Many Areas Associated With Wholesaling
An expanded consumer market potential is provided through wholesaling in terms of geographical locations and consumer purchasing power. At the same time wholesaling provides a cash flow for the manufacturer. There are several major reasons for the importance of wholesaling. First, all goods and necessary supplies for their production pass through some form of middle agent and wholesaling system. For this reason, the effective functioning of wholesale linkages contributes directly to the economic well-being of a society.
Secondly, for most small producers, an immediate geographic location is typically insufficient to provide and maintain an on-going customer base for their operations. As a means to sell their goods, smaller producers must have avenues to develop market segments of potential customers and must make sure their goods are of the quality customers want at prices they are willing to pay.
Role of Wholesalers
The role of wholesalers is to provide links to an expanded market base and, therefore, to discover where customers are located and how best to reach them. In this sense, wholesaling uses time and place as it relates to information and availability. Wholesalers create utility through holding goods that can be drawn upon by buyers at a cost lower than direct exchange.
Finally, wholesalers act as distribution channels and interface with markets and producers within markets. Whereas wholesaling and retailing provide similar functions in that they receive, store, and distribute goods, the importance of wholesaling is in its ability to moderate supply and demand fluctuations and cope with larger transactions with less emphasis on selling techniques and services and product promotion. Wholesaling has the capability to adjust the distribution of goods from surplus to deficit areas. Wholesalers are successful only if they are able to serve the needs of their customers, who may be retailers or other wholesalers.
Truck wholesaling operations are primarily run out of a truck that is stocked with products. These wholesalers often have assigned geographic territories where they regularly visit buyer’s locations. In most cases these wholesalers offer specialty product lines with many being found in the retail food industry and the industrial markets.
The rack jobber, similar to truck wholesalers, also sells from a truck. However, the main difference is that rack jobbers are assigned and manage space (i.e., racks) within a retailer’s store. The rack jobber is then responsible for maintaining inventory and may even handle other marketing duties such as setting product price. This form of wholesaling is most prominent with magazines, candy, bakery, and health-and-beauty products. In some trades the name rack jobber is being replaced by the name service merchandiser.
Wholesalers in this category never take physical possession of products, though they do take ownership. Essentially they are shipping coordinators who receive orders from customers and then place the order with a product supplier. Shipping is then arranged so that the supplier ships directly to the drop shipper’s customer. Drop shipping is often most useful when very large orders are placed where transportation and product handling costs are high if there are too many distribution points.
A far less obvious type of wholesaler is the broker, who is responsible for bringing buyers and sellers together. However, brokers do not take ownership of products and often never handle the product. Brokers are paid based on a pre-negotiated percentage of the sale (i.e., commission) by the side that hires their services. In most cases the relationship that develops between the broker and the buyer and seller is short-term and only lasts through the purchase. Brokers can be found in the food industry, importing/exporting and real estate.
Agents Bring Buyer, Sellers Together
Similar to brokers, agents also bring buyers and seller together though they tend to work for clients for an extended period of time. As with brokers, agents generally are paid on commission. A common type of agent is the Manufacturers’ Representative who essentially assumes the role of a sales force for a client. Manufacturers’ Reps may handle several non-competing product lines at the same time and during a single meeting with a perspective buyer may discuss many products.