WHOLESALING
Wholesaling includes all activities involved in selling goods and services to those buying for
resale or business use.
Wholesalers are those firms engaged primarily in wholesaling activities.
Use Key Terms Wholesaling and Wholesaler here.
Use Chapter Objective 4 here.
Wholesalers buy mostly from producers and sell mostly to retailers, industrial consumers, and
other wholesalers.
Wholesalers add value by performing one or more of the following channel functions:
Selling and promoting: Wholesalers’ sales forces help manufacturers reach many small
customers at a low cost.
Buying and assortment building: Wholesalers can select items and build assortments needed by
their customers, thereby saving the consumers much work.
Bulk-breaking: Wholesalers save their customers money by buying in carload lots and breaking
bulk (breaking large lots into small quantities).
Warehousing: Wholesalers hold inventories, thereby reducing the inventory costs and risks of
suppliers and customers.
Transportation: Wholesalers can provide quicker delivery to buyers because they are closer than
the producers.
Financing: Wholesalers finance their customers by giving credit, and they finance their suppliers
by ordering early and paying bills on time.
Risk bearing: Wholesalers absorb risk by taking title and bearing the cost of theft, damage,
spoilage, and obsolescence.
Market information: Wholesalers give information to suppliers and customers about competitors,
new products, and price developments.
Management services and advice: Wholesalers often help retailers train their salesclerks,
improve store layouts and displays, and set up accounting and inventory control systems.
Types of Wholesalers
Wholesalers fall into three major groups (see Table 11.3):
Use Table 11.3 here.
Use Discussion Question 11-5 here.
1. Merchant wholesalers are the largest single group of wholesalers, accounting for
roughly 50 percent of all wholesaling. Merchant wholesalers include two broad types:
a. Full-service wholesalers provide a full set of services.
b. Limited-service wholesalers offer fewer services to their suppliers and customers.
The different types of limited-service wholesalers perform varied specialized functions:
2. Brokers and agents differ from merchant wholesalers in two ways:
a. They do not take title to goods.
b. They perform only a few functions.
A broker brings buyers and sellers together and assists in negotiation.
Agents represent buyers or sellers on a more permanent basis. Manufacturers’ agents
(also called manufacturers’ representatives) are the most common type of agent
wholesaler.
3. Manufacturers’ and retailers’ branches and offices involves wholesaling by
sellers or buyers themselves rather than through independent wholesalers.
Use Key Terms Merchant Wholesaler, Broker, Agent, and Manufacturers’ and Retailers’
Branches and Offices here.
Use Discussion Question 11-6 here.
Wholesaler Marketing Decisions (Figure 11.2)
Segmentation, Targeting, Differentiation, and Positioning Decisions
Like retailers, wholesalers must segment and define their target markets and differentiate and
position themselves effectively—they cannot serve everyone.
Marketing Mix Decisions
Wholesalers add customer value though the products and services they offer.
They are often under great pressure to carry a full line and to stock enough for immediate
delivery. But this practice can damage profits.
Price is an important wholesaler decision.
Most wholesalers are not promotion minded.
Their use of trade advertising, sales promotion, personal selling, and public relations is largely
scattered and unplanned.
Distribution (location) is important—wholesalers must choose their locations, facilities, and
Web locations carefully.
Use Figure 11.2 here.
Trends in Wholesaling
The industry remains vulnerable to one of the most enduring trends—the need for ever-greater
efficiency.
Recent economic conditions have led to demands for even lower prices and the winnowing out
of suppliers who are not adding value based on cost and quality.
The distinction between large retailers and large wholesalers continues to blur.
Wholesalers will continue to increase the services they provide to retailers—retail pricing,
cooperative advertising, marketing and management information reports, accounting services,
online transactions, and others.
