TOPIC 4: WHOLE SALE 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.
Characteristics of a Wholesaler:
- He buys in bulk quantities from producers and resells them to retailers in small quantities.
- He usually deals in a few types of products.
- He is a vital link between the producer and the retailer.
- He operates in a specific area determined by producers.
- He does not display his goods but keeps them in god owns. Only samples are shown to intending buyers.
- A wholesaler may be an individual or otherwise a firm.
- A wholesaler generally sets up distribution centre in parts of the country to make available goods to the retailers.
- He sets up own warehouses to store goods for ready supply.
Difference between Wholesaler and RetailerDistinguish between wholesaler and retailerMIDDLEMEN IN DISTRIBUTION CHANNELSMerchant
intermediaries are those channels member who take both title to and
position of goods from the preceding member (s) and channel them to the
subsequence. These may classify as follows:
: A merchants wholesalers may be defined as that intermediary who buys
goods in bulk from manufactures and sells them largely to subsequent
intermediaries participating in the channel, namely, semi-wholesalers
and retailers, they buy the goods and sees the same on their own account
and risk. They take title of goods and they resell the goods at a
profit with commission.
- Retailers: A retailer may be defined as that merchant intermediary who buys product from
preceding challes members in smaller assorted lots to suit individuals’
consumer requirements. Retail in the final middlemen in the channel of
distribution as he is going to sell products to households consumers for
non- business use.
Retailers are further classified as institutional and non institutional retailers.The institutional retailers are:
- Consumer Co- operative stores.
- Fair price shops.
- Departmental stores.
- Chain / multiple stores.
- Mail order houses.
The non-institutional buyers are:
- Stress sellers.
The Functions of Wholesaler
A wholesaler performs the following functions:
- Assembling: A wholesaler buys goods from producers who are scattered far and wide and
assembles them in his warehouse for the purpose of the retailers.
- Storage:After arranging and assembling the products from producers, wholesaler stores
them in his warehouse and releases them in proper and required
quantities as and when they are required by retailers. Since there is
always a time-lag between production and consumption, therefore, the
manufactured goods are to be stored carefully till they are demanded by
retailers. Thus, a wholesaler performs the storage function in order to
save the goods from deterioration and also to make these goods available
when they are demanded.
- Transportation: Wholesalers buy goods in bulk from the producers and transport them to their own
godowns. Also, they provide transportation facility to retailers’ by
transporting the goods from their warehouses to the retailers’ shops.
Some wholesalers purchase in bulk, therefore, they can avail the
economies of freight on bulk purchases.
- Financing:A wholesaler provides credit facility to retailers who are in need of financial assistance.
wholesaler bears all the trade risks arising out of the sudden fall in
prices of goods or by way of damage/spoilage or destruction of goods in
his warehouse. The risk of bad debt as a result of nonpayment by
retailers who have purchased on credit, also falls on the wholesalers.
Thus a wholesaler bears all the trade and financial risks of the
- Grading and Packing:A wholesaler
sorts out the goods according to their quality and then packs them in
appropriate containers. Thus, he performs the marketing function of
grading and packing also.
- Providing Marketing Information:Wholesalers
provide valuable market information to retailers and manufacturers. The
retailers are informed about the quality and type of goods available in
the market for sale, whereas the manufacturers are informed about the
changes in tastes and fashions of consumers so that they may produce the
goods of the desired level of taste and fashion.
- Facilitating Disbursement and Sale:Wholesalers
sell their goods to retailers who are scattered far and wide. Retailers
approach them when their stocks are exhausted from further
replenishment. Thus, wholesalers help in the dispersion process of
The Services Rendered by Wholesaler to Manufacturers, Retailers, and the PublicPoint the services rendered by wholesaler to manufactures, retailers, and the publicServices of Wholesaler:
(A) Services to Manufacturers/Producers:
furnishes information to the manufacturer about consumer behaviour, the
changes in the tastes and fashions and also the latest demands of the
- Wholesaler enables a manufacturer to get benefit of economies of large-scale production by manufacturing on a large-scale basis.
- Wholesalers relieve producers from keeping stock since they usually make forward dealings with producers.
