Place 3
Business: Edexcel IGCSE, topic 4.3.16
Manufacturer-Wholesalers-Retailers-Customers
A business can distribute their product via wholesalers. Wholesalers sell products in bulk to a network of retailers and then retailers sell the products to customers.
Large network of buyers
- Wholesalers already have a large network of buyers.
- This lets a business reach a lot of customers quickly.
Less interaction with customers
- A downside of using wholesalers is that the business will not have much personal interaction with customers.
- This can lead to worse customer service.
Profit sharing
- Another downside is that both wholesalers and retailers take a cut of the profit. This means that customers are likely to pay higher prices.
- This may make the business less competitive on price.
Manufacturer-Retailers-Customers
A business can choose to skip wholesalers and sell directly to retailers. A retailer is any shop that sells directly to the customer in small quantities. Tesco and the corner shop at the end of the road are both examples of retailers.
Higher margins or lower prices
- Bypassing wholesalers makes it likely that customers will pay lower prices because the business is “cutting out a middle man”.
Hard to contact retailers
- It can be hard for a business, especially new start-ups, to get retailers to stock their products.
- This means that it can be harder for a firm to reach as many people and it could take longer to sell a company’s products.
Control over shops (retailers)
- Going directly to retailers means that a producer or manufacturer can have complete control over which shops customers can buy their products from.
- A luxury brand may not want their products stocked in Tesco or TK Maxx as it may lead consumers to perceive their brand as lower quality.
Higher logistics costs
- Selling to retailers directly may increase a business’ delivery and logistics costs if they have to deliver all the products to a retailer themselves.
Test yourself on Place 3
Which of the following is not a disadvantage of wholesalers?
Why can wholesalers lead a business to have worse customer service?
Which of the following is not an example of a retailer?
Why do businesses bypass wholesalers?
Why might a start-up use a wholesaler to sell their products?