Wholesaling

Dr. Anurag Tiwari

IIM Rohtak
 Need for Wholesalers

 Widespread economy – consumers can only be reached by thousands of retailers (except

for consumer durables and industrial products)

 Reaching these retailers by a company directly is not possible (except for consumer
durables and industrial products)

 Hence the need for wholesalers in two forms:

 Well established free-lance wholesalers
 Contracted distributors, dealers, stockiest and agents
 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 free lancers, can operate as wholesalers

 Mostly B2B business – caters to trade and institutions

 Wholesaler could also be a retailer – in rural markets – W/s sells to other retailers and also
to consumers
 Characteristics of Wholesalers

 Sell physical inputs or products – tangible goods

 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.
 Wholesaling

 Wholesaling (Wholesale trade, wholesale distribution) refers to business establishments

that do not sell many products to ultimate households or end user.
 They sell products primarily to other businesses: retailers, merchants, contractors,
industrial users, institutional users, and commercial users.
 Whole business sell physical inputs and product to other businesses.
 Definition

 Wholesaling is concerned with the activities of those persons or establishments that sell to
retailers and other merchants and / or industrial, institutional and commercial users but do
not sell in large amounts to consumers – US Bureau of Census
 Wholesaler Distributor

 Different institutions perform channel functions in business-to-business (B2B) marketing

channels.
 Wholesaler-distributor are largest and most significant of these institution.
 Wholesaler-distributor are independently owned operated firms that buy and sell products
over which they claim ownership.
 National Association of wholesales Distributor given following figure related to wholesaler
market.
 Total wholesale distribution trade represented $4.8 trillion dollar of sales in the United
state in 2011.
 Distributors accounts for $1 out of every $5 spent on computer hardware and software.
 Wholesaler Distributor

 The term “wholesaler” referred to a company that resold products to another intermediary,
whereas “distributor” implied that the company resold products to a customer that would
use the product.
 The terminology varies from industry to industry, Distributors of printing papers are called
“merchants” and distributors of automotive products are “jobbers”.
 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

 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.

 Master Distributor

 Master Distributors, a sort of super wholesaler, as represented in following figure.

Multiple Manufacturer

Master Distributor

Wholesalers

Contractors
 Master Distributor

 Master distributor consolidate orders from all their manufacturers, so their customers avoid
minimum order requirements established by the manufacturer.
 Smaller distributors can buy a variety of products from a multiple of vendors, but still
enjoy the quantity discount and lower transportation cost to obtain by master distributors.
 Master distributors roles sometimes mirror those of a franchisor.
 They help the customers improve their business processes, demonstrate best practices, and
shoulder some of their channel functions, such as advertising.
 Master distributor give distributors economies of scope and scale and help them resolve
their logistics and support problems.
 Master Distributor

 Many Manufacturers in turn have grown far more sophisticated in their pricing for
distributions, such that they offer functional discounts for:
 No minimum order size
 Willingness to break case quantities down to small lots.
 Same-day shipping
 Marketing Support(e.g. customize catalogues , flyers, internet ordering)
 Holding Inventory
 Taking responsibility for logistics.
 Supply Chain Participants

 In a supply chain, the channel functions and activities that traditionally are the focus of
wholesalers-distributors often get performed by other participants.
 Manufacturers sales branches are captive wholesaling operations, owned and by
manufacturer.
 Customers, particularly large, multi-establishment retail firms, perform wholesale
distribution functions, especially in vertically integrated channel.
 Agents brokers and commission agents buy or sell products and earn commission or fees,
without ever taking ownership of the product they represent.
 Supply Chain Participants

 Companies that perform supply chain activities in a B2B marketing channels are nearly
innumerable.
 The transportation and warehousing industry provides logistics function;
 Third-party logistics providers and value-added warehousing companies view to perform
some functions too.
 Unlike wholesaler-distributor, 3PL do not take title to the product they handle.
 Strategic Issues in Wholesaling

 Selecting target markets: location, trading area, size and composition of

markets etc
 Marketing mix:
 Limited range of products preferred
 Works on thin margins and decides pricing accordingly
 Location decides the trading area and place of getting business
 Promotions – passing on benefits to provide best prices to his
customers. Use own salespeople.
 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