- Wholesalers render financial assistance to manufacturers and also provide long-term soft loans to them.
helps manufacturers in maintaining an even place of production by
placing advance orders for periods which are usually characterised by
- Wholesalers help in price stabilisation since they stock goods in the slack season and S’ 11 them when the demand is high.
enable the manufacturers to save their capital by not tying it up in
stocks. Instead, capital can be utilised for production activities.
- Wholesalers are an important link between the manufacturers and the retailers.
- Wholesalers provide warehousing facilities for goods till they are required by the retailers.
- Wholesalers take over the marketing functions from the manufacturers, thereby enabling them to concentrate on production.
(B) Services to Retailers:
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.
- Wholesalers provide financial assistance to retailers by selling goods to them on credit.
- Wholesalers provide necessary market information to retailers regarding the type, quality and price of goods.
- Wholesalers enable retailers to obtain supplies more quickly than they could by placing orders directly to manufacturers,
- Wholesalers provide the benefits of specialisation to retailers.
- Wholesalers help retailers to take favourable advantage of price fluctuations.
- Wholesalers enable retailers to share the economies of transport.
- Wholesalers bring to retailers in bulk, but charging less prices.
- Wholesalers bring to the notice of retailers new products through advertisements and travelling salesmen.
- Wholesalers give trade discounts on the bulk purchases to retailers.
(C) Services to Consumers:
- Wholesalers make available the goods according to consumers’ needs, tastes, fashion and demand.
- Wholesalers maintain stability of price by adjusting demand and supply and factors in the economy.
- Wholesalers make large-scale production of goods possible, thereby keeping the overall price level low.
- Wholesalers have always ready stocks with them and the consumers do not have to wait for the replenishment of stocks.
- Wholesalers provide knowledge of new products to consumers.
The Types of Wholesalers (Merchant, National, Agents)Identify the types of wholesalers (merchant, national, agents)The wholesalers may be classified under the following headings:
(A) On the basis of area covered:
- Local wholesalers, who distribute the goods from the producer to the consumer of a particular locality or area.
- State wholesalers, who function in a particular state or province.
wholesales who are located at the main business centres of the country
and who distribute goods throughout the length and breadth of the
(B) On the basis of the goods they deal in:It
is the most used grouping of wholesale concerns. According to T.N.
Backman, ‘it is not easy to define their limits of operations on any
particular basis or criterion, but usually three bases are selected:
- Methods of distributing goods:
- sources of supply; and
- the use of the goods by the consumers.
(C) On the basis of methods of operation:(a)
Full-function wholesales-who perform the entire range of wholesale
functions, viz., assembling, storage, transportation, packing, financing
Limited function wholesalers-who perform only limited or specific
functions out of the full range of wholesale functions. They include:
- Rack Jobbers-wholesalers who sell special products viz., household wares and cosmetic/toiletries to retailers.
wholesalers-who combine selling, delivery, and collection in one
operation. They carry only specific type of products, usually perishable
and semi-perishable goods.
- Cash-and-carry wholesalers-who sell
their stocks to retailers on ‘cash and carry’ basis. The retailers come
to the wholesalers’ godown, select their requirements and pay cash on
the spot and take away the goods.
- Drop shipping wholesalers-who
do not actually handle the goods in which they deal in but leave the
storage and transportation functions for the producers whom they
represent to perform. Here, the producer directly dispatches the goods
to the retailers, but the bill is forwarded through the wholesaler, who,
in turn, claims it from the retailers. Such wholesalers deal in goods
which bear high cost of transportation.
(c) Merchant wholesalers.
They are of the following types:
- Wholesalers proper: The are those merchants who deal only in the buying and selling activities
and do not engage in manufacturing activities. They buy goods in bulk
from the manufacturers and sell them in bulk to retailers. They also
maintain their own warehouses for storing the goods.
- Manufacturer wholesalers: They combine the twin functions of manufacturing and selling and operate as
both manufacturers and wholesalers. They usually purchase goods in their
crude form, and after processing in their plant, sell them in a refined
form to retailers. Their production operations are relatively simple
and their main activity is that of selling.
