Basic Marketing: A Global Managerial Approach

Perreault−McCarthy: Basic

Marketing: A

Global−Managerial

Approach, 14/e

13. Retailers, Wholesalers
    and Their Strategy
    Planning

Text © The McGraw−Hill

Companies, 2002

378 Chapter 13

producers. They want to negotiate directly with the producer—not just accept the

wholesaler’s price. Similarly, more producers see advantages in having closer direct

relationships with fewer suppliers—and they’re paring out weaker vendors. Efficient

delivery services like UPS and Federal Express are also making it easy and inex-

pensive for many producers to ship directly to their customers—even ones in foreign

markets. The Internet is putting pressure on wholesalers whose primary role is

providing information to bring buyers and sellers together.^28

All of this is squeezing some wholesalers out of business. Some critics—including

many of the wounded wholesalers—argue that it’s unethical for powerful suppliers or

customers to simply cut out wholesalers who spend money and time, perhaps decades,

developing markets. Contracts between channel members and laws sometimes define

what is or is not legal. But the ethical issues are often more ambiguous.

For example, as part of a broader effort to improve profits, Amana notified Cooper

Distributing Co. that it intended to cancel their distribution agreement in 10 days.

Cooper had been handling Amana appliances for 30 years, and Amana products

represented 85 percent of Cooper’s sales. Amana’s explanation to Cooper? “It’s not

because you’re doing a bad job: We just think we can do it better.”

Situations like this arise often. They may be cold-hearted, but are they unethical?

We argue that it isn’t fair to cut off the relationship with such short notice. But most

wholesalers realize that their business is alwaysat risk—if they don’t perform channel

functions better or cheaper than what their suppliers or customers can do themselves.^29

To survive, each wholesaler must develop a good marketing strategy. Profit mar-

gins are not large in wholesaling—typically ranging from less than 1 percent to 2

percent. And they’ve declined as the competitive squeeze has tightened.

The wholesalers who do survive will need to be efficient, but that doesn’t mean

they’ll all have low costs. Some wholesalers’ higher operating expenses result from the

strategies they select—including the special services they offer to somecustomers.

Exhibit 13-6 compares the number, sales volume, and operating expenses of some

major types of wholesalers. The differences in operating expenses suggest that each

of these types performs, or does not perform, certain wholesaling functions. But which

ones and why? And why do manufacturers use merchant wholesalers—costing 14.1

percent of sales—when agent middlemen cost only 4.2 percent?

Manufacturer

Sales Branches

Agent

Wholesalers

Merchant

Wholesalers

Type of

Wholesale

Operation

0 5 10 15%

Percent (and number)

of wholesale

establishments

Percent of all

wholesale sales

Cost as a percent

of sales for each

type of wholesaler

0 20 40 60 80%

6.5% (29,500)

10.5% (48,000)

0 20 40 60 80%

83% (376,000)

31%

11.5%

57.5%

7.6%

4.2%

14.1%

Exhibit 13-6 U.S. Wholesale Trade by Type of Wholesale Operation

Survivors will need
effective strategies

Wholesalers Add Value in Different Ways

Is it an ethical issue?