Wholesale Distribution Channels

New Insights and Perspectives

Bert Rosenbloom

• Publisher: Routledge
• Year: 2020
• eBook ISBN: 9781317952732
• Topic: Business
• Subtopic: Business General
• Index: Business

Bert Rosenbloom has brought together leading academic scholars on wholesale distribution who present state-of-the-art analyses and research on the subject. Their chapters clarify readers'insight and deepen their understanding of this two trillion dollar industry with a wide range of topics. Among those covered in Wholesale Distribution Channels are:

• improving sales force effectiveness
• power relationships in wholesale distribution channels
• wholesalers'liability for defective products
• the impact of dominant buyers on wholesaling
• wholesalers as marketing experts
• transportation cost-effectiveness
• profitability of wholesalers in vertical marketsReaders will find objective treatment of key issues based on research that provides evidence, not opinion. Many of the authors provide practical recommendations for applying the findings to wholesaling practice. The issues focused on in this book are based on input from the boards of directors representing major wholesale trade associations.

Intermediate Sellers:
Wholesaler Liability
for Defective Products

David Griffith
James Kenderdine
Fred Morgan

SUMMARY. As wholesalers respond strategically to changes in markets, resources, and technology, they must also review the legal environment within which they function. The traditional position of the wholesaler within the channel of distribution provides some protection from product liability claims. Certain wholesaling activities can, however, lead to consumer injuries and resulting wholesaler liability. As wholesalers evolve, they must become more aware of these increased legal responsibilities.

INTRODUCTION

To the observer unfamiliar with details of product liability law, the position of wholesalers within distribution networks would seem, for the most part, to insulate them from liability when their customers sell goods to final consumers who, in turn, are harmed by these products. Since manufacturers are responsible for the design and production of these products, they are likely litigants in personal injury lawsuits. Retailers are also probable defendants because of their direct contact with injured consumer plaintiffs (Chen v. Metropolitan Insurance and Annuity 1990). Wholesalers, however, are classic intermediaries, neither producing the offending products nor selling them directly to consumers.

The view about wholesalers’ immunity in the event of product liability litigation is generally correct with regard to brokers and, to a lesser extent, with respect to agents. These two classes of wholesalers do not take title to goods and perform only a limited number of traditional wholesaling functions. In addition, brokers do not take physical possession of the products with which they deal.

Merchant wholesalers, however, particularly those providing a full range of services to their customers, are more vulnerable to liability allegations simply because they engage in more activities which could be linked with consumers’ injuries. Handling products, whether for breaking bulk, providing assortments, storing, or transporting, provides opportunities for goods to be damaged (dropped, dented, exposed to the elements, shelved too long, etc.). These resellers have products in their possession for enough time that courts see them as responsible for the safety and welfare of ultimate consumers.

The discussion so far indicates that situations do exist where wholesalers can be held liable. The purpose of this paper is therefore to provide an updated view (cf. Volz 1983) of wholesaler susceptibility to product liability claims. A brief overview of wholesaling and distribution channels from a legal perspective is discussed first. The major product liability theories are then presented as they relate to wholesaling. Finally, for wholesalers interested in being proactive, legal implications of various wholesaling strategies are reviewed.

WHOLESALING AND DISTRIBUTION CHANNELS: LIABILITY PERSPECTIVES

Liability can arise for wholesalers at two different levels. First, specific wholesaling activities or functions, either poorly performed or not performed at all, can give rise to liability or greater responsibility. Second, the overall involvement of the wholesaler in the distribution of defective products can result in liability, or at least responsibility for seeing that the impact of the defective item is ameliorated.

Wholesaling Functions

Wholesalers provide many services to their customers beyond simply redistributing goods (Hill 1963). Scholarly analysis of wholesaling typically organizes wholesalers’ functions into a variety of categories (Rosenbloom 1987, pp. 73–74), as shown inTable 1. The bracketed comments illustrate the kinds of product defects and associated legal responsibilities which can arise due to these activities.

Other wholesaler functions have been detailed by Kotler (1991, pp. 549–550) and Hill (1963). Product liability exposure can certainly result from the performance of any one of several of these functions, regardless of which list of activities is examined. Thus, product liability claims can arise involving wholesalers and other legal entities, especially manufacturers, involved in the selling and distribution of products (Ausness 1987, pp. 315–316), particularly as wholesaling increases in relative importance in the U.S. economy (Zizzo, Kenderdine, and Lusch 1993, p. A-1).

Distribution Systems

“Marketing channels” is the most common phrase used by marketing academicians and practitioners to describe the flow of products from manufacturers through intermediate dealers and vendors to final consumers. Commentators highlight the coordination implied by this wording (Stern and El-Ansary 1992, p. 1):

… marketing channels can be viewed as sets of interdependent organizations involved in the process of making a product or service available for use or consumption … Not only do marketing channels satisfy demand by supplying goods and services at the right place, quantity, quality, and price, but they also stimulate demand through the promotional activities of the units (e.g., retailers, manufacturers’ representatives, sales offices, and wholesalers) composing them … the channel should be viewed as an orchestrated network that creates value for the user or consumer through the generation of form, possession, time and place utilities.

