CHAPTER 5:

WHOLESALE CHANNEL
MEMBER
1

PREPARED BY:
NORAISHAH BINTI
KAMAROLZAMAN

Channel Management
 Learning Outcome
2

 To identify the wholesale channel structures.

 To understand the characteristics of
wholesaling.
 To identify the different types of
wholesalers.
 To describe functions performed by the
wholesale channel members.

Channel Management
 Wholesale structures
3

 Wholesaling:
involves the buying and handling of merchandise
and its resale to organizational users, retailers
and/or other wholesalers but not the sale in
significant volumes to final consumers.
 Exist to support manufacturers or suppliers in
the distribution channel.
 Wholesalers’ customers include a wide range of
resellers such as organizational buyers,
government agencies, retailers and other
wholesalers.
Channel Management
 Characteristics of wholesaling
4

 Wholesalers different from retailers in terms of

their customers.
 Not sell in large amounts to end users although
they also sell to end users.
 The characteristics of wholesaling are:
1. Multiple layers of wholesaling.
2. Wholesalers representing multiple
manufacturers.
3. Small fragmented groups of wholesaler.

Channel Management
 Continue
5

 Multiple layers of wholesaling:

1. It is more than one level of wholesale
institution in a distribution channel.
2. It creates a long channel to ensure wide
distribution.
3. Long channels use different types of
wholesalers and different types of retailers to
ensure that the product will reach customers.
4. Different wholesaler at each level may provide
specific functions.
Channel Management
Multiple layers of wholesaler in Malaysia

Manufacturer

Specialty goods
wholesaler

Full line
wholesaler

Retailer

Final consumer

Channel Management
6
 Continue

Manufacturer

Manufacturers’
agent

Full service
merchant wholesaler

Retailer

Final consumer

Channel Management
7
 Continue

Manufacturer

Specialty export
wholesaler

Malaysian
wholesaler

Retailer

Final consumer

Channel Management
8
 Continue
9

 Wholesaler representing multiple

manufacturers:
1. Act on behalf of manufacturers.
2. Sometimes faced potential problems like
conflict of interest when they handle goods
from different manufacturers that compete for
the same target market.
3. It arise when manufacturers feel that they are
not well represented by the wholesalers and
there are strong competitive pressures in
distributing their products.
Channel Management
 Continue
10

 Small fragmented group of wholesalers:

1. Sometimes there are independent enterprise.
2. In Malaysia, mostly Chinese family-owned
businesses and among the first few distinctive
wholesalers.
3. Majority are relatively small in terms of
organizational size especially in Malaysia.
4. Because of high competition some of small
wholesalers are taken by other enterprises so
that they are able to compete in the market.
Channel Management
The marketing functions performed by wholesalers to manufacturers
and customers
11

 For manufacturer:
1. Market coverage function.
2. Sales contact function.
3. Inventory holding function.
4. Order processing function.
5. Market information function.
6. Customer support function.

Channel Management
 Continue
12

 For customer:
1. Product availability function.
2. Assorment convenience function.
3. Bulk-breaking function.
4. Credit and finance function.
5. Customer service function.
6. Advice and technical support function.

Channel Management
 Major Types of Wholesalers

All Wholesale Firms

Independent Manufacturer
middlemen owned

Merchant Agents, brokers, Manufacturers'

wholesaler & sales branches
commission &
merchants offices

Channel Management
13
 Merchant Wholesalers
Tasks Performed:
Buy
Take title to
Store
Handle

Large quantities of products

Resell to

Industrial,
commercial,
or other
Retailers
institutional Wholesalers
concerns

Channel Management 14
 Merchant Wholesaling

The wholesaler controls wholesaling and

Control/
performs many or all functions.
Functions

Ownership The wholesaler buys products from the

manufacturer/service provider and resells
them.

The manufacturer/service provider is paid

Cash Flow
when the wholesaler purchases products.

The manufacturer/service provider has a

Best Use(s) large product line that is sold through many
small and geographically dispersed
customers; expansion is a goal.
 Continue
16

 Full service merchant  Limited service

wholesalers: merchant wholesalers:
1. General merchandise. 1. Cash and carry
handle wide range of wholesalers.
products. self service operations, no
2. Specialty merchandise. credit, no delivery, no
narrow range of products promotion and
but wide assortment. merchandise assistance.
2. Drop shippers.
3. Rack jobbers.
specialized, provide and no storage facility and no
maintain general warehouse facility.
merchandise but in ship item without
consignment basis, physically handling
furnishes racks and
shelves.

