COMMERCE STUDY NOTES, FORM TWO TOPIC 3-4.

TOPIC 3: Retail Trade
Meaning of Retail Trade
Define Retail Trade
Retail trade is the sale of goods in small quantities to consumers. OR is a business activity involving buying goods and retailing them to ultimate consumers without changing the physical and chemical form of goods.
Retailer: One who sells goods or commodities directly to consumers. These items are purchased from the manufacturer or wholesaler and sold to the end user at a marked up price. Examples: retailer would be the small family-operated pharmacy on the corner etc.
Difference between Retailing and the Retailer
Distinguish between retailing and the Retailer
RETAILER AND RETAILING.
Retailer is a trader who goods and service to end users. Retailing is the strategies adopted by retailers. in most cases both are same meaning He has a limited sphere in the market.
The Functions of Retail Trade
Point out the functions of retail Trade
Functions
Retailers perform a number of functions. These are:
  • The retailer buys a variety of products from the wholesaler or a number of wholesalers. He thus performs two functions like buying of goods and assembling of goods.
  • The retailer performs storing function by stocking the goods for a consumer.
  • He develops personal contact with the consumers and gives them goods on credit.
  • He bears the risks in connection with Physical Spoilage of goods and fall in price. Besides he bears risks on account of fire, theft, deterioration in the quality and spoilage of goods.
  • He resorts to standardization and grading of goods in such a way that these are accepted by the customers.
  • He makes arrangement for delivery of goods and supply valuable market information to both wholesaler and the consumer.
Service of a Retailer
A retailer provides a number of services to the customer and to the wholesaler.
To Customers:
  1. He provides ready stock of goods and as such he sells and quantity of goods desired by the customers.
  2. He keeps a large variety of goods produced by different producers and thereby ensures a wide variety of choice to the customers.
  3. He relives the consumers of maintaining large quantity of goods for future period because he himself holds large stock of goods.
  4. He develops personal relationship with the customers by giving them credit.
  5. he provides free-home delivery service to the customers.
  6. He informs the new product to the customers.
  7. he makes arrangement for replacement of goods when he receive complaints.
To Wholesaler:
  1. He gives valuable market information with regard to taste, fashion and demand for the goods to the wholesaler.
  2. The retailer maintains direct contact with the customers and so he relieves the wholesaler with regard to maintenance of direct contact.
  3. He helps the wholesaler in getting their goods distributed to the consumer.
  4. He is regarded as an important link between the wholesaler and the consumer.
  5. He creates demand for the products by displaying the goods to the consumers.
Different Types of Retailers
Identify the different types of retailers
TYPES OF RETAIL TRADE
  • Small scale retail trade
  • large scale trade
Small – scale retailing
Features of Small – scale retailing <!-- [if !supportLineBreakNewLine]--> <!--[endif]-->
  1. They normally run as a sole proprietorship (sole trader) or a partnership 2.
  2. The capital is usually small and it is raised from personal saving, borrowed from friends or family or loan from banks 3.
  3. Small retailers obtain a great variety of goods in small quantities from wholesaler 4.
  4. The sole proprietorship (sole trader) normally serves his customers with the help of some assistants. Therefore, he has the opportunity to get know his regular customers well
Reasons why Small retailers buy from the Wholesaler <!-- [if !supportLineBreakNewLine]--> <!--[endif]-->
  1. Small Capital; The small retailer has only a small capital and cannot afford to buy in bulk from the manufacturer therefore he can only make small orders at a particular time
  2. Limited market; The small retailers has mainly a regular customers therefore the markets is only limited to the people living in the area near their shop
  3. Small turnover; The total sales per month is small If they buy in bulk, the goods will be laying around and have to pay the rental for storing the goods Furthermore they can go bad in the case of foodstuff or may go out of fashion in the case of goods like clothing and furniture That why they only needs to pay in small amounts for a great variety of goods produced by the manufacturers This is exactly what the wholesaler does for them.
  4. Need for credit; Trade credit is one of the greatest sources of funds for a small retailer Manufactures are often unwilling to give credit but the wholesalers are willing to give trade to small retailer in order to secure business
  5. Variety of goods; A wholesaler stocks a great variety of brands of a particulars goods like Lux, Palmolive, Imperial Leather Soap.And they also stocks a wide range of related goods, for example, foodstuff and household items. Retail Traders can be classified into two categories viz; the Itinerant retailers and the Fixed retailers.The Fixed retailers are further subdivided into (a) Small scale and (b) Large scale fixed shop retailers.
The classification of retailers is shown in the following chart:
1. Itinerant Retailers:
These retailers do not have the fixed places to carry their trade and generally move from one place to another in order to sell goods. They can be usually seen along the road sides, streets, railway compartments, bus stands, and fairs etc.
They usually possess that stock which can be conveniently sold during the day. They need limited funds to carry their business. These types of retailers deal in daily need articles like vegetables, fruits, milk, eggs and fishes etc.
A brief explanation of this type of retailers is given as under:
  1. Hawkers and peddlars:These are the petty retailers who carry their products on their heads or on wheeled vehicles from door to door. They usually sell seasonal goods like fruits, vegetables and eatables and also sell certain other goods like pens, toys and utensils, etc.