Video Case: Kmart
Once the leader in discount retailing, Kmart long ago took a back seat to Walmart, Target, and
others discount chains. But recent efforts to provide value to customers through innovation show
that the veteran retailer may still have its edge. To gain a competitive one-up, Kmart started a
unique program that combined the benefits of online and brick-and-mortar shopping. When an
item that customers wanted to purchase was not in stock at one of its stores, Kmart would ship
the item to the customer’s home for free.
To launch this program, Kmart unveiled an ad campaign that illustrated an uncharacteristic
relevance to younger, tech-savvy customers. With the slight-of-mouth message that customers
could “ship their pants” (or any of the other 65 million items in Kmart’s inventory) for free, the
ad went viral. As a result, Kmart got its message out in spades, entertaining many while
offending a few along the way.
After viewing the video featuring Kmart, answer the following questions:
11-15. Consider the retail marketing mix. How did Kmart differentiate itself from other
retailers with its free shipping program?
11-16. What kind of customer does the “Ship My Pants” campaign target? How is this
significant?
11-17. Discuss what will be the ultimate effects of this Kmart campaign.
Company Cases
11 Sears/14 Alibaba/15 7-11
See Appendix 1 for cases appropriate for this chapter.
Case 11, Sears: Why Should You Shop There? Once “Where America Shops”, the former
leading retailer now has customers scratching their heads.
Case 14, Alibaba: The World’s Largest E-Tailer Is Not Amazon. Hardly known in the U.S.,
Alibaba has become the fastest growing e-tailer in the world by expanding into just about every
consumer business imaginable.
Case 15, 7-Eleven: Adapting to The World’s Many Cultures. Just a convenience store in the
U.S., 7-Eleven has a strong global presence by adapting its retail marketing mix to fit the unique
needs of consumers worldwide.
MyMarketingLab
If assigned by your instructor, complete these writing sections from your Assignments in the
MyLab.
11-18. Describe the types of shopping centers and identify specific examples in your
community or a nearby city. (AACSB: Communication; Reflective Thinking)
11-19. The atmosphere in a retail store is carefully crafted to influence shoppers. Select a
retailer that has both a physical store and an online store. Describe the elements of the
physical store’s atmosphere, such as the colors, lighting, music, scents, and décor. What
image is the store’s atmosphere projecting? Is that image appropriate given the
merchandise assortment and target market of the store? Which elements of the physical
store’s atmosphere are part of its online store atmosphere? Does the retailer integrate the
physical store’s atmosphere with its online presence? Explain. (AACSB: Written and Oral
Communication; Information Technology; Reflective Thinking)
GREAT IDEAS
Barriers to Effective Learning
1. Retailing is generally not a difficult concept for students. However, the different types of
retailers should be thoroughly explained to the students to ensure their understanding.
Table 11.1 is an excellent resource in this regard. The differing types of retail
organizations are also critical to understand; Table 11.2 helps here.
2. The decisions retailers need to make will be easily understood with a review of Figure
11.1. It is very clear in this figure that the marketing mix elements studied earlier in the
text are being applied in a retail environment. Explain carefully how the type of retail
organization chosen affects the marketing mix, and vice versa.
3. Nonstore retailing should be familiar to students, but perhaps not by this name. Many
students may not realize that they are visiting a retailer when they buy books or stream
music from Amazon.com, or select an item from a catalog and order it over the phone.
4. Wholesaling, by contrast, could be a difficult subject for many students. Although the
concept was introduced in an earlier chapter, there is more detail here, and there are many
more terms for the students to learn.
5. The description of the types of wholesalers is brief but important. Examples will help
tremendously, even though most wholesalers, by their nature and as discussed in the text,
are virtually unknown to consumers. Due to summer jobs or family members, some
students, might be familiar with distributors who service grocery stores and other retail
outlets. Table 11.3 will be helpful in this discussion.
Student Projects
1. Go to a local power center. Make a list of all the stores located there. Which of these
stores serve as the anchor and which stores are dependent on the anchor?
2. Visit a local discount store (Walmart, Target, etc.) and a local off-price store (T.J. Maxx,
Stein Mart, etc.). Examine the product mix and pricing strategies of both stores. Who
would you say is the target market of each? Why?
