TOPIC 4: WHOLESALE TRADE | COMMERCE FORM 2

Meaning of Wholesale Trade

Define wholesale trade

Wholesale trade is a form of trade in which goods are purchased and stored in large quantities and sold, in batches of a designated quantity, to resellers, professional users or groups, but not to final consumers. Also wholesale trade may be defined as marketing and selling merchandise to retailers, to other wholesalers, or to industrial,commercial,professional or other institutional users in contract to selling to household consumers, to individuals for personal use or farmers.

Wholesaler:

A Person or firm that buys large quantity of goods from various producers or vendors, warehouses them, and resells to retailers.

OR

A wholesaler is an intermediary entity in the distribution channel that buys in bulk and sells to resellers rather than to consumers. In its simplest form, a distributor performs a similar role but often provides more complex services. Distributors and wholesalers often work together as channel partners.

The Services Rendered by Wholesaler to Manufacturers, Retailers, and the Public

Point the services rendered by wholesaler to manufactures, retailers, and the public

Services of Wholesaler:

(A) Services to Manufacturers/Producers:

1. Wholesaler
   furnishes information to the manufacturer about consumer behaviour, the
   changes in the tastes and fashions and also the latest demands of the
   customers.
2. Wholesaler enables a manufacturer to get benefit of economies of large-scale production by manufacturing on a large-scale basis.
3. Wholesalers relieve producers from keeping stock since they usually make forward dealings with producers.
4. Wholesalers render financial assistance to manufacturers and also provide long-term soft loans to them.
5. Wholesaler
   helps manufacturers in maintaining an even place of production by
   placing advance orders for periods which are usually characterised by
   slack demand.
6. Wholesalers help in price stabilisation since they stock goods in the slack season and S’ 11 them when the demand is high.
7. Wholesalers
   enable the manufacturers to save their capital by not tying it up in
   stocks. Instead, capital can be utilised for production activities.
8. Wholesalers are an important link between the manufacturers and the retailers.
9. Wholesalers provide warehousing facilities for goods till they are required by the retailers.
10. Wholesalers take over the marketing functions from the manufacturers, thereby enabling them to concentrate on production.

(B) Services to Retailers:

1. Wholesalers
   relieve retailers from keeping huge stocks with themselves since a
   retailer can approach a wholesaler for the replenishment of his stocks
   whenever they are exhausted.
2. Wholesalers provide financial assistance to retailers by selling goods to them on credit.
3. Wholesalers provide necessary market information to retailers regarding the type, quality and price of goods.
4. Wholesalers enable retailers to obtain supplies more quickly than they could by placing orders directly to manufacturers,
5. Wholesalers provide the benefits of specialisation to retailers.
6. Wholesalers help retailers to take favourable advantage of price fluctuations.
7. Wholesalers enable retailers to share the economies of transport.
8. Wholesalers bring to retailers in bulk, but charging less prices.
9. Wholesalers bring to the notice of retailers new products through advertisements and travelling salesmen.
10. Wholesalers give trade discounts on the bulk purchases to retailers.

(C) Services to Consumers:

1. Wholesalers make available the goods according to consumers’ needs, tastes, fashion and demand.
2. Wholesalers maintain stability of price by adjusting demand and supply and factors in the economy.
3. Wholesalers make large-scale production of goods possible, thereby keeping the overall price level low.
4. Wholesalers have always ready stocks with them and the consumers do not have to wait for the replenishment of stocks.
5. Wholesalers provide knowledge of new products to consumers.

The Channels of Distribution

Explain the channels of distribution

A
distribution channel refers to the path linking the producer or
manufacturer of a product with the consumer or user of that product. OR
is the chain of businesses or intermediaries through which a good or
service passes until it reaches the end consumer. A distribution channel
can include wholesalers, retailers, distributors and even the internet.
Channels are broken into direct and indirect forms, with a “direct”
channel allowing the consumer to buy the good from the manufacturer and
an “indirect” channel allowing the consumer to buy the good from a
wholesaler. Direct channels are considered “shorter” than “indirect”
ones.