  2. Cheap jacks:They hire shops in different residential localities wherein they display their products for sale. They do not stick to one place; rather keep moving from one locality to another. They usually deal in household articles.
  3. Market traders:They sell their products at periodical markets on ‘market days’. The markets may be weekly or fortnightly. They also sell their wares at different fairs and gatherings.
  4. Street Traders:These traders are found on the pavements of crowded streets or markets of the cities. They are also known as “pavement retailers” In big cities like Calcutta, Delhi, Mumbai and Chennai etc., these traders are usually found selling their goods in different markets.
2. Fixed Shops:
These shops are of two type’s viz. (A) Small scale and (B) Large scale.
(a)Small Scale:
There are different types of small retailers which are explained as under:
  1. Street stalls holders:These retailers carry their business on a very small scale basis in busy and crowded streets by erecting permanent shops. They purchase goods in large quantities from the wholesalers and local suppliers for reselling to the ultimate consumers.usually deal in household articles and products of daily need. These stall holders are usually sole proprietors of their shops i.e. carrying every activity right from buying till final disbursement of goods to the consumers.
  2. Second Hand Goods Sellers: These dealers deal in second hand or used articles. They purchase these articles from public or private auctions and private households. These articles usually include used garments, furniture, books etc. These dealers meet the needs of the poor people who cannot afford new articles.
  3. General Shops:They deal in different variety of goods and are known as general merchants. The goods are meant for daily use or household purposes. They carry their business in permanent shops. They manage the shops themselves and are most often assisted by sales assistants.Usually goods are sold on credit by these merchants to their permanent customers. They also provide free home delivery service and facility of exchange of rejected goods to the customers.
  4. Speciality Shops: These retailers deal in one particular line of goods e.g. books, utensils, shoes and medicines etc. These shops can be operated on small scale basis and managed by the owners themselves assisted by salesmen.The most important advantage which can be derived from these shops is that the owners possess the specialised knowledge about the product which is very helpful in satisfying the customers.
(B) Large Scale Retailers:
The second type of retailers under fixed shops is large scale retailers. The large scale production and rapid urbanisation are responsible for the establishment of large scale retailing organisations.
Features <!-- [if !supportLineBreakNewLine]--> <!--[endif]-->
  1. Normally run as a public limited company
  2. Capital needed is very large
  3. Large Assets where it easier to raise money from the bank or public limited company can borrow from the public in the form of debentures
  4. Normally buys in bulk direct from the manufacturers
  5. Sometimes may even have their own factories
  6. Stores in bulk doing away with the services from the wholesaler <!-- [if !supportLineBreakNewLine]--> <!--[endif]-->
Reasons why large retailers buy direct from Manufacturers <!-- [if !supportLineBreakNewLine]--> <!--[endif]-->
  1. Sufficient capital Manufactures who only sell in bulk normally do not entertain small order therefore large retailers must have large capital to enable them to buy in bulk.
  2. Better trade discount Buying from manufacturers means that the large retailers can get better trade discount, hence, they pay a lower price for their goods.
  3. Cash payment since large retailers have sufficient capital, they can afford to pay in cash. This means they can get even better terms than someone buying on credit.
  4. Enough resources to carry out functions normally undertaken by wholesalers; Large retailers normally have their own fleets of transport vehicles to sent goods to their various branches whenever the need arises Large retailers can afford to employ expert specialist buyer who know from experience exactly what goods customers want and who have the knowledge to buy on the best terms, locally or overseas Large retailers have their own warehouses and specialist staff to manage storing, bulk breaking, branding, stock keeping and so on to ensure that goods are not stored for an excessively long period until they are spoilt or out-of-date and that goods are not in shortage either.
  5. Larger turnover; The volume of turnover each month is so large that the large retailer can afford to buy in bulk It is no use buying in bulk (and hence, enjoying lower prices) if the goods are not sold quickly enough.<!--[endif]-->
Types of Large – scale retailers
A multiple shop system consists of a number of branch shops owned by a single business firm. This is an attempt on the part of the manufacturers or the wholesalers to establish a direct link with the consumers by avoiding middlemen. Some of the definitions of multiple shops are given as under:
“A multiple shop consists of a number of similar shops owned by a single business firm.” James Stephenson
“This is a system under which there is a large number of retail shops owned by the same proprietor, which are scattered over the various places of a particular city or a country and are engaged in the same line of activity.” Thomas
“Fundamentally, a chain store system is a group of retail stores of essentially the same type. Centrally owned and with some degree of centralized control of operation.”E.W. Cundiff and R.R. Still
From the above definitions, it is clear that multiple shops or chain stores operate at different localities in the city under the central ownership and control. The chain store or multiple shop organisations is nothing but the extension of retail business on large scale basis.
Characteristics of Multiple Shops:
The distinctive features of multiple shops are as under:
  1. Multiple shops specialize in one or two articles. The articles are sold by ail the similar shops charging uniform price.
  2. They operate on “cash and carry” principles and do not allow credit and free delivery services to customers. The goods are sold on cash basis.
  3. The main objective of the multiple shops is to establish direct contact with the consumers by eliminating middlemen.
  4. They operate under centralised control and are horizontally integrated.
  5. The layout of these shops is simple and similar.
  6. There are centralised purchases for all the shops which are undertaken by the head office.
  7. The branches of multiple shops are scattered throughout the city and also cater to the needs of the customers living at distant places.
