Manufacturers sell products in bulk to retail distributors who then sell them to consumers at a higher price. Retailers may set their own prices, but some manufacturers set a price cap. Unsold items may be returned to manufacturers under certain circumstances.
A retail distributor acts as the intermediary between consumers and manufacturers. Most of the time, when a manufacturer makes a product, they don’t sell the product directly to the end user. Instead, the product is sold in bulk quantities to a retail distributor who then sells the products through a retail store.
Manufacturers refer to the people or companies that assemble or produce a particular product. A lot of manufacturing takes place in countries where the cost of labor is lower, such as China or the Philippines. These products are exported to other countries where they are sold.
The manufacturers that produce the items – abroad or in the country where the product will finally be sold – thus create a network of retail distributors who take care of selling the product to the consumer. The manufacturer may have an exclusive distribution agreement, which allows only one company to sell its products. More commonly, however, manufacturers will have distribution agreements with several different retail distributors.
When a retail distributor buys a product, he pays a wholesale price. This is a lower cost due to the volume in which you purchase the product. Generally, the larger the distributor, the greater the volume discount on a given product. This phenomenon can make it difficult for small retail distributors to compete, as they end up paying more for their inventory.
The retail distributor receives the items and then the prices. The manufacturer can set a list price at which the distributor sells the product. Alternatively, distributors can set their own prices for a given item. Retail distributors always price merchandise at a higher dollar amount than they paid for the item. That’s how the distributor makes his money. Some manufacturers will set a price cap that manufacturers cannot exceed or fall below in order to control the distribution and brand reputation of the product in question.
The consumer then buys the item from the retail distributor at a higher price, or markup. A consumer who wants to avoid paying this premium for using a middleman might consider purchasing items through direct sales or directly from the manufacturer’s items. This is not possible with all consumer goods.
Retailers may have an agreement where they are allowed to return unsold items to manufacturers under certain circumstances. This is common in the bookstore industry, for example, where bookstores can return unsold copies of books. In other situations, once a distributor has purchased an item, it is yours to sell. If the product does not sell at the marked price, the retailer will have to liquidate the item at a lower price to recoup some or all of their investment cost in purchasing the product.
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