3. Describe the major types of wholesalers located in your community and give an example
of each.
4. In your town, locate a merchant at each stage of the Wheel of Retailing.
Small Group Assignment
Form students into groups of three to five. Each group should read the opening vignette to the
chapter on Walmart and then answer the following questions:
1. What is Walmart’s basic strategy?
2. Describe Walmart based on the types of retailers described in the text—via service,
product line, prices, and organizational approach.
3. Describe the decisions that Walmart has made for each variable of the marketing mix.
4. If you were a wholesaler, how would you approach Walmart to carry your products?
Each group should share its findings with the class.
Individual Assignment
Become an Internet detective and do some research on the history of Walmart. Trace the
evolution of the company from its humble beginnings to the global powerhouse it is today. Do
you believe the company is still fulfilling the objectives laid down by its founder, Sam Walton?
Why or why not? Justify your answer.
Think-Pair-Share
Consider the following questions, formulate answers, pair with the student on your right, share
your thoughts with one another, and respond to questions from the instructor.
1. How would you define retailing? How does it fundamentally differ from wholesaling?
2. What is a category killer? Why do you believe they have become so popular in recent
years?
3. What do you believe to be the primary reason for the explosive growth of on-line
merchants, such as Amazon.com? Do you think it is possible for traditional
brick-and-mortar merchants to successfully compete?
4. What are the basic functions that wholesalers perform? Why don’t retailers perform these
functions instead?
5. What does it mean that the retail life cycle is becoming shorter?
Classroom Exercise/Homework Assignment
Consider both Walmart (www.walmart.com) and Amazon (www.amazon.com). In what ways do
these two companies compete? Compare them using the variables of the marketing mix.
Specifically, take a look at how both companies market their music offerings. Which do you
believe has the upper hand? Why?
Classroom Management Strategies
This chapter can easily be covered in one standard class period. Although the terminology will be
new to students, particularly the types of retailers and wholesalers, the material itself is easily
understood as a general rule, and students will tend to be pretty familiar with retailing in
particular.
1. The majority of the class, perhaps 40 minutes in a 60-minute class, should be spent on
retailing. This can be broken down further, with 15 minutes on the Types of Retailers, 15
minutes on Retailer Marketing Decisions, and 10 minutes on the Future of Retailing. You
can liberally use examples and the various questions from the chapter in going through
this material.
2. The remaining 20 minutes of the class will be spent on the Wholesaling section. Here, it
is very important that time be spent on discussing the various types of wholesalers and
what kinds of functions they perform. Students will be less familiar with this type of
business, so several examples should be gathered to discuss in class. The Classroom
Exercise/Homework Assignment provided previously can be very useful.
PROFESSORS ON THE GO
Retailing and Wholesaling
Key Concepts
Types of retailers
Marketing decisions retailers make
The future of retailing
What are the four characteristics used in the chapter to classify retailers? What are the
seven major store retailer types? Give an example of each type.
Explain why it is important for retailers to define their target markets and to decide
how they will position themselves in these markets. Give an example of a national
specialty retailer who has done this well.
Consider this statement made by a retailing insider: “The mall represents a point in
time in the evolution of retailing….We are reaching the end of one era and entering
something new.” What is the “something new” that is being suggested? Where will
Americans be shopping if not at the malls?
Considering the increased use of the Internet, what are the ramifications that you
think will affect retailing?
What is a category killer?
Key Concepts
Types of wholesalers
Marketing decisions made by wholesalers
Trends in wholesaling
Suppose that you are a manufacturer’s agent for three lines of complementary
women’s apparel. Discuss what types of marketing mix decisions you will be making.
How can wholesalers use the Internet to increase their business? Provide an example
of how wholesalers can use the Internet to compete.
What are the functions of wholesalers? Can these be replaced? If so, how?
What do you think is the most dramatic trend in wholesaling?