  8. The products sold by multiple shops are mainly necessities or semi- necessities and do not require extensive selling efforts.
  9. The multiple shops lay emphasis on large and quick turnover.
Advantages of the multiple shops <!-- [if !supportLineBreakNewLine]--> <!--[endif]-->
  1. It can afford to sell at very competitive prices due to bulk purchases.
  2. It employs expert specialists in such matters as buying, publicity, shop layout and window display.
  3. The identical layout of branch premises, window displayed and shop fronts is to publicize the identity of the whole chain.
  4. Slow selling lines and surplus stocks in one area can be transferred to more promising areas.
  5. The multiple shops spread its risks and are very flexible. Losses sustained in one branch can be absorbed in the profits made by other branches and new branches can be opened in areas of developing prosperity to replace unprofitable outlets.
  6. It economizes on advertising when all branches are included in one advertisement.
Disadvantages of the multiple shops: <!-- [if !supportLineBreakNewLine]--> <!--[endif]-->
  1. Too much centralized control from headquarters leaves branch managers with little scope for initiative to meet local conditions.
  2. Lack of the personal touch between staff and customers does not help in establishing a loyal customers. <!-- [if !supportLineBreakNewLine]--> <!--[endif]-->
The Qualities of a Retailer
Explain the qualities of a retailer
Characteristics
The followings are some of the essential characteristics of a retailer:
  • He is regarded as the last link in the chain of distribution.
  • He purchases goods in large quantities from the wholesaler and sell in small quantity to the consumer.
  • He deals in general products or a variety of merchandise.
  • He develops personal contact with the consumer.
  • He aims at providing maximum satisfaction to the consumer.
Modern Development in Retail Trade
Discuss the modern development in retail trade
Department Store: A department store is a retail establishment offering a wide range of consumer goods in different product categories known as "departments".
Main Features: <!-- [if !supportLineBreakNewLine]--> <!--[endif]-->
  1. It’s a large building divided into sections or departments, each selling one type of goods.
  2. Each department store is run by a general manager and each section in the department store will be handle by a manager.
  3. The duties of a manager including buying goods for his department, fixing the prices and employing his/her staff.
  4. Department stores sell a wide range of goods for the whole family where each department specialises in a particular line of goods for example clothing, foodstuffs, hardware and so on.
  5. Most department stores are found in the centre of a busy shopping area in a big city.
  6. Department stores can also afford to advertise expensively in order to attract customers.
  7. Department stores also provide facilities for the convenience of their customers like escalators, lifts, car parks, trolleys, etc.
  8. Example of department stores in Brunei are Hua Ho.<!-- [if !supportLineBreakNewLine]--><!--[endif]-->
Advantages of Department stores <!-- [if !supportLineBreakNewLine]--> <!--[endif]-->
  1. A department store is large and able to employ (take up) experienced and trained workers to handle the business efficiently.
  2. A department store is still able to sell its goods at competitive price because it buys in bulk at bigger discounts direct from the wholesalers or producers.
  3. It economizes on advertising when all branches are included in one advertisement.
  4. Trading losses in individual departments can be absorbed so long as the store as a whole continues to make a profit. <!-- [if !supportLineBreakNewLine]--> <!--[endif]-->
Disadvantages of Department stores <!-- [if !supportLineBreakNewLine]--> <!--[endif]-->
  1. It has a very high overhead expenses e.g. on rent, salary of workers, utilities like water and electricity bills.
  2. Normally departmental stores are located in the central part of the city, high rental adds to overhead cost which can eventually raise price of goods.
  3. There is the ever – present danger that market conditions in the neighborhood may worsen or that population shifts may lead to fewer customers.
Mail order is the buying of goods or services by mail delivery. The buyer places an order for the desired products with the merchant through some remote method such as through a telephone call or web site. Then, the products are delivered to the customer. Mail-order business, also called direct-mail marketing , method of merchandising in which the seller’s offer is made through mass mailing of a circular or catalog or through an advertisement placed in a newspaper or magazine and in which the buyer places an order by mail. Delivery of the goods may be made by freight, express, or parcel post on a cash-on-delivery basis. Retail mail-order selling was developed primarily for rural customers, but it now includes millions of customers in urban areas.
Super market is a large retail market that sells food and other household goods and that is usually operated on a self-service basis. OR is any business or company offering an unusually wide range of goods or services.
Features of supermarket
The main features of supermarket are as follows:
  • Goal Oriented - The driving force behind every Company is increased sales and high profits. Most Companies draw out expected sales targets for every year. The duty lies on the sales team to not only meet these targets but go beyond them. Every sales person must be goal oriented and should work towards matching these sales figures.
  • Confident - A sales person should be confident about the product he is selling as well as his own ability to successfully close a sale. Especially in the case of door to door selling, the sales person should be able to interact well with the prospective buyer, gain their trust, arouse an interest and eventually convince them to try a new product. Sales persons should be willing to handle all kinds of tense situations.
  • Patient & Courteous - Convincing a prospective customer to buy a product is not an easy task. Selling is an art and requires patience. A sales person should be able to guide a customer through the entire process which begins with a prospective buyer's indifferent attitude towards a brand and ends with them placing an order. The sales person should be courteous and pleasant while taking a buyer through these stages.
