When manufacturers want to get their products to stores, they use the help of two types of businesses in the supply chain and they are wholesalers and distributors. But what is the difference between a wholesaler and a distributor? People often confuse the two and think they are the same but vastly different.
This article will go over the differences between wholesalers and distributors. So whether you are trying to find a wholesaler or distributor for your product procurement or you are curious about the differences between them, this insight will help you better understand the overall process of wholesalers and distributors.
Wholesalers And Distributors: The Link Between Manufacturers And Retailers
So, what are wholesalers and distributors? Simply put, both wholesalers and distributors are part of the supply chain that serves as the link between manufacturers and retailers. They are pretty different from each other, even though most people can mistake a wholesaler for a distributor.
A distributor is the link between the manufacturers and the wholesalers. They are directly linked with manufacturers and are usually contracted to sell their products to other businesses. The distributors buy the product from the manufacturers and then sell it to other companies. These products are mainly sold to wholesalers who buy the products in bulk.
Wholesalers and bulk orders go hand in hand. Wholesalers buy the product from distributors in bulk to gain discounts for lower prices. Then, wholesalers resell the products at higher prices to retailers. They can sell at higher prices because retailers buy in smaller quantities.
You can see one common factor between wholesalers vs distributors’ business models. Wholesalers and distributors buy in bulk and resell the products to other businesses. Wholesalers can even bypass distributors and purchase directly from manufacturers. Distributors can do the same. They can sell directly to retailers and don’t have to go through wholesalers. This is why some people can mistake a wholesaler for a distributor or a distributor for a wholesaler.
10 Differences Between Wholesalers and Distributors
This similar business model can cause much confusion. That is why it is so essential to understand the difference between wholesalers and distributors. Here are some of the key differences between the two that you should know about:
Difference#1 Customer And Target Audience
Though they are intermediaries in the supply chain, wholesalers and distributors’ customers are different. A distributor’s customer is the manufacturer of the product. The distributor partners with the manufacturer to sell the product to wholesalers or retailers. Their main job is to ensure the product reaches the store shelves. A wholesaler buys in bulk for resale to retailers. That means a wholesaler’s customers are the retailers who are selling the end product.
Difference#2 Relationship With Manufacturer
Along with their customer base, distributors and wholesalers have a unique relationship with manufacturers. This relationship is contractual, where one distributor partners with only one particular manufacturer. The distributor might not be allowed to partner with competitor manufacturers. However, this strengthens the relationship between a distributor and manufacturers.
On the other hand, wholesalers don’t have the same depth in their relationship with manufacturers. A contract does not bind wholesalers; they can buy from many manufacturers to stock up. This makes the relationship more business-oriented. A wholesaler’s primary relationship is with the retailers.
Difference#3 Pricing Strategies
Pricing strategies are very different from wholesalers vs distributors. Wholesalers’ pricing strategies involve buying and selling in bulk to retailers. To incentivize purchase, wholesalers give bulk discounts and volume pricing. Wholesalers could also set minimum order quantities to help sell as many products as possible. But ultimately, the pricing is based on the wholesaler’s rates.
Distributors do not have the same luxury of pricing. Some are contractually obligated to maintain MSRP or the manufacturer’s suggested retail price. Manufacturers set the price, and distributors cannot change that. Instead, distributors may employ pricing strategies such as competitive pricing or value-based pricing to capture market share and maintain profitability. They often adjust prices based on market demand, competition, and product positioning to maximize revenue.
Difference#4 Geographical Location
Manufacturers hire distributors to help them enter a new market. This makes distributors bound to a geographical location. Specializing in one location allows distributors to assert themselves in the market. Distributors try to ensure their presence in the market to help them attract new customers. Few distributors can expand into different markets across different countries.
Wholesalers are not bound to a market. Instead, they can look for customers all over the world. As long as the shipping logistics make sense, wholesalers can also sell to foreign retailers. This is thanks to wholesale marketplaces for selling online, allowing a wholesaler in China to sell to US-based clients quickly.
Difference#5 Value-Added Services
The business model of distributors and wholesalers is much the same. They obtain products in bulk and then sell them in lower quantities at higher prices. However, they differ in the value-added services they provide clients.
Wholesalers may offer value-added services such as warehousing, inventory management, and logistics solutions. They may also provide additional services such as product customization, repackaging, or labeling upon request. But not all do. Most wholesalers buy and sell the products to retailers.
Manufacturers partner with distributors to enter a new market where the distributors are familiar. Here, distributors provide value-added services such as creating brand awareness through e-commerce marketing to increase sales in various distribution channels. This is to help manufacturers establish themselves in the new market. So distributors provide more services as part of their business model while wholesalers mainly focus on selling products.
Difference#6 Control Of Revenue
Wholesalers have more control of the revenue than distributors. Wholesalers generate revenue by selling goods to retailers and businesses at a markup from the manufacturer’s wholesale price. They rely on volume sales and margins to drive profitability. For example, they might buy a product for $3 a unit from manufacturers and then sell it to retailers at marked-up prices.
Distributors earn commissions on sales of products. For example, for every 1,000 product sales, the distributors will earn a commission from the manufacturers. Distributors control revenue by establishing pricing strategies, managing sales channels, and capturing a portion of the retail price as their margin. They also earn revenue through additional services like marketing. However, distributors have limited control over revenue and must rely on their commission rates.