Channel Management
 Agents, Brokers, & Commission Merchants

Involved in buying & selling

while acting on behalf of clients.

Bring buyers and sellers together

to complete transaction.

Commissions
on
sales or purchases

Channel Management 17
 Agents and Brokers

The manufacturer/service provider and

Control/
wholesaler each have some control and
Functions
perform some functions.

The manufacturer/service provider owns the

Ownership
products and pays the wholesaler a fee/
commission.

The manufacturer/service provider does not

Cash Flow receive payment until products are sold.

The manufacturer/service provider is

Best Use(s) small, has little marketing expertise, and is
relatively unknown to potential customers;
expansion is a goal.
 Continue
19
 Manufacturers’ agents:  Food brokers:
manufacturers’ specialize in food products
representatives, act as and perform wide range of
manufacturers’ outside sales activities such as promotion.
force and handle wide range  Export brokers:
of product and service for
several firms. deal with international
trade, expert and
 Selling agents:
knowledgeable in specific
market all items of a firm. foreign markets.
responsible for one  Commission merchant:
manufacturer, responsible handles item on
for marketing and sales consignment basis.
effort. E.g.: electrical goods.

Channel Management
 Manufacturers’ Sales Branches & Offices
20

Separated from manufacturing plants

Distribute
Owned & operated by
manufacturer’s
manufacturers
products at
wholesale

Some wholesale allied &

supplementary products
purchased from other
manufacturers.
Channel Management
Objective
Merchant Wholesalers Specialize in
Performance Distribution Tasks
1. Provide market coverage
2. Make sales contacts
3. Hold inventory
4. Process orders
5. Gather market information
6. Offer customer support

• Operate at high levels of effectiveness and efficiency

• Average cost curves lower than those for their suppliers
©2013Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Merchant Wholesalers’ Distribution Tasks
Serve Customers

1. Assure product availability

2. Provide customer service
3. Extend credit & financial
assistance
4. Offer assortment convenience
5. Break bulk
6. Help customers with advice &
technical support
Agent Wholesalers’ Distribution Tasks

Manufacturers’
Agents

 Market coverage

 Sales contacts
Agent Wholesalers’ Distribution Tasks

Selling
Agents

 Market coverage
 Sales contacts
 Order processing
 Marketing Information
 Product availability
 Customer services
Agent Wholesalers’ Distribution Tasks

Brokers

 Market coverage
 Sales contacts
 Order processing
 Marketing Information
 Product availability
 Customer services
Agent Wholesalers’ Distribution Tasks

Commission
Merchant

 Market coverage
 Sales contacts
 Order processing
 Breaking bulk
 Credit
 Holding inventory
Objective

Major Trends in Wholesale Structure

1992—2002

42.0% Wholesale trade

26.5% Manufacturer’s sales

branches & offices

51.7% Merchant wholesalers

36.7% Agents, brokers, &

commission merchants

©2013Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Trends in Size & Concentration
Measured by: Types of Wholesalers
Size of Majority are small businesses
wholesaler
Sales volume Nearly 45% of all firms have annual sales
of less than $1 million

# of Employees per About 50% of firms had fewer than 5

firm employees

Economic 50 largest manufacturers’ sales branches

concentration in terms & offices garnered nearly 63% of sales for
of % of total sales this type
 Retailers expectation to wholesalers
29

 Some of the expectations of retailers are:

1. Technical training.
2. Sales training.
3. Electronic order processing.
4. Just In Time delivery.
5. Customized financial services.

Channel Management
 Past Semester Questions
30

 Briefly explain how wholesalers differ from retailers in the

marketing channels (5 marks, DEC 2015)
 Discuss the differences between full service merchant
wholesalers and limited service merchant wholesalers. Use
examples to support your answer (20 marks, DEC 2015)
 In the distribution channel, wholesalers differ from retailer.
Describe two (2) specific characteristics that are typical only of
wholesaling (10 marks, JUNE 2015)

Channel Management
 Continue
31

 With the aid of examples, elaborate four (4) distribution tasks

that are commonly perform by merchant wholesalers (10 marks,
JUNE 2014)
 Elaborate any two (2) characteristics of wholesaling. Provide a
relevant example for each (10 marks, DEC 2013)
 With examples, elaborate the differences between merchant
wholesalers, agents and brokers and manufacturers’ sales
branches and office (15 marks, JAN 2013).

Channel Management
 32

Thank You

Channel Management