TOPIC 3: Retail Trade
Meaning of Retail Trade
Define Retail Trade
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
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
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
  • 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
The classification of retailers is shown in the following chart:
1. Itinerant Retailers:
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.
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
  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
  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
  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
  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:
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
Types of Large – scale retailers
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
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
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
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
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.
  • 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.
    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
  • 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?”.
  • 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.
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
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
  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
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
  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
(B) On the basis of the goods they deal in:
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:
Full-function wholesales-who perform the entire range of wholesale
functions, viz., assembling, storage, transportation, packing, financing
and risk-bearing.
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
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”
  • 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
  • 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
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
  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
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.
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
  • 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:
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.
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
  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
  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
  • Describe the activities involved in a channel of distribution.
  • Explain the function of the Wholesalers.



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