Difference#7 Product Range
Similar to their relationship with manufacturers, distributors have a narrow product range. This is due mainly to the services that distributors provide. They want to build up their business to show potential customers their product expertise and presence in the market the manufacturer intends to expand to.
Wholesalers, in general, do not have a limit to product range. The same wholesaler that sells apparel can also sell electronic products. Again, this is due to wholesalers having many more retailers as customers who need different products to sell in their stores. Some specialty wholesalers focus on one product or product niche to attract retailers that sell those products.
Difference#8 Market Reach
Wholesalers typically have more market reach than distributors do. The first reason is wholesalers have more mobility in clients. Distributors work with specific clients and are usually contractually locked to one manufacturer for a particular niche. But wholesalers can buy from multiple manufacturers and sell to as many retailers as possible. They also have the freedom of product niche, where one wholesaler can supply many other products. This allows wholesalers to have a wider market reach.
The second reason is that the distributors’ primary job is market penetration. Using their expertise and resources, distributors target specific markets or customer segments. They will usually target markets where their reach will be the most effective in helping manufacturers break through in the new market. Wholesalers mostly care about getting as many B2B customers as possible. A broader market reach helps wholesalers earn more profit, unlike distributors.
These reasons combine to make wholesalers part of a larger market than distributors.
Difference#9 Inventory Management
On the operational side, inventory management differs between wholesalers and distributors. Wholesalers manage extensive inventories to fulfill orders from retailers and businesses efficiently. They invest in warehouse facilities, inventory tracking systems, and logistics infrastructure to ensure timely delivery and availability of goods.
Distributors also manage inventory but operate on a smaller scale. A distributor mainly optimizes stock levels and minimizes carrying costs to increase profits. Additionally, a distributor ensures that inventory management is optimized to respond quickly to the changes in demand. This way, they can act quickly on trending products during festive periods like Christmas.
Difference#10 Distribution Channels
Distribution channels are similar for wholesalers and distributors except for the number of channels they comprise. They are identical in the three-channel system. This means a product goes through at least 3 different channels before getting to the customers. Distributors sell to wholesalers, who then sell to retailers, who then sell to the end customers.
However, wholesalers have the advantage of being in two and three-channel systems. Wholesalers can directly buy from manufacturers, bypassing distributors. Wholesalers have such an opportunity because their business model is strictly to sell products to retailers. They are also not restricted to one manufacturer and can do business with multiple clients to get the products they need for other B2B businesses.
Wholesaler Vs Distributor: Which One Should You Choose?
Now that you know some of the core differences, the real question should be which suits your business better: wholesalers and distributors. Whether you are a retailer looking for product procurement or want to get into the supply chain, there are some things you should consider:
Cost of business. The lower the cost, the higher the profit margins. But that does not mean you will always get the best prices. You must compare the prices with competitors for wholesalers or distributors to decide which.
What value do they add to your business? Wholesalers and distributors provide different services. Distributors will help with marketing, while wholesalers ensure you never run out of inventory. So understand what you need to make the choice easier.
What your business goal is. You want to help your B2B customers in their buyer’s journey. Therefore, you must assess whether a wholesaler or distributor is better for your business goal.
Level Up Your Wholesale Or Distribution Shopify eCommerce With A Bulk Order App
Whether you are a small wholesale business or a major regional distributor, more and more supply chain businesses are entering the e-commerce space. It gives your business more visibility and a new way to show your product catalog and services. One such e-commerce platform is Shopify, where companies of any size can set up an e-commerce store.
However, Shopify’s options are limited, and you must hire Shopify web developers to help code your e-commerce website. Instead, store owners can access the Shopify app store to help make selling products and services much more effortless.
For a wholesale business or distributor, a bulk order app is just what you need to simplify the shopping process for your customers. Here is an example of such a bulk order app on a Shopify store:
The product here is a box of 8 juices, where the customers get to choose which flavor variants they want in the box in a mix-and-match style. As you can see, the app sets a restriction so that customers of the store don’t exceed the amount in the box. Until the restriction quantity is fulfilled, the customer cannot add the product to the cart.
This mix-and-match style selection allows wholesale customers more freedom to choose which variants they want to add to their cart. It personalizes the shopping process for the customers which in turn can help increase your online store’s chances of closing deals.
For distributors, the restriction is helpful when selling to other businesses. Setting a restriction on how much your customers can buy allows your business to handle inventory better by promoting more sales. It also ensures that customers are buying the correct amount and don’t have to worry about changing the quantity on the checkout page afterward.
Additionally, another advantage here is having available variants on one product page. It simplifies the shopping process for customers and they don’t have to switch between product pages to view the available products. Once the customers are satisfied with their selection, they can add all the variants to the cart with just one click. Customers don’t have to add individual items and benefit from a simplified shopping experience in your store.
All these benefits from one bulk order are how you can elevate your wholesale or distribution business and stand out from the competition in e-commerce.
Bottom Line
There is a lot of confusion with the wholesaler vs distributor debate. Because both work closely with manufacturers and each other, most think they are the same. However, their main difference is what they do for their customers. Distributors handle all the promotional campaigns and sell manufacturers’ products to other businesses. A wholesaler’s main business goal is to buy in bulk and resell the products to gain profits. With this, you now understand the difference between wholesalers and distributors.