  • Personality-A good sales person is not afraid to talk to anyone who may have an interest in what he/she is selling. Listening and controlling the conversation by asking intelligent, thought provoking, interesting questions that are open ended and gather information is another key trait to successful selling. Also, eye contact, standing straight and smiling are important for an effective impression towards someone who is spending their hard earned money. There is a misunderstanding that a good salesperson has 'the gift of the gab' where as most trained sales people will have heard the saying 'You have one mouth and two ears, use them in that proportion'. A good sales person is a listener. They ask plenty of questions, and make notes of the answers. These notes (mental or written) help them find a suitable product or service for the potential customer. A successful sale is when the customer agrees with that solution
  • Ethic-Many successful salespeople have a deep understanding of human behaviour and are able to use these skills to their advantage. They are aware that, although there is a process for successfully completing a sale, customers fall into a range of different personality types. For instance, a sales person would have to deal with a teacher in a totally different manner to how they would deal with a businessperson. This is because the two sets of people have a different outlook on life and would therefore have different qualities which would be important %
Qualities that define an effective sales person;
  • Goal Oriented - The driving force behind every Company is increased sales and high profits. Most Companies draw out expected sales targets for every year. The duty lies on the sales team to not only meet these targets but go beyond them. Every sales person must be goal oriented and should work towards matching these sales figures.
  • Confident - A sales person should be confident about the product he is selling as well as his own ability to successfully close a sale. Especially in the case of door to door selling, the sales person should be able to interact well with the prospective buyer, gain their trust, arouse an interest and eventually convince them to try a new product. Sales persons should be willing to handle all kinds of tense situations.
  • Patient & Courteous - Convincing a prospective customer to buy a product is not an easy task. Selling is an art and requires patience. A sales person should be able to guide a customer through the entire process which begins with a prospective buyer's indifferent attitude towards a brand and ends with them placing an order. The sales person should be courteous and pleasant while taking a buyer through these stages.
PROBLEMS UNDERMINE DEVELOPMENT OF RETAIL TRADE IN TANZANIA
  • Lack of capital
  • Lack of business knowledge
  • Poor government support
  • Cash: Finding it and managing the cash flow. It’s hard to get and there is never enough. If you are a fast growth company you can rapidly outgrow your available sources, if you are an underperforming company you can’t get it. The majority of companies don’t manage it well. Overdrafts, credit cards and leasing/hire purchase are the most commonly used forms of finance. Factoring and invoice discounting, loans from friends and family and new equity are the least common sources. Commercial loans, grants and overdraft had become substantially harder to obtain for a significant minority of businesses. Most businesses experience some problems getting paid on time by their customers and with debt recovery. Good credit control helps to prevent this becoming a serious problem.
  • Lack of a clear plan: most businesses don’t know how to plan. Lack of a plan worsens the cash problem by wasting cash chasing tempting diversions, and throwing money at problems. Equally important is revising your plan according to changing economic and business conditions and to ensure your survival in the recession.
  • Ineffective leadership: this issue takes many forms. It is frequently in the form of depth of leadership. The founder of the company is too much hands-on and a) does not concentrate enough on his primary role as a leader rather than a manager; and b) fails to enlist support of competent managers and staff behind him or her either through recruitment or by outsourcing. This eventually causes the company to stop growing and eventually could lead to failure. Directors should always remember their core role and responsibilities.
  • Sales/marketing effectiveness: This leads back to planning and leadership. Many businesses have not taken the time to decide what their USP is. They try to compete in conflicting areas, such as lowest price and highest service. One takes away money and the other ads cost. Part of the planning process for a new product should include a very clear answer to one simple question, “with all of the products and service available to my customers why should they buy from me?”.
QUIZ
  • Describe the functions of retail.
  • Differentiate between retailing and a retailer.
  • Explain the advantages and disadvantages of supermarket. <!-- [if !supportLineBreakNewLine]--> <!--[endif]-->
TOPIC 4: Wholesale trade 

Meaning of Wholesale Trade
Define wholesale trade
Wholesale trade is a form of trade in which goods are purchased and stored in large quantities and sold, in batches of a designated quantity, to resellers, professional users or groups, but not to final consumers. Also wholesale trade may be defined as marketing and selling merchandise to retailers, to other wholesalers, or to industrial,commercial,professional or other institutional users in contract to selling to household consumers, to individuals for personal use or farmers.
Wholesaler:
A Person or firm that buys large quantity of goods from various producers or vendors, warehouses them, and resells to retailers. OR A wholesaler is an intermediary entity in the distribution channel that buys in bulk and sells to resellers rather than to consumers. In its simplest form, a distributor performs a similar role but often provides more complex services. Distributors and wholesalers often work together as channel partners.