 Functions of Wholesalers

 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

 Types of Wholesalers

 Full service: stocking, selling, offering credit, delivery and business assistance (company
distributors, wholesale merchants)

 Limited service: range of service is limited (examples include Metro C&C, mail order)

 Merchant w/s: independent businesses

 Brokers : bring buyer and seller together – do not take possession of goods

 Agents: add value to seller in transactions with the buyer

 Others: agri-business, auction companies etc

 Limitations of Wholesalers

 Some of them do not give complete information to suppliers for their own reasons

 Cannot be relied on to do equitable distribution

 At times, do not want company and customers to meet

 Tend to hold goods and influence pricing

 Consumers have no say in pricing or quality in a w/s dominated system

 Major Wholesaling Decisions

 Which markets to operate in

 Manpower to employ
 What products to sell
 Pricing decisions / Promotional support
 Credit and collections
 Image and customer perception
 Warehouse location and design
 Inventory Control
 Favorable Factors

 Companies have limitations in market / outlet coverage. Wholesalers are required to fill the
gaps

 Hundreds of small companies who cannot afford to set up distribution networks – need to
depend on wholesalers

 In food grains, fruits and vegetables – hardly any organized distribution network.
Wholesalers help move goods from farm gate to consumers

 Big companies also need wholesalers to get big volumes

 W/s extend credit to customers. Companies cannot match this level

 Retailers have to visit w/s markets to buy food grains, cereals and pulses – buy a lot more.
 Unfavorable Factors

 Companies coverage focus on retailers and institutions through their distributors

 Using modern retail formats as wholesalers

 More outlets like Metro being encouraged

 Enforcing strict price control so that w/s do not sell below company prices.
 Wholesaling Strategies

 Wholesalers add values as they perform generic functions.

 They take physical possession of the goods, take the (ownership), promote the product to
prospective customers, negotiate transaction, finance their operations risk their capital,
process order, handle payments, and manage information.
 They manage the flow of information both ways: upstream to the supplier and downstream
to the other channel member and prospective customers.
 Wholesaler-distributor survive and thrive if they perform these functions more effectively
and efficiently than either manufacturer or customers.
 Perspective on wholesaling strategy

 The wholesaling sector is a funny scenario, it is critical and massive, and yet it remains
largely invisible to the buyer.
 Both manufacturers and customers have a troubling tendency to underestimate the three
great challenges of wholesaling.
 Doing the job correctly(no errors)
 Doing the job effectively (maximum Service)
 Doing the job efficiently (Low Cost)
 Wholesaling Value-Added Strategies

 Wholesalers gather, process and use information about buyers, suppliers and products to
facilitate transactions.
 Wholesalers add value by creating an efficient infrastructure to exploit economies of
scope(operating across brands and product categories) and scale (high volume).
 This advantage, which they can share with suppliers(upstream) and
Customer(downstream), reflects their specialization in channel function and enables
wholesalers to compete with manufacturers on price.
 Wholesaling Value-Added Strategies

 Manufacturers frequently underestimate the magnitude of the wholesaler’s efficiency in

terms of providing market coverage.
 Some of this advantages also steam from the wholesalers ability to provide time and place
utility by putting the right product in the right place at the time the customers wants it.
 Many customers also value the wholesalers ability to absorb risk, in the sense that they
guarantee everything they sell in some form.
 Wholesaling Value-Added Strategies

 For B2B buyers, wholesalers also engage in many functions that traditionally constitute
manufacturing functions, in the sense that they transform the good they sell.
 Some wholesalers receive components and subassemblies and put them together at the last
minute.
 Wholesaler support customization through postponement of the final manufacturing step,
kitting combines various components into sets, often with instruction for finalizing their
manufacturing .
 Wholesalers might add on proprietary complements, such as hardware and software.
 Wholesaling strategies in Foreign Markets

 The strategy that worked in the home market could be a disastrous misfit, even if the
product appeals to the foreign market.
 There are inevitable issue involved with foreign currency customs regulation and language.
 Because of these complexities many manufacturers enter foreign markets with little
ambition and equally little investment.
 Profitable sales and strategies advantages emerge when the strategy supports the channel
member responsible for the exported good,
 Because manufacturers enable channel members to make arguments other than those
focused on sheer price competition. So that they can achieve a sustainable differentiated
positions.
 Wholesaling strategies in Foreign Markets

