Week 11 Marketing institutions Seg 1 We re going to a dig a little bit deeper into some specific intermediaries And we re gonna be looking at wholesalers and at retailers and at direct marketers So we re gonna begin by talking about wholesaling and I wanna talk what distinguishes wholesaling from retailing And essentially you have to look at the buyer s reason for acquiring the product We talked about these three reasons when we talked about categorizing products as either being consumer products or being B2B or business products Well we actually use the buyer s reason for buying or the buyer s intention for purchase to separate wholesale transactions from retail transactions And if the reason for the purchase is to buy a product and you re gonna combine it with something else and you re gonna sell that product then we say that that s a wholesale transaction Or if you re buying the product for resale then we say that it is a wholesale transaction Or if the buyer is purchasing it for general business operations we say that that s a wholesale transaction Otherwise it s a retail transaction So it is the buyer s intended use of the product that helps to separate a wholesale transaction from a retail transaction So we classify sellers as being either wholesalers or retailers primarily on the basis of whether most of their transactions are wholesale or most of their transactions are retail There are not regulations that keeps an organization from including the name wholesale in its name or title So a business might call itself the ABC Wholesale Company But if most of its transactions are retail it s a retailer If a business claims to be a wholesale operation and then it somewhere advertises to the public and says everyone s welcome then it s likely that quite a few of those sales are retail And that means it would be a retailer Some organizations engage in both wholesale transactions and in retail transactions If we look at Sam s businesspeople business organizations can buy a membership that s for businesses And it entitles them to a little bit more of a discount And I believe that if you have a business card then you do not pay sales tax because the transaction s wholesale At some Sam s Club operations at some Sam s Club stores they ll even have certain times of the day that are just for business buyers Often it s early in the morning And if you have a business card you can go in and buy certain things if you choose to do that And so Sam s engages in both wholesale and retail transactions And if you ask me if it s a wholesaler or a retailer I d have to say well let s look at the dollar sales figures or the specific transactions And if most of the transactions are retail I d call it a retailer And if most of the transactions are wholesale I d call it wholesaler My guess is it s probably a retailer if we had to call it one or the other But they actually engage in both wholesale and retail transactions So let s talk a little bit about the various types of wholesalers If you notice on this classification scheme in the broadest sense we can classify middlemen as being either merchant middlemen or functional middlemen This category this classification is based on just one dimension And that dimension is that if the organization takes title to the products meaning that they actually own the products then that organization or that middleman is a merchant middleman That wholesaler is a merchant middleman if they take title to the products meaning that they own them And if they don t take title to the products then that organization is a functional middleman Possession of the products doesn t determine if that s a wholesaler or a retailer So a functional middleman could take possession of the product and not title that s possible But we just look at ownership If the wholesaler owns it then we say that it s a merchant middleman If they don t we say it s a functional middleman So as you can see merchant middlemen are divided into two categories full service wholesalers and limited function wholesalers The full service wholesalers are wholesalers that provide a lot of services to other channel members like quite a few services either up the channel to the producer and or down the channel to the retailer And that s why they re called full service As you can see full service wholesalers can be divided into three different categories Those three categories are based upon the width of the organization s product mix And as we go through these three that width is reduced So if we look at full service wholesalers that have the widest mix we call these general merchandise wholesalers General merchandise wholesalers carry a number of different product lines And their inventory their product offering is fairly diverse and usually fairly large And they serve a pretty good cross section of retailers retailers that sell quite a few different kinds of products in different product lines If we look at limited line wholesalers full service wholesalers Limited line full service wholesalers they market maybe one line of products or maybe two or three lines of products But the product mix is much more narrow Within that product mix though there may be considerable depth Because they carry quite a number of different product items within each line and we refer to those as limited line Specialty wholesalers specialize in a part of a line They specialize in some product items These product items might require special handling maybe refrigeration that type of thing And so they carry just certain product items and they re called specialty but they re still full service An example of a specialty wholesaler would be a wholesaler called a rack jobber R A C K J O B B E R rack jobber A rack jobber is referred to is called that name because there s a display rack involved And that s how they got to be known as rack jobbers So the way that this type of specialty wholesaler would operate is they typically sell non food items in grocery stores and supermarkets And they will call on the store management and they will explain what they want to do It involves putting up a display Store management usually wants to know how much space it takes up because they re concerned about sales per square foot And so they wanna make sure that the sales per square foot are promising And so they will have a discussion about how it operates and what the products are like product quality etc If store management agrees to it then the rack jobber