There is a lot of confusion about the distinctions among jobbers, wholesalers, distributors, and importers, and their roles in the marketplace. Part of this confusion is even caused by experienced businesspeople who use these terms incorrectly. And part of the confusion is caused by the unrealistic expectations of inexperienced newcomers.
To add to the confusion, many larger wholesalers are beginning to offer more selling services than is traditional within their sphere. Some are even creating separate distribution subsidiaries.
Don’t let the terminology bother you. And don’t assume that anyone else is using terms properly. When dealing with a firm, clarify its role. Be particularly clear about the selling services that will be provided.
Wholesalers and Jobbers
A wholesaler, or jobber, is a firm that typically buys goods from manufacturers and resells them to retailers. A wholesaler stocks goods from many different manufacturers in one or more warehouses and ships those goods as one combined order under one invoice. Because wholesalers stock items from many different manufacturers, they have no particular incentive to push your product, versus your competitors’ products, to their accounts.
In highly competitive industries, such as those selling consumer products through retailers, several wholesalers might stock identical merchandise, putting a lot of pressure on profit margins. As a result, wholesalers are unlikely to offer ancillary services to you, such as advertising or sales solicitation and service unless someone, typically you, pays for these services in addition to the basic wholesaling charges.
Selling your product to a wholesaler doesn’t mean it will end up on a store shelf
You and your sales force and/or independent representatives will have to take on the responsibility of creating order demand. So then why should you sell to wholesalers at a deeper discount than retailers? Why should you sell to wholesalers at all?
Retailers hesitate to buy direct from new, small vendors and just feel safer purchasing from established wholesalers. Even if you offer a very deep discount, retailers won’t be anxious to buy from you directly. They won’t see any value in processing the paperwork associated with establishing and doing business with a small account. It may be essential for you to have your goods stocked at a wholesaler in order to conduct business with retailers. And you may still have to solicit the orders yourself. With the prevalence of Electronic Data Interchange (EDI) and just-in-time inventory practices, retailers are, more and more, relying heavily on wholesalers.
Distributors typically serve a multipurpose role. They perform in a manner similar to that of an independent representative in that they solicit orders from the retailer for your products. They also act as wholesalers in that they stock your merchandise.
Distributors may provide other services as well, such as catalog creation, trade advertising, and trade-show representation. Usually, distributors represent manufacturers on an exclusive basis only within their territory. In many industries a distributor sells to wholesalers in addition to retailers. In this case, the distributor is called a master distributor.
Because a distributor acts as your “salesperson” and often sells to both wholesalers and retailers, it requires a deeper discount rate when purchasing your merchandise than would be the rule with a wholesaler. Most of the largest manufacturers don’t use distributors, but they have tons of money to spend on their own large sales force. They prefer to sell directly to wholesalers, retailers, consumers, or some combination of all three. However, a good distributor can be an excellent way for a small firm to instantly establish credibility and a presence within their industry’s domestic or foreign marketplaces.
The term importer means different things to different people. Often it is used to describe a firm that serves as an exclusive distributor to an overseas territory and provides sales solicitation, warehousing, and invoicing services. They don’t just clear customs and bring your product to a warehouse; they more typically go out and help create a market for your product.
Sometimes an importer sells your goods to one or more distributors who in turn handle the actual sales functions. Even within the same industry, the nature of distribution can vary significantly from one country to the next. But a great place to start is to find a capable and proven importer who is enthused about selling your product.
Takeaways you can use
- What really matters is how much selling the intermediary is going to provide.
- Ascertain whether the intermediary is going to push your product into its accounts.
- Find out from your end users which intermediaries they prefer.
Author: Bob Adams is a Harvard MBA serial entrepreneur. He has started over a dozen businesses including one that he launched with $1500 and sold for $40 million. He has written 17 books and created 52 online courses for entrepreneurs. Bob also founded BusinessTown, the go-to learning platform for starting and running a business.