Wholesale price
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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)
References
- Cai G.G., Nalca A., (2018), Who Benefits From Banning Discriminatory Wholesale Pricing When Retailers Can Price Match?
- Delvin A. G., Elmaghraby W., Hamilton R. W., (2018), Why do suppliers choose wholesale price contracts? End-of-season payments disincentivize retailer marketing effort , Journal of the Academy of Marketing Science, Volume 46, Issue 2, pp 212–233
- Gerchak Y., (2017), How does wholesale price depend on initial inventory at retailer? International Journal of Inventory Research 3(3), pp 282-292
- Liu T., Mo J., Tang S., (2016), On the Coordination of Supply Chain with Demand Uncertainty Under the Combination of the Wholesale Price Contract and Option Contract Proceedings of the 22nd International Conference on Industrial Engineering and Engineering Management 2015, pp 449-463
Author: Kamila Nawara
