Hello!
Please explain me this because I can not figure out!
As I see producers sell their stuff to wholesales. Wholesales gather a bunch of different things and then sell it to retailers who communicate with the costumers and sell it to them.
For example a wholesale of stationery gathers pencils, papers, toners etc. Then they sell these in smaller amounts to retailers who after that deliver directly to the offices (to the costumers).
Why don’t wholesale just sell and deliver right away to the costumers and gain the extra money the retailers basically live on?
In: Economics
Because as well as profit on any given sale, you must also consider the hassle involved, because hassle eats away at profit.
It might be quite easy to put in however many raw materials to a factory machine, let the machine do its thing, and receive 100,000 manufactured objects afterwards. If you can then sell all 100,000 to just one or two purchasers, there is very little hassle in terms of making those sales. However, trying to find 100,000 individual customers to buy one object each would be a huge amount of hassle that a factory doesn’t want (and usually isn’t set up to handle).
So although selling directly to the public might result in greater profit per object sold, it also requires a lot more cost to generate individual sales, to handle returns and faults, to have all the smaller packaging to handle different sizes of orders, to have an ordering system and packaging department to handle each individual order correctly, all the staff to oversee this, and the IT staff and website to be able to sell to people directly. At the end of the day, all of these additional costs will eat away at the profit per object, so that the business may well find that it is suffering huge amounts of additional hassle that it doesn’t really want to have, without really making any greater profit margins (higher income but higher costs as well). So, why complicate matters? They keep it simple and have fewer liabilities in the process.
Every step along the supply chain is set up to be able to buy in a number of objects at a price appropriate to that number of objects, and to sell the objects in smaller quantities per order over a greater number of orders, and will have the staff, business contacts, and technical setup to achieve the task they set for themselves.
That’s why you might have a massive company buying directly from the factory in gigantic quantities, and then exporting huge quantities in single orders to national importers around the world. These national importers then receive the huge quantities in single orders, and sell large quantities in single orders to regional wholesalers. These regional wholesalers then receive large quantities in single orders, and sell in smaller quantities to local shops. These local shops then receive small quantities in single orders, and sell individual objects via individual orders to individual customers.
Although it may seem inefficient to do it like this, it means every business can be set up to deal with a particular level of financial outlay for stock purchase, and to deal with a particular level and quantity of advertising, packaging, and distribution to its own chosen level of customer.
The cost of marketing, staffing and storefront(s) is avoided by wholesaling. The wholesaler in most cases sells the product to the reseller at a substantially lower cost so the reseller can maintain sales staff, locations etc.
Another big advantage is that when you wholesale you need far less customers (resellers) to be successful and you have less risk collecting the monies owed to you because if the reseller doesn’t pay, they get no further product and in many cases resellers have a monthly obligation from you or ‘quota’.
Hope this helps.
Because it’s a totally different ball game. B stands for supplier,C stands for customer/consumer. a B to B business operates differently than a B to C. Delivering directly to consumers changes operations drastically in terms of cost, speed, facilities, manpwer, etc.
Also don’t forget the customer experience aspect of it. B to B doesnt deal with consumers, so they dont look at customer experience, they just see numbers.
Think of it like this…. would you rather manufacture 10,000 candles and sell them all in 5 days? Or keep them in your warehouse and depend on customers to want it and order it?
Because it’s a business strategy, more or less
Their strategy is to make less profit on much more sales
They do that by selling to businesses who can buy a lot more of their products
If they were to sell to the end customer, businesses wouldn’t feel so great (for lack of a better word) that they must buy from the manufacturer only to sell while competing with the manufacturer. So they don’t.
Not only this, but the manufacturers don’t have the infrastructure to sell such small quantities. A toilet paper manufacturer wouldn’t open a toilet paper-only store because that would be bound to fail (in most cases), as most people wouldn’t go to one store which only sells one commodity item to buy only that one item, which they can buy elsewhere where they’re used to
I’m a bit drunk so forgive me if I don’t make sense
Because they don’t have the same services. The wholesalers have huge warehouse to stock massive amount of product and they also have a fleet of truck to get the product from the producer and to bring the material to a retailers. They have big truck to deliver large quantity.
Retailers offer different services, they usually have smaller buildings, so they have them to more locations to offer a better service to their consumers. They also have most of their building setup for sale, so they can’t keep a large stock of the product. As for the deliveries, those are made by different truck, smaller they are easier to use to deliver to the client.
So the retailer need different truck and building and personnel to offer their services, compare to the wholesalers. A wholesaler could start to deliver to consumer directly, but they would need to expand their company for that. Amazon kind of do both, they have huge warehouses, but they also have smaller one at key locations to make direct deliveries.
long analogy first, explanation second. you are likely aware of the videogame distributor steam, steam amongst other things is known for their massive sales, where 60 dollar games will be 15, 40 dollars games will be 10, etc. initially the software developers had strokes when they saw what steam was selling their games for, but low and behold something happened, the volume of sales sky rocketed, i mean through the roof, by lowering the price many more people bought it, so just for simple math, you have a 60 dollar game that only 100 people buy you made 6000 dollars, lower the game to 20 bucks and 1000 people buy it now you have 20,000 dollars, so by lowering initial profit you increased long term profit
this is the same perspective, when you sell wholesale you have to interact directly with a customer, this takes time, and money, and you can only service so many people at a time, versus by having a vendor or distributor you can now serve more people at a time but with a little less profit because you pay the vendor, this links back up to the top analogy. most companies would gladly lose 5% profit if they increase their sale numbers by 400%. more sales more money, even getting help its still profitable.
It’s an entirely different business to market to retail customers in small quantities rather than dealing with ongoing orders of cases and pallets at a time, and it means an entirely different business operations — credit card and cash instead of purchase orders paid by check or wire; entirely different shipping and packaging operations; needing to be set up to collect and remit sales taxes.
Some places *do.* Stores like BJ’s and Costco are retail wholesale stores. There’s usually some kind of membership fee.
Is NIKE an example of a company that does both? They manufacture sneakers and sell to retailers across the globe, but they also have “flagship” stores in places like Manhattan and Las Vegas and such.
Often they do. Sam’s Club and Costco basically sell wholesale goods to consumers.
Sometimes manufacturers or wholesalers have agreements with retailers that they *won’t* sell their products, however, or won’t sell them at wholesale prices, so they aren’t competing with the retailers who agree to sell their products. (There are many benefits to having a retailer sell your products for yo, so this kind of sacrifice may be worthwhile to manufacturers.)
Other times they just don’t bother with it because the costs of hiring a sales team and marketing directly to consumers aren’t worth the extra revenue they’d make when they already have retailers doing that for them. Retailers take a cut of the sale price, but in a way they also take some of the burden off of the manufacturers, allowing them to specialize in just producing while the retailer worries about the selling. This is pretty much how the auto dealership industry came about. Auto manufacturers didn’t have to worry about building showrooms and hiring sales reps when they could just let dealerships do that in exchange for a cut of the money.
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