ACTIVITIES PERFORMED IN CHANNELS OF DISTRIBUTION

• Selling and promoting. This function is very important to
  manufacturers. One strategy involves the use of distribution channels to
  carry out the responsibilities of product deployment. In addition to
  being marketing experts in their industry, distribution firms usually
  have direct-selling organizations and a detailed knowledge of their
  customers and their expectations. The manufacturer utilizing this
  distributor can then tap into these resources. Also, because of the
  scale of the distributing firm’s operations and its specialized skill in
  channel management, it can significantly improve the time, place, and
  possession utilities by housing inventory closer to the market. These
  advantages mean that the manufacturer can reach many small, distant
  customers at a relatively low cost, thus allowing the manufacturer to
  focus its expenditures on product development and its core production
  processes.
• Buying and building product assortments. This is an
  extremely important function for retailers. Most retailers prefer to
  deal with few suppliers providing a wide assortment of products that fit
  their merchandising strategy rather than many with limited product
  lines. This, of course, saves on purchasing, transportation, and
  merchandising costs. Distribution firms have the ability to bring
  together related products from multiple manufacturers and assemble the
  right combination of these products in quantities that meet the
  retailer’s requirements in a cost-efficient manner.
• Bulk
  breaking. This is one of the fundamental functions of distribution.
  Manufacturers normally produce large quantities of a limited number of
  products. However, retailers normally require smaller quantities of
  multiple products. When the distribution function handles this
  requirement it keeps the manufacturer from having to break bulk and
  repackage its product to fit individual requirements. Lean manufacturing
  and JIT techniques are continuously seeking ways to reduce lot sizes,
  so this function enhances that goal.
• Value-added processing.
  Postponement specifies that products should be kept at the highest
  possible level in the pipeline in large, generic quantities that can be
  customized into their final form as close as possible to the actual
  final sale. The distributor can facilitate this process by performing
  sorting, labeling, blending, kitting, packaging, and light final
  assembly at one or more points within the supply channel. This
  significantly reduces end-product obsolescence and minimizes the risk
  inherent with carrying finished goods inventory.
• Transportation. The movement of goods from the manufacturer to the
  retailer is a critical function of distribution. Delivery encompasses
  those activities that are necessary to ensure that the right product is
  available to the customer at the right time and right place. This
  frequently means that a structure of central, branch, and field
  warehouses, geographically situated in the appropriate locations, are
  needed to achieve optimum customer service. Transportation’s goal is to
  ensure that goods are positioned properly in the channel in a quick,
  cost-effective, and consistent manner.
• Warehousing. Warehousing
  exists to provide access to sufficient stock in order to satisfy
  anticipated customer requirements, and to act as a buffer against supply
  and demand uncertainties. Since demand is often located far from the
  source (manufacturer), warehousing can provide a wide range of
  marketplaces that manufacturers, functioning independently, could not
  penetrate.

Factors influencing the choice of channel of distribution:

1. Product:
   Perishable goods need speedy movement and shorter route of
   distribution. For durable and standardized goods, longer and diversified
   channel may be necessary. Whereas, for custom made product, direct
   distribution to consumer or industrial user may be desirable.Also, for
   technical product requiring specialized selling and serving talent, we
   have the shortest channel. Products of high unit value are sold directly
   by travelling sales force and not through middlemen.
2. Market:
   (a) For consumer market, retailer is essential whereas in business
   market we can eliminate retailing.(b) For large market size, we have
   many channels, whereas, for small market size direct selling may be
   profitable.(c) For highly concentrated market, direct selling is
   preferred whereas for widely scattered and diffused markets, we have
   many channels of distribution.(d) Size and average frequency of
   customer’s orders also influence the channel decision. In the sale of
   food products, we need both wholesaler and retailer.Customer and dealer
   analysis will provide information on the number, type, location, buying
   habits of consumers and dealers in this case can also influence the
   choice of channels. For example, desire for credit, demand for personal
   service, amount and time and efforts a customer is willing to spend-are
   all important factors in channels choice.
3. Middlemen:
   (a) Middlemen who can provide wanted marketing services will be given
   first preference.(b) The middlemen who can offer maximum co-operation in
   promotional services are also preferred.(c) The channel generating the
   largest sales volume at lower unit cost is given top priority.
4. Company:
   (a) The company’s size determines the size of the market, the size of
   its larger accounts and its ability to set middleman’s co-operation. A
   large company may have shorter channel.(b) The company’s product-mix
   influences the pattern of channels. The broader the product- line, the
   shorter will be the channel.If the product-mix has greater
   specialization, the company can favor selective or exclusive
   dealership.(c) A company with substantial financial resources may not
   rely on middlemen and can afford to reduce the levels of distribution. A
   financially weak company has to depend on middlemen.(d) New companies
   rely heavily on middlemen due to lack of experience.(e) A company
   desiring to exercise greater control over channel will prefer a shorter
   channel as it will facilitate better co-ordination, communication and
   control.(f) Heavy advertising and sale promotion can motivate middlemen
   in the promotional campaign. In such cases, a longer chain of
   distribution is profitable.Thus, quantity and quality of marketing
   services provided by the company can influence the channel choice
   directly.
5. Marketing Environment: During
   recession or depression, shorter and cheaper channel is preferred.
   During prosperity, we have a wider choice of channel alternatives. The
   distribution of perishable goods even in distant markets becomes a
   reality due to cold storage facilities in transport and warehousing.
   Hence, this leads to expanded role of intermediaries in the distribution
   of perishable goods.
6. Competitors: Marketers
   closely watch the channels used by rivals. Many a time, similar channels
   may be desirables to bring about distribution of a company’s products.
   Sometimes, marketers deliberately avoid channels used by competitors.
   For example, company may by-pass retail store channel (used by rivals)
   and adopt door-to-door sales (where there is no competition).
7. Customer Characteristics:
   This refers to geographical distribution, frequency of purchase,
   average quantity of purchase and numbers of prospective customers.
8. Channel Compensation:
   This involves cost-benefit analysis. Major elements of distribution
   cost apart from channel compensation are transportation, warehousing,
   storage insurance, material handling distribution personnel’s
   compensation and interest on inventory carried at different selling
   points. Distribution Cost Analysis is a fast growing and perhaps the
   most rewarding area in marketing cost analysis and control.

Role of channels of distribution

Channel
of Distribution plays a very important role in achieving the marketing
objectives of a company. Undoubtedly, the manufacturer of product or
services creates involve utility but the distribution channels create
time and place utilities. According to Drucker, “both the market and
distribution channels are often more crucial than the product. They are
primary; the product is secondary.

In
an ever widening market, particularly in consumer goods market
distribution channels have a distinctive role in the successful
implementation of marketing plans and strategies. These channels
performing the following marketing functions the machinery of
distribution.

• The searching out of buyers and seller.
• Matching goods to requirements of the market(merchandising)
• Offering products in the form of assortments packages of items usable and acceptable by the consumers /users.
• Persuading and influencing the prospective buyers to favor a certain products and its maker [personal selling /sales promotion].
• Implementing
  pricing strategies in such a manner that would be acceptable to the
  buyers and ensure effective distribution functions.
• Participating actively in the creation and establishment of market for a new product.
• Offering pre- and after sales service to customer
• Transferring of new technology to the users along with the supply of products and playing green resolution in our country.
• Providing feels back information, marketing intelligence and sales forecasting services for their regions their suppliers.
• Offering credit to retailers and consumers.
• Risk- bearing with references to stock holding transport.

Agent Intermediaries:

Agent
Intermediaries are those channel components who never take title to end
usually do not take title to and usually do not take possession of
goods but merely assist manufacturers, merchants intermediaries and
consumers in carrying out transactions of sale and purchase. There for,
unlike merchant intermediaries, they do not buy or sell goods on their
own account but merely bring buyers and sellers together in order to
strike a transaction. There exist an agency relationship between such an
intermediary manufacturers where in the former acts as agent and the
latter as his principal, such agent intermediaries solicit orders,
sometimes with discretion a fixing prices, and determines the term of
sale with buyers.

Agent
intermediaries are usually compensable for their services by way of
commission on the value of sale affected through them or any other basis
naturally agrees upon.