Table 1
Wholesaling Functions and Related Liability Issues

Wholesaling Function	Description of Function	Related Liability Issues
Market Coverage	Markets for the products of most manufacturers consist of many customers spread over large geographical areas. To have good market coverage so that their products are readily available to customers when needed, manufacturers can call on wholesaler- distributors to secure the necessary market coverage at reasonable cost.	Wholesalers’ market knowledge, if it extends to final buyers/users, is an indication that wholesalers are aware of differences between customer segments. Higher levels of knowledge regarding customers increases the liability potential of wholesalers.
Sales Contact	The cost to manufacturers of maintaining outside salesforces is quite high. If manufacturers’ products are sold to a large number of customers spread out over a large geographical area, the cost to manufacturers of covering all customers with their own sales force can be prohibitive. By using wholesaler-distributors to cover all or a substantial portion of the customers, manufacturers may be able to reduce significantly the costs of outside sales contacts because their sales forces would be calling on a relatively small number of wholesaler- distributors rather than the much larger number of customers.	Similar to comments for market coverage.
Inventory Holding	Wholesaler-distributors take title to and usually stock the products of the manufacturers whom they represent. By so doing, they can reduce the manufacturers’ financial burden and reduce some of the manufacturers’ risk associated with holding large in- ventories. Moreover, by providing a ready outlet for manufacturers’ prod- ucts, wholesaler-distributors can help manufacturers to better plan thew production schedules.	Handling products where the opportunity exists for inspection or grading creates liability potential. In addition, handling products allows wholesalers to learn more about products, thereby increasing their liability exposure. Prolonged storage can lead to spoiled or damaged goods.
Order Processing	Many customers buy in very small quantities. Yet manufacturers both large and small receive a number of small orders from thousands of customers. By carrying the products of many manufacturers, wholesaler-distributors’ order processing costs can be absolved by the sale of a broader array of products than that of the typical manufacturer.	No direct impact on liability exposure; however, mixing orders, where one customer receives another’s order, could lead to injuries because of product unfamiliarity.
Market Information	Wholesaler-distributors are usually quite close to their customers geographically and in many cases have continual contact through frequent sales calls on their customers. Hence, they are in a good position to learn about customer product and service requirements. Such information if passed on to manufacturers can be valuable for product planning, pricing, and the development of competitive marketing strategy.	Communications which deal with specific product features can elevate performance expectations, including safety expectations. The provision of technical assistance is evidence of product-related expertise, perhaps creating duties to inspect and warn. In general, providing information is a greater level of involvement in the marketing of products, again raising legal responsibility.
Customer Support	Besides buying products, customers need many types of service support. Products may need to be exchanged or returned, set up and adjustment may be required, as well as repairs and technical assistance. For manufacturers to provide all such service directly to large numbers of accounts can be very costly and ineffective. Instead, wholesaler-distributors can be used by manufacturers to assist them in providing these services to customers.	Increased product knowledge—see earlier comments.
Product Availability	Probably the most basic marketing function offered by wholesaler-distributors to their customers is providing for the ready availability of products. Sometimes this even includes fabricating operations, assembly, and setup ofroducts. Because of the closeness of wholesaler-distributors to their customers and/or their sensitivity to their customers’ needs, they can provide a level of product availability that many manufacturers would be hard put to match.	Activities, e.g., assembly, fabrication, which go beyond simple storage, expand wholesaler liability because these are quasi-manufacturing functions.
Assortment Convenience	Closely related to the previous function is the wholesaler distributors’ ability to bring together from a variety of manufacturers an assortment of products that can greatly simplify their customers’ ordering tasks. So customers, instead of having to order from dozens or even hundreds of manufacturers, can turn to one or a few general line or specialty whole- saler-distributors who can provide them with all or most of the products they need.	Wholesalers carrying extremely broad assortments may be viewed as having little product knowledge; however, such wholesalers may be inviting targets for litigation.
Bulk Breaking	Quite often customers do not need large quantities, or even if they do, at times they may need only small quantities of products in a given order. Many manufacturers find it uneconomical to sell directly to small-order customers and so they establish minimum order requirements to discourage small orders. By buying from manufacturers in large quantities and breaking these bulk orders down into the smaller quan...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• About the Editor
• Table of Contents
• Introduction
• Strategies for Improving Sales Force Effectiveness in Wholesale Distribution
• How the Industrial Salesperson’s Use of Power Can Affect Distributor Satisfaction: An Empirical Examination
• Intermediate Sellers: Wholesaler Liability for Defective Products
• Dominant Buyers: Are They Changing the Wholesaler’s Role in Marketing Channels?
• The Role of Wholesaler-Distributors as Marketing Experts: Testing the Effect of Price and Quality in the Wine Industry
• Inter-Level Effects on Profitability in Vertical Market Relationships and the Role of Wholesalers
• Cost-Effective Transport Choices for Wholesaler-Distributors Using Transport Probability Analysis