Characteristics of a Wholesaler:
  1. He buys in bulk quantities from producers and resells them to retailers in small quantities.
  2. He usually deals in a few types of products.
  3. He is a vital link between the producer and the retailer.
  4. He operates in a specific area determined by producers.
  5. He does not display his goods but keeps them in god owns. Only samples are shown to intending buyers.
  6. A wholesaler may be an individual or otherwise a firm.
  7. A wholesaler generally sets up distribution centre in parts of the country to make available goods to the retailers.
  8. He sets up own warehouses to store goods for ready supply.
Difference between Wholesaler and Retailer
Distinguish between wholesaler and retailer
MIDDLEMEN IN DISTRIBUTION CHANNELS
Merchant intermediaries are those channels member who take both title to and position of goods from the preceding member (s) and channel them to the subsequence. These may classify as follows:
  • Wholesalers : A merchants wholesalers may be defined as that intermediary who buys goods in bulk from manufactures and sells them largely to subsequent intermediaries participating in the channel, namely, semi-wholesalers and retailers, they buy the goods and sees the same on their own account and risk. They take title of goods and they resell the goods at a profit with commission.
  • Retailers: A retailer may be defined as that merchant intermediary who buys product from preceding challes members in smaller assorted lots to suit individuals' consumer requirements. Retail in the final middlemen in the channel of distribution as he is going to sell products to households consumers for non- business use.
Retailers are further classified as institutional and non institutional retailers.
The institutional retailers are:
  • Consumer Co- operative stores.
  • Fair price shops.
  • Departmental stores.
  • Chain / multiple stores.
  • Mail order houses.
The non-institutional buyers are:
  • Stress sellers.
  • Peddlers.
  • Hawkers.
The Functions of Wholesaler
Mention the functions of wholesaler
A wholesaler performs the following functions:
  1. Assembling:A wholesaler buys goods from producers who are scattered far and wide and assembles them in his warehouse for the purpose of the retailers.
  2. Storage:After arranging and assembling the products from producers, wholesaler stores them in his warehouse and releases them in proper and required quantities as and when they are required by retailers. Since there is always a time-lag between production and consumption, therefore, the manufactured goods are to be stored carefully till they are demanded by retailers. Thus, a wholesaler performs the storage function in order to save the goods from deterioration and also to make these goods available when they are demanded.
  3. Transportation:Wholesalers buy goods in bulk from the producers and transport them to their own godowns. Also, they provide transportation facility to retailers’ by transporting the goods from their warehouses to the retailers’ shops. Some wholesalers purchase in bulk, therefore, they can avail the economies of freight on bulk purchases.
  4. Financing:A wholesaler provides credit facility to retailers who are in need of financial assistance.
  5. Risk-bearing:A wholesaler bears all the trade risks arising out of the sudden fall in prices of goods or by way of damage/spoilage or destruction of goods in his warehouse. The risk of bad debt as a result of nonpayment by retailers who have purchased on credit, also falls on the wholesalers. Thus a wholesaler bears all the trade and financial risks of the business.
  6. Grading and Packing:A wholesaler sorts out the goods according to their quality and then packs them in appropriate containers. Thus, he performs the marketing function of grading and packing also.
  7. Providing Marketing Information:Wholesalers provide valuable market information to retailers and manufacturers. The retailers are informed about the quality and type of goods available in the market for sale, whereas the manufacturers are informed about the changes in tastes and fashions of consumers so that they may produce the goods of the desired level of taste and fashion.
  8. Facilitating Disbursement and Sale:Wholesalers sell their goods to retailers who are scattered far and wide. Retailers approach them when their stocks are exhausted from further replenishment. Thus, wholesalers help in the dispersion process of marketing.
The Services Rendered by Wholesaler to Manufacturers, Retailers, and the Public
Point the services rendered by wholesaler to manufactures, retailers, and the public
Services of Wholesaler:
(A) Services to Manufacturers/Producers:
  1. Wholesaler furnishes information to the manufacturer about consumer behaviour, the changes in the tastes and fashions and also the latest demands of the customers.
  2. Wholesaler enables a manufacturer to get benefit of economies of large-scale production by manufacturing on a large-scale basis.
  3. Wholesalers relieve producers from keeping stock since they usually make forward dealings with producers.
  4. Wholesalers render financial assistance to manufacturers and also provide long-term soft loans to them.
  5. Wholesaler helps manufacturers in maintaining an even place of production by placing advance orders for periods which are usually characterised by slack demand.
  6. Wholesalers help in price stabilisation since they stock goods in the slack season and S’ 11 them when the demand is high.
  7. Wholesalers enable the manufacturers to save their capital by not tying it up in stocks. Instead, capital can be utilised for production activities.
  8. Wholesalers are an important link between the manufacturers and the retailers.
  9. Wholesalers provide warehousing facilities for goods till they are required by the retailers.
  10. Wholesalers take over the marketing functions from the manufacturers, thereby enabling them to concentrate on production.
(B) Services to Retailers:
  1. Wholesalers relieve retailers from keeping huge stocks with themselves since a retailer can approach a wholesaler for the replenishment of his stocks whenever they are exhausted.
