Buying Wholesale

It's hard to define what a wholesaler is because there are so many different wholesalers doing different jobs. Some of their activities may even seem like manufacturing. As a result, some wholesalers call themselves "manufacturer and dealer." Some like to identify themselves with such general terms as merchant, jobber, dealer, or distributor. And others just take the name commonly used in their trade — without really thinking about what it means.

To avoid long technical discussion on the nature of wholesaling, we'll use the U.S. Bureau of the Census definition:

Wholesaling is concerned with the activities of those persons or establishments which sell to retailers and other merchants, and/or to industrial, institutional, and commercial users, but who do not sell in large amounts to final consumers.

So, wholesalers are firms whose main function is providing wholesaling activities.

Note, that producers who take over wholesaling activities are not considered wholesalers. However, when producers set up branch warehouse at separate locations, these establishments basically operate as wholesalers. In fact, they're classified as wholesalers by the U.S. Census Bureau and by government agencies in many other countries.

Wholesalers may perform certain functions for both their suppliers and the wholesalers' own customers — in short, for those above and below them in the channel. Wholesaling functions really are variations of the basic marketing functions — buying, selling, grading, storing, transporting, financing, risk taking, and gathering market information. Wholesaling functions are basic to the following discussion because decisions about what combination of functions to perform is a key part of a wholesaler's strategy planning. Keep in mind that not all wholesalers provide all of the functions.

Wholesalers perform a variety of activities that benefit their customers.

They:

1. Regroup goods - to provide the quantity and assortment customers want at the lowest possible cost.

2. Anticipate needs - forecast customers' demands and buy accordingly.

3. Carry stocks — carry inventory so customers don't have to store a large inventory.

4. Deliver goods - provide prompt delivery at low cost.

5. Grant credit to customers, perhaps supplying their working capital. Note: This financing function may be very important to small customers; sometimes it's the main reason they use wholesalers rather than buying directly from producers.

6. Provide information and advisory service — supply price and technical information as well as suggestions on how to install and sell products. Note: The wholesaler's sales reps may be experts in the products they sell.

7. Provide part of the buying function — offer products to potential customers so they don't have to hunt for supply sources.

8. Own and transfer title to products — help complete a sale without the need for other middlemen, speeding the whole buying and selling process.

Wholesalers also benefit producer-suppliers. They:

1. Provide part of a producer's selling function — by going to producer-suppliers instead of waiting for their sales reps to call.

2. Store inventory — reduce a producer's need to carry large stocks thus cutting the producer's warehousing expenses.

3. Supply capital — reduce a producer's need for working capital by buying the producer's output and carrying it in inventory until it's sold.

This example shows that wholesalers are often a vital link in a channel system — and in the whole marketing process — helping both their suppliers and customers. It also shows that wholesalers — like other businesses — must select their target markets and marketing mixes carefully.