I want you to consider this question: You'll often hear a late-night TV ad blaring out the phrase, "We bypass the middleman and bring the savings direct to you!" Why doesn't everyone do this? Why do wholesalers even exist? Wouldn't it make more sense for a Main Street retailer to buy direct from the manufacturer of the goods he sells?
My answer:
Businesspeople solve problems. The way you earn money in business is to solve another person’s problem and charge them as much as they’re willing to pay to get rid of the problem. The reason wholesalers exist is because they’re willing to put up with distributing inventory to many customers. The manufacturer, however, only has to worry about selling to one or a few wholesalers. I like to think of wholesalers much like a manager who handles 10 people who each handle another 10 people. Indirectly, the manager leads 110 people. The manufacturer is like the manager and the 10 people he/she leads are like the wholesalers who buy the goods and distribute them to their 10+ people. It would make sense to sell direct to the end user if you were making fewer quantities of a good, or if they were substantially higher in quality than you could get from other normal channels, selling at a much higher price.
Selling directly to “Main Street” consumers limits the manufacturer’s ability to scale up, tremendously. If I can sell to 1 million people via 100 wholesalers, I would be willing to work with only 100 people than have to hire enough frontline employees to deal with 1 million. For this ability, I would leave some profit on the table, and focus on ways to efficiently product the product with the highest quality at the lowest costs.
What say you?