 Exporter must be ready to adapt their distribution strategy on the market situation they
face.
 A blind insistence that ”this is our global distribution policy” dampen export performance.
 Relationship between manufacturers and their export distributors channel pay off
particularly when the two parties can forge solid working relationship.
 The parties should exchange information freely, frequently and informally.
 They should be cooperative, with each party interested in sharing gains and seeing the
relationship pay off for both sides.
Wholesaling strategies in Emerging Markets

 In the emerging market the low level of institutional trust further undermines business
trade,
 It leaves wholesaler without the trust and credibility that are their main tools for promoting
business transaction and ensuring business performance.
 In developing economies the need for good distribution is both particularly acute and badly
met.
 Alliance based Wholesaling strategies

 Wholesaler-distributors keeps goods on hand that customers need immediately.

 Such availability often creates a situation in which the wholesaler-distributors backs up
and extends the customers own inventory system.
 In emergencies, unplanned repair or maintenance situation, distributors can supply product
and minimize downtime,
 The key to this extraordinary feat appears to be federation of wholesalers.
 Such arrangement could cut cost substantially improve service and open new business
opportunity.
 Alliance based Wholesaling strategies

 Description of some prototype led by either wholesalers or manufactures.

 Wholesaler-Led Initiative
 Manufacturing-Led Initiatives
 Retailer-sponsored Cooperative

 Consolidation Strategies in Wholesaling

 The popular image of small wholesalers often contrasts with the modern reality, in which
wholesalers are large, sophisticated, capital-intensive corporations.
 This transformation occurred through consolidation.
 A Phenomenon that has swept through many industries in parallel with improvements in IT
and changes in the wholesaler’s customer base.
 The pressure to consolidate often comes from the wholesalers-distributors larger
downstream customers, including large manufacturers, multiunit retailers, and sizable
purchasing groups.
 Consolidation Strategies in Wholesaling
 What can manufactures do when they face a wholesale consolidation wave?
 They have four main solutions to consider.
A. They can attempt to predict which wholesalers will be left standing and build partnership
with them .
 Manufacturer can look for four basic types to identify consolidation.
1. Catalyst firms that trigger consolidation by moving rapidly to acquire
2. Wholesaler that enter late, after consolidation has progressed, because such firms would
not enter unless they had found defensible niches
3. Extreme specialist, already attuned to the conditions likely to prevail after consolidation.
4. Their opposite, extreme generalist. These large, full time firm can serve many
environments well, and their versatility is valuable once the market has consolidated.
 Consolidation Strategies in Wholesaling

B. Manufacturers facing wholesale consolidation can invest in fragmentation with this

strategy, they bet on and work with small independent firms trying to survive the wave of
consolidation.
C. A manufacturer facing wholesales consolidation can build a different, alternative route by
vertically integrating forward.
D. A manufacturer might increase its own attractiveness to the remaining channels by
increasing its won ability to offer benefits.
 Adapting to Trends in Wholesaling

 International Expansion
 Electronics Commerce
 B2B online Exchange
 Online Reverse Auctions
 Fee for Services
 Vertical Integration of Manufacturing into
Wholesaling
 When manufacturers perform wholesaling activities themselves, they operate sales
branches and offices.
 At the retail level, huge “power retailers” also might bypass independent wholesalers-
distributors by setting up their own branches to perform channel functions.
 Manufacturers must respond to the demand of dominant buyers, often at the expense of
wholesalers distributors.
 Power retailers have left few wholesaler-distributors standing for the internet to affect.
 Rural Wholesale

 APMC – Agricultural Produce Market Committee

 APMC

 Marketing Board established by each state Government

 Currently 2500 primary and 5000 sub-markets
 Purpose:
 To ensure farmers are not exploited by intermediaries
 Entire farm produce is brought to a central market and sold at a proper
price in an auction
 Traders need a license to operate in the market
 APMC Features
 Helps a contract farming model

 Creates a special market for perishables

 Even farmers can set up such a market with a license

 Clearly defined and implemented licensing norms

 Single market fee for the entire market

 Revenue from the APMC used to improve market infrastructure

 Delayed payments to farmers by the licensed traders

 Incomplete payments

 Sales receipts not given to farmers on their produce affecting their bank loan applications