If you’re a wholesaler, you’ll likely be very familiar with price pressures and operating on thin margins. It’s part of the territory. Retailers (especially larger ones) will try and put ‘the squeeze’ on you when negotiating prices. After all, the lower the price they can negotiate with you, the more sales and profit they can potentially make.
It’s crucial for you to understand:
- how your pricing influences both retailer and consumer demand,
- how you can price profitably, and
- how you can find ways to add value so that you develop long-term, profitable relationships with your retail customers.
Let’s look at each of these important topics in turn.
How price influences demand
Everyone has to add a mark-up in the supply chain before a product gets to the final consumer. This includes manufacturers, wholesalers and retailers. The higher the mark-up of each participant in the chain, the higher the final price for the consumer.
Basic economics suggests that lower prices tend to increase demand for a product and vice versa, but it depends on the product.
It’s important to understand three key factors when you’re setting prices for your wholesale goods:
1) Is your product essential or optional for consumers to have?
The more essential that it is, the less that a higher price will affect demand.
2) How much competition do you have?
The more competing wholesalers that you have, the more that retailers will be able to negotiate with you on price.
3) How dominant and powerful are retailers in your industry?
For example, in some industries like the supermarket industry, a few major retailers like Coles and Woolworths can largely dictate terms to wholesalers. However, if you are supplying to a less concentrated industry where there are numerous and less powerful individual retailers, then retailers will have less power in price negotiations.
Even though you may be under pressure from powerful retailers or wholesale competitors, it’s crucial that you make profitable pricing decisions. If you don’t and you price your wholesale products too low, you run the risk of going out of business. Your pricing has to be profitable to be sustainable.
You don’t necessarily need to have the lowest prices to develop long-term relationships with retailers if you can find other ways to add value.
Finding ways to add wholesale value
There are several non-price ways that you can add value as a wholesaler in the supply chain, including having:
- efficient ordering systems
The easier it is for your retail customers to order from you, the more likely it is that they’ll do business with you. This includes online ordering systems.
- guaranteed supply
Retail customers like to know that they can get the stock they need when they need it. It’s important to accurately forecast demand so that you can have your wholesale stock available when retailers need it.
- prompt delivery
Retail customers expect to be able to get stock quickly in the increasingly globalised supply chain, no matter where it’s being sourced. They also expect to be able to track their deliveries in real-time so they know when to expect them.
It’s crucial to have an efficient wholesale distribution system that gets tracked customer orders delivered fast, including drop-shipping options. Drop-shipping enables customer orders to be delivered directly from a retail ordering system without the goods needing to be delivered to the retailer as an intermediary.
- flexible terms and conditions
This includes offering things like 30-day accounts, bulk order discounts and customer loyalty programs.
The bottom line
You don’t necessarily need to have the lowest price to be a successful wholesaler. If you can find other ways to add value for your customers, you can keep your profit margins higher.
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