 Deal with a specific group of products only
  Much larger trading area
 Much larger transactions with suppliers and customers
 Believe in low margins but high volumes.

V. Functions of Wholesalers
 Varies in degree between free-lance, company distributors and stockists / agents
 Sales and promotion of chosen company products
 Buying the assortment of goods
 Breaking bulk to suit customer requirements
 Storage and protection of goods till sold
 Grading and packing of commodities
 Transportation of goods to customers
 Financing the buying of customers
 Bearing the risks associated with the business
 Collecting and disseminating market information to both suppliers and customers

VI. Wholesaling Functions for a Producer Supplier

 Selling – act as extension of the producers’ sales force

-seek out supply sources and reduce the producers’ need for sales personnel
 Stocking –reduce producers’ need for carrying large inventories and invest in
warehousing
 Financing – reduce warehousing costs
 reduce producers’ commitment to working capital
 producers’ also receive payment for goods even before they are sold to
ultimate users
 better screening of credit applicants –reduces bad debts
 Market information –closer contact with final buyers gives better information and
reduces need for market research
 Risk reduction – credit sales to their customers
 Risk of owning title to the products
 Risk of carrying inventory
 Order in advance and help to even out production scheduling

VII. Wholesaling Functions for a Producer Supplier

 Buying – forecast customer product requirements, buy products to meet those
requirement, have sales representatives to call on customers.
 Stocking – carry inventory so that customers can operate with smaller inventories, help
customers buy right quantities –not excess or less; share with customers the economies
of operating bigger warehouse.
 Market Information –provide information about producers and their products; provide
information about markets to producers; detect developing trenad in their industries;
keep customers nformed of competitive developments.
 Financing –sell on credit; carry inventory and reduce customer commitments on
warehousing space.
 Risk redution –customer tie-up in inventory is reduced; small customers also can buy on
credit (but not from producers).
 Relationship –own and transfer title to products wihtout customers having to negotiate
with the companies and customers can spend more time on selling than a buying.
 Aggregation –aggregate quantity and assortment of products; buying in bulk reduces
frieght costs and frequent and speedy delivery reduces investment in inventory.