Definition: Wholesale price is a price offered by companies for orders that involve the purchase of large quantities of certain products. It is a unique price established for trade operations that involve a high volume of goods.
What Does Wholesale Price Mean?
The idea behind a wholesale price is to create an incentive for customers to purchase big quantities. Companies that deal with wholesale operations normally have large storage facilities that allow them to purchase a huge number of different products from manufacturers, serving as an intermediary between them and retail shops. The gross margin obtained from wholesale operations is normally smaller than the ones gained from retail transactions, but the large size of the operations involved makes the business an appealing one for companies with enough financial resources to fund these big purchases.
On the other hand, there is a business model where wholesale prices are brought to end consumers through wholesale product displays such as “large” or “extra-large” packs. This is an idea that has gained popularity among consumers since it allows them to save money by cutting retail shops out of the equation. The markup for wholesale prices is normally between 5 to 12% above the manufacturer’s price.
Example
Save Market Co. is a company that functions as a large supermarket, offering common products such as toilet paper or orange juice but at lower prices compared to retailers. The company’s business model is to sell everything in bulk displays, where customers have a minimum quantity requirement for each product they purchase that grants them access to wholesale prices.
The company has been very successful and it has expanded to operate 15 facilities in 5 different states. Retail shops across these areas have suffered because of its existence but the company has stated that while the retail market might shrink a bit, its activities are not necessarily harmful for these shops, since only a portion of the population has enough budget to acquire products in large presentations such as the ones sold by Save Market.