- Mill-supply wholesalers/Industrial Distributors: Such wholesalers sell a wide range of goods to industrial units, who, in
turn, use them for their manufacturing operations. These wholesalers buy
goods in bulk quantities from producers/growers and sell them to
industrial mills. For example, a wholesaler may purchase raw tobacco
from growers and sell them to factories which manufacture cigarettes.
(D) On the basis of their line of product:
- General merchandise wholesalers:Wholesalers who deal in a number of items of general merchandise, ranging from food products to household appliances.
- General line wholesalers:Who offer complete stock in one major line, e.g., stationery goods or may be hardware appliances, etc
- Specialised wholesalers:Who deal only in specialised goods such as food products c: electrical
goods, etc. They help those retailers who wish to buy a wide range of
goods of the same line.
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”
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
- 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 IT 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
Factors influencing the choice of channel of distribution:
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.
(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
- (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.
(a) Middlemen who can provide wanted marketing services will be given
- (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.
(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
- (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
- (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
- 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.
- 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).
- Customer Characteristics:
This refers to geographical distribution, frequency of purchase,
average quantity of purchase and numbers of prospective customers.
- 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
- 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].
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 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.When the Necessity of Eliminating the Wholesaler will AriseShow when the necessity of eliminating the wholesaler will arise
Arguments in Favour of Elimination of Wholesalers:
- Wholesalers are middlemen between the manufacturers and the retailers. They
increase the cost of marketing and price of the products goes up. The
consumers have to pay higher price. By eliminating wholesalers, prices
of the products will decrease and the consumer shall benefit. The
manufacturers will be earning more profit on account of lesser prices of
- Wholesalers are unnecessary links between the
manufacturers and retailers. Their presence in the distribution channel
obstructs the smooth and quick delivery of goods from the manufacturers
to the ultimate consumers. If they are eliminated, unrestricted supply
of goods takes place from the manufacturers to the retailers and the
- During the slack seasons and scarcity in business
activities demand, the wholesalers resort to hoarding and stocking of
goods and sell them at exorbitant prices charging excessive profits.
certain regions, the wholesaler is the sole distributor of the product.
He occupies monopolistic position and exploits both the retailers and
the consumers by charging higher prices, if the wholesalers are
eliminated it would be in the best interest of both the retailers and
- 5. Big and established retailers such as large departmental stores can afford to make their own purchases directly from
the manufacturers without approaching the wholesaler. The wholesalers
are easily eliminated.
- On account of developed means of
transportation, the retailers can easily purchase goods directly from
the manufacturers without the services of wholesalers.
the manufacturers have started opening their own shops for the
distribution of their products. They are establishing direct link with
the consumers. The services of the wholesalers can be easily dispensed
- The co-operative movement is gaining immense popularity
these days in India. Various co-operative stores and super markets are
operating for selling goods to the consumers. They procure their
supplies directly from the manufacturers. The presence of the
wholesalers is superfluous in the chain of distribution.
- In order to earn more profits, the wholesalers may take over the products
of the manufacturer’s competitors. The manufacturer concerned may face
the sudden decline in the sales of his products.
Arguments against the Elimination of Wholesalers
- The services and functions of a wholesaler are numerous and indispensable
for the smooth flow of goods from the manufacturer to the ultimate
consumer. He is an important link in the distribution chain of goods so
the business cannot do without him.
- Evelyn Thomas, in his book
“Commerce: Its Theory and Practice” says that “Wholesalers by operating
on a large scale relieve the manufactures of innumerable duties which
they find expensive and difficult to perform.” A wholesaler relieves the
producers of the trouble of ware housing and other marketing problems.
Hence his services are very important and are always required.
provide valuable information regarding the customers tastes, fashions
and demand to manufacturers so that the latter may adjust their
production accordingly and earn more.
- Wholesalers create a
better demand for goods than retailers since they deal in fewer goods
and also possess specialized knowledge in the products they deal in.
Thus a wholesaler’s existence is very necessary.
enable retailers to carry on their business efficiently. They deal in
fewer goods and also posses specialized knowledge about the products
- Wholesalers help in price stabilization-thus their existence is very essential for both retailers and ultimate consumers.
- Describe the activities involved in a channel of distribution.
- Explain the function of the Wholesalers.