  2. Wholesalers provide financial assistance to retailers by selling goods to them on credit.
  3. Wholesalers provide necessary market information to retailers regarding the type, quality and price of goods.
  4. Wholesalers enable retailers to obtain supplies more quickly than they could by placing orders directly to manufacturers,
  5. Wholesalers provide the benefits of specialisation to retailers.
  6. Wholesalers help retailers to take favourable advantage of price fluctuations.
  7. Wholesalers enable retailers to share the economies of transport.
  8. Wholesalers bring to retailers in bulk, but charging less prices.
  9. Wholesalers bring to the notice of retailers new products through advertisements and travelling salesmen.
  10. Wholesalers give trade discounts on the bulk purchases to retailers.
(C) Services to Consumers:
  1. Wholesalers make available the goods according to consumers’ needs, tastes, fashion and demand.
  2. Wholesalers maintain stability of price by adjusting demand and supply and factors in the economy.
  3. Wholesalers make large-scale production of goods possible, thereby keeping the overall price level low.
  4. Wholesalers have always ready stocks with them and the consumers do not have to wait for the replenishment of stocks.
  5. Wholesalers provide knowledge of new products to consumers.
The Types of Wholesalers (Merchant, National, Agents)
Identify the types of wholesalers (merchant, national, agents)
The wholesalers may be classified under the following headings:
(A) On the basis of area covered:
  1. Local wholesalers, who distribute the goods from the producer to the consumer of a particular locality or area.
  2. State wholesalers, who function in a particular state or province.
  3. Country-wide wholesales who are located at the main business centres of the country and who distribute goods throughout the length and breadth of the country.
(B) On the basis of the goods they deal in:
It is the most used grouping of wholesale concerns. According to T.N. Backman, ‘it is not easy to define their limits of operations on any particular basis or criterion, but usually three bases are selected:
  1. Methods of distributing goods:
  2. sources of supply; and
  3. the use of the goods by the consumers.
(C) On the basis of methods of operation:
(a) Full-function wholesales-who perform the entire range of wholesale functions, viz., assembling, storage, transportation, packing, financing and risk-bearing.
(b) Limited function wholesalers-who perform only limited or specific functions out of the full range of wholesale functions. They include:
  1. Rack Jobbers-wholesalers who sell special products viz., household wares and cosmetic/toiletries to retailers.
  2. Truck wholesalers-who combine selling, delivery, and collection in one operation. They carry only specific type of products, usually perishable and semi-perishable goods.
  3. Cash-and-carry wholesalers-who sell their stocks to retailers on ‘cash and carry’ basis. The retailers come to the wholesalers’ godown, select their requirements and pay cash on the spot and take away the goods.
  4. Drop shipping wholesalers-who do not actually handle the goods in which they deal in but leave the storage and transportation functions for the producers whom they represent to perform. Here, the producer directly dispatches the goods to the retailers, but the bill is forwarded through the wholesaler, who, in turn, claims it from the retailers. Such wholesalers deal in goods which bear high cost of transportation.
(c) Merchant wholesalers.
They are of the following types:
  1. Wholesalers proper:They are those merchants who deal only in the buying and selling activities and do not engage in manufacturing activities. They buy goods in bulk from the manufacturers and sell them in bulk to retailers. They also maintain their own warehouses for storing the goods.
  2. Manufacturer wholesalers:They combine the twin functions of manufacturing and selling and operate as both manufacturers and wholesalers. They usually purchase goods in their crude form, and after processing in their plant, sell them in a refined form to retailers. Their production operations are relatively simple and their main activity is that of selling.
  3. Mill-supply wholesalers/Industrial Distributors:Such wholesalers sell a wide range of goods to industrial units, who, in turn, use them for their manufacturing operations. These wholesalers buy goods in bulk quantities from producers/growers and sell them to industrial mills. For example, a wholesaler may purchase raw tobacco from growers and sell them to factories which manufacture cigarettes.
(D) On the basis of their line of product:
  1. General merchandise wholesalers:Wholesalers who deal in a number of items of general merchandise, ranging from food products to household appliances.
  2. General line wholesalers:Who offer complete stock in one major line, e.g., stationery goods or may be hardware appliances, etc
  3. Specialised wholesalers:Who deal only in specialised goods such as food products c: electrical goods, etc. They help those retailers who wish to buy a wide range of goods of the same line.
The Channels of Distribution
Explain the channels of distribution
A distribution channel refers to the path linking the producer or manufacturer of a product with the consumer or user of that product. OR is the chain of businesses or intermediaries through which a good or service passes until it reaches the end consumer. A distribution channel can include wholesalers, retailers, distributors and even the internet. Channels are broken into direct and indirect forms, with a "direct" channel allowing the consumer to buy the good from the manufacturer and an "indirect" channel allowing the consumer to buy the good from a wholesaler. Direct channels are considered "shorter" than "indirect" ones.
ACTIVITIES PERFORMED IN CHANNELS OF DISTRIBUTION
  • Selling and promoting. This function is very important to manufacturers. One strategy involves the use of distribution channels to carry out the responsibilities of product deployment. In addition to being marketing experts in their industry, distribution firms usually have direct-selling organizations and a detailed knowledge of their customers and their expectations. The manufacturer utilizing this distributor can then tap into these resources. Also, because of the scale of the distributing firm's operations and its specialized skill in channel management, it can significantly improve the time, place, and possession utilities by housing inventory closer to the market. These advantages mean that the manufacturer can reach many small, distant customers at a relatively low cost, thus allowing the manufacturer to focus its expenditures on product development and its core production processes.
