Wholesale price

From CEOpedia | Management online

Wholesale price is money paid by the buyer to purchase goods from the wholesaler. These are usually goods, like materials, bought directly from the manufacturer.

  • The main contractors and parties to the most frequent transactions are retailers, who deliver products to the final consumers.
  • A wholesaler acts as an intermediary between a store and a manufacturer. It purchases goods directly from the manufacturer at manufacturer's price (which is lower than the wholesale price) and resells them to stores at wholesale price. The difference is retained as a profit.
  • Goods are purchased by wholesalers directly from manufactures in the selling price. After adding the wholesale margin to it, the wholesale price is obtained.

A wholesale price is a price for a large quantity of a given good; in general, it is lower than the retail price (per one item of a given good), due to the transaction costs and logistic costs being relatively lower when selling a large quantity of goods at the same time than when many smaller transactions with final customers are necessary.

Wholesale price fluctuations

As with most economic issues, a selling price cannot be determined definitively and conclusively, and therefore the wholesale price will change. It is a variable factor that is influenced by both the nearer and further environment. One of influencing factors is provided by Gerchak, it is believed that retailer's initial inventory in a decentralised supply chain may influence the manufacturer to set a lower wholesale (bulk) price. "As the wholesale price is decreasing in inventory level, goes the argument, the retailer will 'overstock', referred to as holding 'strategic inventory'." It can be proved that the initial inventory can, in fact, be increased by the optimal price. (Yigal Gerchak, 2017)

Wholesale price agreements

Like with any economic patent, the wholesale price, as well, has its advocates and adversaries. Such a situation is elaborated on in the Journal of the Academy of Marketing Science the theoretical study has shown that although end-of-season payment contracts make it possible for both suppliers and retailers to "share the cost of unsold inventory, increase total profit", a vast majority of the contract parties - both suppliers and retailers still opt for using simple wholesale price contracts. The suppliers’ "preference for wholesale price contracts can be explained by their concern that end-of-season payments contracts will disincentivize retailer marketing effort." Moreover, suppliers’ tend to be rather pessimistic in their predictions regarding retailers’ reduced effort. (Anna G. Devlin, Wedad Elmaghraby, Rebecca W. Hamilton, 2018)

Examples of Wholesale price

  • Electronics: Wholesale prices may include items such as computers, cell phones, and other electronic devices. These items are bought directly from the manufacturer and are sold to the consumer at a discounted rate.
  • Clothing: Wholesale prices may include items such as clothing and apparel. These items are bought directly from the manufacturer and are sold to the consumer at a discounted rate.
  • Automobiles: Wholesale prices may include items such as cars, trucks, and other vehicles. These items are bought directly from the manufacturer and are sold to the consumer at a discounted rate.
  • Food: Wholesale prices may include items such as produce, seafood, and other food items. These items are bought directly from the producer and are sold to the consumer at a discounted rate.
  • Furniture: Wholesale prices may include items such as furniture, mattresses, and other furniture items. These items are bought directly from the manufacturer and are sold to the consumer at a discounted rate.

Advantages of Wholesale price

A wholesale price is the price of buying goods from a wholesaler, which is usually lower than the retail price. It has the following advantages:

  • It allows the buyer to purchase items in large quantities at a lower cost, thereby saving money.
  • It provides customers with access to a larger variety of goods and services than retailers.
  • It eliminates the need for extra trips to the store or warehouse.
  • It eliminates the need for extra storage space since bulk items can be easily stored.
  • It provides a better bargaining power to the buyer since they can negotiate the price with the wholesaler.
  • It allows the buyer to buy items in bulk and therefore reduces the cost of shipping.
  • It helps buyers to stay up-to-date with the latest trends and products in the market.
  • It increases the chances of getting discounts and other incentives from the wholesaler.

Limitations of Wholesale price

A wholesale price is a monetary amount paid by a buyer to purchase goods from a wholesaler. However, there are some limitations associated with a wholesale price, including:

  • Limited quantity - Wholesalers typically sell in bulk quantities, so buyers must purchase a certain minimum quantity in order to receive the wholesale price.
  • High cost - Wholesalers generally charge more than retailers to cover the cost of warehouse and shipping expenses.
  • Unavailability of certain products - Wholesalers may not offer all types of products, so buyers may not be able to find what they are looking for.
  • Long lead times - Wholesalers may require long lead times, which could delay the delivery of goods.
  • Limited discounts - Wholesalers may not offer discounts, so buyers may not be able to get the best prices.

Other approaches related to Wholesale price

Apart from the direct purchase of goods from the manufacturer, there are other approaches related to wholesale price. These include:

  • Volume Discounts: If a buyer is purchasing a large quantity of goods, they can negotiate a lower price per unit than they would normally pay.
  • Bulk/Wholesale Buying: Bulk buying is when a buyer purchases a large quantity of goods at once, usually with the intent to resell them. Wholesale buying is similar, but involves buying in bulk directly from the manufacturer.
  • Retailer Discounts: Buyers can also negotiate discounts with retailers, if the retailer is willing to offer them.

In summary, there are several approaches related to wholesale price, such as volume discounts, bulk/wholesale buying, and retailer discounts. These can all be used to help buyers save money when purchasing goods.


Wholesale price — recommended articles
Net purchases — Joint demand — Flexible pricing — Exclusive distribution — Distribution policy — Partial delivery — Price bundling — Negotiated Sale — Inventory in transit

References

Author: Kamila Nawara

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