The role of the wholesaler in the chain of distribution

CHANNELS OF DISTRIBUTION

There are four main channels of distribution and many ‘intermediaries’ or middlemen involved before goods can finally reach the consumers as shown below.
chain-of-distribution

In reality, the channels used are very varied and often complex, and there is much overlapping.

Channel 1: When a manufacturer sells direct to the consumer

  1. This occurs when customers post orders for books or magazines direct to the publishers who then send them their orders direct as in mail order or e-commerce. This ensures the publisher of selling to as many people as possible, including those who live far away. In this way, they increase their sales. Consumers, too, benefit since they are assured of getting the latest issue or publication early.
  2. It also occurs when something is made specially for a customer such as a suit or made-to-order furniture. Consumers who demand individuality in design for such personal effects normally have to pay more than what they have to pay for the same type of good which is mass-produced.
  3. It also occurs in the case of expensive and highly specialized goods which are purchased only occasionally by governments or big private companies. Examples of these kinds of goods are aeroplanes, ships, railway rolling stock, and the like. Buyers prefer to go direct to the manufacturers so that they may be able to discuss their individual requirements as well as the terms of purchase.
  4. This channel of distribution, however, is not suitable for all kinds of goods.

Channel 2: When a manufacturer sells to the retailers who in turn sell to the consumers

  1. Most of these retailers are large stores that have the financial resources to buy in bulk direct from the manufacturers. The main advantage of bulk buying is the large discounts given that enable these retailers to compete successfully with the small retailers in terms of ability to offer a greater variety of goods at competitive prices.
  2. In many cases, manufacturers open their own retail shops, for example, those selling footwear and medicine. These manufacturers have resources large enough to open retail outlets of their own throughout the country.
  3. Sometimes, the retailers may be ‘tied’ to the manufacturer. For example, petrol stations sell only one brand of petrol.

Channel 3: When a manufacturer sells to a wholesaler or a wholesale merchant who in turn sells in smaller quantities to retailers (shops), who in turn sell to the consumers

  1. This occurs when producers themselves are unable to market the excess goods themselves because of financial constraints or the lack of access to widely dispersed markets due to a lack of contacts, commercial know-how and the like or owing to the fact that it is just not commercially profitable for the producers to do so themselves. This is true of most rural produce like fish, padi, vegetables, eggs, poultry, etc. which are easily perishable. These are often sold to dealers (wholesalers) who then pack them properly and transport them quickly to the big towns and cities either in the same country or overseas, where they are sold to various retailers, who in turn sell them to the consumers.
  2. Locally manufactured goods like ordinary household essentials which are stocked by small retailers are often distributed in this way since the retailers buy in too small a quantity to make it viable for the manufacturer to sell direct to them.
  3. This method of distribution is especially important where the demand for the product is seasonal but production takes place throughout the year, e.g. fireworks and Christmas cards. It is the same if the demand for the product is fairly even throughout the year, but output is concentrated during specific periods of the year, e.g. paddy.
    In such cases, the wholesaler’s function of acting like a reservoir in order to balance demand and supply becomes very important.
  4. Goods which are sold in this way become more expensive because of the cost of distribution and profit margins required by the wholesaler and retailer. Moreover, consumers have no direct contact with manufacturers or producers. However, consumers are assured of a wide variety of goods produced by many producers.
  5. The producer is free to devote all his attention and resources to the actual work of producing the goods since the marketing aspect of his goods is already in the hands of the wholesaler. At the same time, the producer is assured that his goods are marketed over a wide geographical area.
  6. The retailer needs little capital as he needs to maintain only a small stock. He does not need to keep large stocks because it is easy for him to get new and, hence, fresher stocks from his supplier (wholesaler) once his stocks are depleted.
  7. General wholesalers normally stock a wide range of goods and need a substantial amount of capital to finance their large warehouses, stocks and advertising and to pay the salaries of their salesmen. These tend to operate on a national or regional basis.

    Specialist wholesalers, however, deal mainly in a particular trade in a particular area, for example, a wholesaler of building materials, in fruit, in vegetables, etc.

  8. Sometimes, a wholesale merchant may import directly from an overseas supplier. Like the wholesaler, he then sells it to the retailers in smaller quantities.

Channel 4: When an overseas manufacturer appoints a sole agent

This is done in the home market to manage the sale and distribution of goods as well as to provide after-sale services. The sole agent is responsible for getting reliable retailers to market the goods throughout the country. Such sole agents are appointed to sell imported cars, cosmetics and electrical goods.

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