  • Buying and building product assortments. This is an extremely important function for retailers. Most retailers prefer to deal with few suppliers providing a wide assortment of products that fit their merchandising strategy rather than many with limited product lines. This, of course, saves on purchasing, transportation, and merchandising costs. Distribution firms have the ability to bring together related products from multiple manufacturers and assemble the right combination of these products in quantities that meet the retailer's requirements in a cost-efficient manner.
  • Bulk breaking. This is one of the fundamental functions of distribution. Manufacturers normally produce large quantities of a limited number of products. However, retailers normally require smaller quantities of multiple products. When the distribution function handles this requirement it keeps the manufacturer from having to break bulk and repackage its product to fit individual requirements. Lean manufacturing and JIT techniques are continuously seeking ways to reduce lot sizes, so this function enhances that goal.
  • Value-added processing. Postponement specifies that products should be kept at the highest possible level in the pipeline in large, generic quantities that can be customized into their final form as close as possible to the actual final sale. The distributor can facilitate this process by performing sorting, labeling, blending, kitting, packaging, and light final assembly at one or more points within the supply channel. This significantly reduces end-product obsolescence and minimizes the risk inherent with carrying finished goods inventory.
  • Transportation. The movement of goods from the manufacturer to the retailer is a critical function of distribution. Delivery encompasses those activities that are necessary to ensure that the right product is available to the customer at the right time and right place. This frequently means that a structure of central, branch, and field warehouses, geographically situated in the appropriate locations, are needed to achieve optimum customer service. Transportation's goal is to ensure that goods are positioned properly in the channel in a quick, cost-effective, and consistent manner.
  • Warehousing. Warehousing exists to provide access to sufficient stock in order to satisfy anticipated customer requirements, and to act as a buffer against supply and demand uncertainties. Since demand is often located far from the source (manufacturer), warehousing can provide a wide range of marketplaces that manufacturers, functioning independently, could not penetrate.
Factors influencing the choice of channel of distribution:
  1. Product: Perishable goods need speedy movement and shorter route of distribution. For durable and standardized goods, longer and diversified channel may be necessary. Whereas, for custom made product, direct distribution to consumer or industrial user may be desirable.Also, for technical product requiring specialized selling and serving talent, we have the shortest channel. Products of high unit value are sold directly by travelling sales force and not through middlemen.
  2. Market: (a) For consumer market, retailer is essential whereas in business market we can eliminate retailing.(b) For large market size, we have many channels, whereas, for small market size direct selling may be profitable.(c) For highly concentrated market, direct selling is preferred whereas for widely scattered and diffused markets, we have many channels of distribution.(d) Size and average frequency of customer’s orders also influence the channel decision. In the sale of food products, we need both wholesaler and retailer.Customer and dealer analysis will provide information on the number, type, location, buying habits of consumers and dealers in this case can also influence the choice of channels. For example, desire for credit, demand for personal service, amount and time and efforts a customer is willing to spend-are all important factors in channels choice.
  3. Middlemen: (a) Middlemen who can provide wanted marketing services will be given first preference.(b) The middlemen who can offer maximum co-operation in promotional services are also preferred.(c) The channel generating the largest sales volume at lower unit cost is given top priority.
  4. Company: (a) The company’s size determines the size of the market, the size of its larger accounts and its ability to set middleman's co-operation. A large company may have shorter channel.(b) The company’s product-mix influences the pattern of channels. The broader the product- line, the shorter will be the channel.If the product-mix has greater specialization, the company can favor selective or exclusive dealership.(c) A company with substantial financial resources may not rely on middlemen and can afford to reduce the levels of distribution. A financially weak company has to depend on middlemen.(d) New companies rely heavily on middlemen due to lack of experience.(e) A company desiring to exercise greater control over channel will prefer a shorter channel as it will facilitate better co-ordination, communication and control.(f) Heavy advertising and sale promotion can motivate middlemen in the promotional campaign. In such cases, a longer chain of distribution is profitable.Thus, quantity and quality of marketing services provided by the company can influence the channel choice directly.
  5. Marketing Environment: During recession or depression, shorter and cheaper channel is preferred. During prosperity, we have a wider choice of channel alternatives. The distribution of perishable goods even in distant markets becomes a reality due to cold storage facilities in transport and warehousing. Hence, this leads to expanded role of intermediaries in the distribution of perishable goods.
  6. Competitors: Marketers closely watch the channels used by rivals. Many a time, similar channels may be desirables to bring about distribution of a company’s products. Sometimes, marketers deliberately avoid channels used by competitors. For example, company may by-pass retail store channel (used by rivals) and adopt door-to-door sales (where there is no competition).
  7. Customer Characteristics: This refers to geographical distribution, frequency of purchase, average quantity of purchase and numbers of prospective customers.
  8. Channel Compensation: This involves cost-benefit analysis. Major elements of distribution cost apart from channel compensation are transportation, warehousing, storage insurance, material handling distribution personnel’s compensation and interest on inventory carried at different selling points. Distribution Cost Analysis is a fast growing and perhaps the most rewarding area in marketing cost analysis and control.
Role of channels of distribution
Channel of Distribution plays a very important role in achieving the marketing objectives of a company. Undoubtedly, the manufacturer of product or services creates involve utility but the distribution channels create time and place utilities. According to Drucker, "both the market and distribution channels are often more crucial than the product. They are primary; the product is secondary.
