Chapter 11, channel institutions - Wholesaling. After studying this chapter you will be able: Understand functions of a wholesaler, understand various classes of wholesalers, major wholesaling decisions, benefits and limitations of wholesalers, understand about a – distributor in more detail, trends in wholesaling practices.
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Learning Objectives
• Understand functions of a wholesaler
• Understand various classes of
wholesalers
• Major wholesaling decisions
• Benefits and limitations of wholesalers
• Understand about a – distributor in
more detail
• Trends in wholesaling practices
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Need for Wholesalers
• Widespread economy – consumers can only 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, stockists and agents
Characteristics….
Trang 4– Food, grocery, pharma or automobile spares etc
• The company itself, contracted parties or free lancers, can operate as wholesalers
• Mostly B2B business – trade and institutions
• Wholesaler could also be a retailer – in rural markets – W/s sells to other retailers and also
to consumers
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Characteristics of Wholesalers
• Sell physical inputs or products – tangible
goods ( Ws in some service industries)
• Optimise results, maximise service
(effectiveness) and minimise operating costs
(efficiency)
• Buy goods for resale, keep inventory, take
risks of price changes, negotiate terms,
procure orders, deliver and extend credit
Definition…
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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
Delivering value…
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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
Functions…
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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
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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
Trang 11• Limited service: range of service is limited (examples include Metro C&C, mail order)
• Merchant w/s: independent businesses
• Brokers and agents: bring buyer and seller together – do not take possession of goods
• Others: agri business, auction companies etc
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Limitations of Wholesalers
• Some of them do not give complete
information to suppliers for selfish reasons
• Cannot be relied on to do equitable
distribution
• At times, do not want company and
customers to meet
• Tend to hoard goods and influence pricing
• Consumers have no say in pricing or quality
in a w/s dominated system
Major decisions…
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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
Trang 14• Hundreds of small companies who cannot
afford to set up distribution networks – need
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Favourable Factors
• Big companies also need wholesalers
to get big volumes
• W/s extend credit to customers
Companies cannot match this
• Retailers have to visit w/s markets to
buy food grains, cereals and pulses –
buy a lot more
Unfavourable…
Trang 16• Enforcing strict price control so that w/s
do not sell below company prices.
Trang 17– A redistribution stockist for HLL
– A distributor for Philips lighting division
– A distributor for L&T engineering division
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Dealer
• Role similar to a distributor but
– May not have a clearly defined territory and may sell both in the market and from his shop
– May deal with competitive products also
– Extends credit selectively.
– Dealers in industrial products may have better defined roles.
• Examples:
– Dealer for an edible oil company
– A dealer for garment brands
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Stockist
• May be working for a company with a
designated territory but does not
re-distribute the stocks Sells from his
premises Extends credit selectively.
– A stockist for paper products
– A stockist for automobile spares
• Re-distribution is visiting customer
premises to sell products
Managing distributors….
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Managing Distributors
• The principles are similar across
industry verticals FMCG is the most
complex.
• Has the capacity to maximise sales and market shares.
• Has to ensure buying goods from the
company and re-distribution to the trade
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Managing Distributors
• Distributor responsibilities include:
– Buying adequate quantities by Stock Keeping Unit (SKU) for redistribution
– Ensuring full market coverage of all customers in the territory assigned to him
– Help finance the operations – pays for the goods upfront but extends credit to his customers
– Maintaining inventory of company products
adequate at all times to service the market
– Assist company in its promotional efforts
Why necessary?….
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Need for Distributors
• Under three circumstances:
– For entering a new town
– For additional coverage in the same town
– For replacing an existing distributor
• For entering a new town, assess the potential for business to decide:
– If the town can sustain a full fledged distributor
– The number of distributors required
• Starts with a town profile of potential, number
of customers to be serviced and the
competition
Cost of servicing…
Trang 23– Logistics cost of serving the market
– The number of customers to be covered by
category – wholesalers, retailers, institutions
– Frequency of visits to markets and outlets
– Sales revenue estimate from each visit
– Markets to be covered with ready stocks or order booking for later delivery
– Likely collections during each visit – gives an idea
of the credit requirements
Expectations…
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Expectations from a
Distributor
• To be stated at the start of the relationship
• Helps get the right kind of distributor also
– Achieving sales targets – volume, value and packs
– Financial commitment on inventory and credit
– Investment in infrastructure – space, vehicles
– Manpower – front line and back office
– Distribution effort – market and outlet coverage as per a beat plan with productive calls
– Developing new markets and new accounts
– Managing key accounts and institutional business
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Expectations from a
Distributor
• Merchandising and displays in the market
• Secondary sales efforts and tracking – critical for fmcg and pharma (secondary sales is
sales from the distributor to the outlets in the market)
• Effectively handling promotions and schemes initiated by the company
• Managing damaged stocks
Trang 26• Assist company in making a success of
launching new products and packs
• Handling consumer quality complaints
• Handling statutory requirements on behalf of the company
• Payments and remittances promptly to the company
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Key Learnings
• Wholesalers are required to reach hundreds
of customers and retailers
• Wholesaler business is usually B2B
• Wholesalers can be free-lance or appointed
by companies – like distributors
• Company distributors are bound by strict
operating norms
• Future of wholesalers in India still seems
favourable