In an ever widening market, particularly in consumer goods market distribution channels have a distinctive role in the successful implementation of marketing plans and strategies. These channels performing the following marketing functions the machinery of distribution.
  • The searching out of buyers and seller.
  • Matching goods to requirements of the market(merchandising)
  • Offering products in the form of assortments packages of items usable and acceptable by the consumers /users.
  • Persuading and influencing the prospective buyers to favor a certain products and its maker [personal selling /sales promotion].
  • Implementing pricing strategies in such a manner that would be acceptable to the buyers and ensure effective distribution functions.
  • Participating actively in the creation and establishment of market for a new product.
  • Offering pre- and after sales service to customer
  • Transferring of new technology to the users along with the supply of products and playing green resolution in our country.
  • Providing feels back information, marketing intelligence and sales forecasting services for their regions their suppliers.
  • Offering credit to retailers and consumers.
  • Risk- bearing with references to stock holding transport.
Agent Intermediaries:
Agent Intermediaries are those channel components who never take title to end usually do not take title to and usually do not take possession of goods but merely assist manufacturers, merchants intermediaries and consumers in carrying out transactions of sale and purchase. There for, unlike merchant intermediaries, they do not buy or sell goods on their own account but merely bring buyers and sellers together in order to strike a transaction. There exist an agency relationship between such an intermediary manufacturers where in the former acts as agent and the latter as his principal, such agent intermediaries solicit orders, sometimes with discretion a fixing prices, and determines the term of sale with buyers.
Agent intermediaries are usually compensable for their services by way of commission on the value of sale affected through them or any other basis naturally agrees upon.
When the Necessity of Eliminating the Wholesaler will Arise
Show when the necessity of eliminating the wholesaler will arise
Arguments in Favour of Elimination of Wholesalers:
  1. Wholesalers are middlemen between the manufacturers and the retailers. They increase the cost of marketing and price of the products goes up. The consumers have to pay higher price. By eliminating wholesalers, prices of the products will decrease and the consumer shall benefit. The manufacturers will be earning more profit on account of lesser prices of the products.
  2. Wholesalers are unnecessary links between the manufacturers and retailers. Their presence in the distribution channel obstructs the smooth and quick delivery of goods from the manufacturers to the ultimate consumers. If they are eliminated, unrestricted supply of goods takes place from the manufacturers to the retailers and the consumers.
  3. During the slack seasons and scarcity in business activities demand, the wholesalers resort to hoarding and stocking of goods and sell them at exorbitant prices charging excessive profits.
  4. In certain regions, the wholesaler is the sole distributor of the product. He occupies monopolistic position and exploits both the retailers and the consumers by charging higher prices, if the wholesalers are eliminated it would be in the best interest of both the retailers and the consumers.
  5. 5. Big and established retailers such as large departmental stores can afford to make their own purchases directly from the manufacturers without approaching the wholesaler. The wholesalers are easily eliminated.
  6. On account of developed means of transportation, the retailers can easily purchase goods directly from the manufacturers without the services of wholesalers.
  7. Now-a-days, the manufacturers have started opening their own shops for the distribution of their products. They are establishing direct link with the consumers. The services of the wholesalers can be easily dispensed with.
  8. The co-operative movement is gaining immense popularity these days in India. Various co-operative stores and super markets are operating for selling goods to the consumers. They procure their supplies directly from the manufacturers. The presence of the wholesalers is superfluous in the chain of distribution.
  9. In order to earn more profits, the wholesalers may take over the products of the manufacturer’s competitors. The manufacturer concerned may face the sudden decline in the sales of his products.
Arguments against the Elimination of Wholesalers
  1. The services and functions of a wholesaler are numerous and indispensable for the smooth flow of goods from the manufacturer to the ultimate consumer. He is an important link in the distribution chain of goods so the business cannot do without him.
  2. Evelyn Thomas, in his book “Commerce: Its Theory and Practice” says that “Wholesalers by operating on a large scale relieve the manufactures of innumerable duties which they find expensive and difficult to perform.” A wholesaler relieves the producers of the trouble of ware housing and other marketing problems. Hence his services are very important and are always required.
  3. Wholesalers provide valuable information regarding the customers tastes, fashions and demand to manufacturers so that the latter may adjust their production accordingly and earn more.
  4. Wholesalers create a better demand for goods than retailers since they deal in fewer goods and also possess specialized knowledge in the products they deal in. Thus a wholesaler’s existence is very necessary.
  5. Wholesalers enable retailers to carry on their business efficiently. They deal in fewer goods and also posses specialized knowledge about the products
  6. Wholesalers help in price stabilization-thus their existence is very essential for both retailers and ultimate consumers.
Exercise 1
QUIZ
  • Describe the activities involved in a channel of distribution.
  • Explain the function of the Wholesalers.
COMMERCE O'LEVEL ALL TOPICS 
FORM ONE TOPICS
FORM TWO TOPIC 1-2.
FORM TWO TOPIC 3-4.
FORM TWO TOPIC 5-6.
FORM THREE TOPIC 1-2.
FORM THREE STUDY NOTES TOPIC 3-5
STUDY NOTES FORM THREE TOPIC 6-8.
FORM FOUR STUDY NOTES, TOPIC 1-2.
FORM FOUR STUDY NOTES, TOPIC 3-4.


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