CHAPTER - 10 INTERNAL TRADE

CHAPTER - 10

INTERNAL TRADE

TRADE

            It is an important branch of commerce, means buying and selling of goods. Trade activities include group of peoples, merchants, middleman or traders. Traders bye goods from the producer and sell them to the consumers.

Wholesale trade

A wholesaler is a person who buys goods in large quantities from the producers and sells them in small quantities to the retailers.

Characteristic of wholesale

Ø Intermediaries between the primary producer  and retailers

Ø Wholesalers operate on a large scale and deal only in a limited line of goods

Ø Not directly  deal with individual consumers

Ø Sell goods in small quantities

Functions of wholesalers

1.      Assembling ;  the wholesaler collects goods from different manufactures and stores them in his warehouse

2.     Grading; wholesalers sort out the goods on the basis of quality, size, content, design, etc..

3.    Warehousing: the goods are kept in warehouses for distribution to retailers and when required

4.     Transporting ; goods are moved from the place of production to the warehouses and from there to the retailers

5.    Risk bearing; wholesaler assume great risk when they buy and store goods in fairly large quantities. All these risks are to be shouldered by the wholesaler himself.

6.    Pricing; the wholesaler fixes the prices of the goods he deals in , and based on this, the retailer determines the consumer price

7.     Financing; the wholesalers give financial help both to the producers and to the retailers

8.    Distribution; the wholesalers by selling the goods to the retailers as and when needed in small quantities facilitates smooth distribution of goods

9.    Collecting information; they collect information about market conditions and pass it on to producers.

Services of wholesalers

·     Large-scale production; bulk order form wholesalers enable producer to benefits of large scale production

·     Bulk purchase;

·     Specialization ; as marketing is done by wholesalers the producer can concentrate on production which results in specialization

·     Ready market; the wholesalers provides a ready market for the mass-produced goods

·     Better use of capital; wholesalers usually purchases goods for cash or accepts bill of exchange. manufactures need not keep large stock of raw materials or finished goods

·     Warehousing; the wholesalers holds large stocks of goods in his own warehouse relieving the manufacturers of the burden of warehousing

·     Supply of raw materials; sometimes the wholesalers stocks large quantities of row materials and makes them available to the producers in time

·     Market information ; constantly in touch with the retailers’ the wholesalers collects information regarding tastes and fashions of consumers and passes it on to producers

·     Financing; the wholesalers make ready payment for purchases and even advance money to the manufacturers

·     Transportation; supply of raw materials and delivery of finished goods are taken up by the wholesalers. manufactures are relieved from the trouble and expense of transportation

·     Economy in scale ; through advertising and sales promotion , wholesalers reduces the selling expenses of manufactures

·     Risk taking; as the wholesalers purchases the entire goods immediately on production , they take the risk of loss or damage in storage and transit.

Services of retailers

·     Buying center for all varieties of goods

·     Storage facilities: by holding large stocks of goods near the retailers , the wholesalers help them

·     Credit facilities

·     Information about new products

·     Specializations; the wholesaler’s deals in a limited line of goods in which they are specialized. hence they offer expert advice to the retailers on those goods

·     Quick supply of goods

·     Price stability ; wholesalers is in control of the supply of goods , he regulates the supply in accordance with demand and stabilizes the price in the market

·     Advertisement

·     Supply of goods reasonable price

·     Reduced risk ; the wholesalers assume most of the risk connected with marketing such as fluctuating in prices, loss of goods during transit and storage.

Retail trade

            The term retailer is derived from French word ‘retail’ which means to ‘cut’. Retailer is the person who buys goods in large quantities from the wholesaler, cuts them into small lots and sells them to ultimate consumers.

Characteristics

1) A retailer is the last link in the chain of distribution

2) Sells them to ultimate consumers

3) He act as a connecting link between the wholesalers and the consumers

4) He deals in a wide variety of goods

5) Thus occupies a key role in marketing

·     Functions of retailer

·     Choice of goods ; a retailer provides his consumer with a wide choice of goods

·     Ready stock ; the retailer holds stocks to maintain uninterrupted supply of goods

·     Market information ; the close contact with the consumer , the retailer are in a position to collect market information demand, and supply , consumer behaviors , tastes ,fashions etc.

·     Financing; they meet the cost of goods purchased, storage, transportation etc..

·     Advertising: the retailer undertakes sales promotional activities like displaying the goods in their shop

·     Transportation ; the retailers arrange  for the transportation of goods from the wholesalers premises to their shops and in turn to the doors of consumers

Difference between wholesaler and retailer

Wholesaler	Retailer
He sells the goods to retailers	He sells goods to ultimate consumer
The goods purchased by a wholesaler are meant for resale	The goods purchased by a retailer are meant for final sale and consumption
The goods sold by the wholesaler remain within the channels of distribution	The goods sold by the retailer go out of the channels of distribution
A wholesaler deals with goods in large quantities	Retailer deals with goods in small quantities
He concentrate one product / a few product on the same line	He deals in wide varieties of goods
Lower price	Higher price
Connecting link between the producer and retailer	Connecting link between the wholesaler and the consumer

Service

Services to producers and wholesalers

§  Ready market ; the retailer provide ready market for the products of the manufactures

§  Small order; the manufacturers and wholesalers are delivered of the task of collecting a large number of small orders from the consumers

§  Market information ;

§  Advertisement; by displaying the goods in their shops attractively , they supplement the efforts of the manufacture and the wholesaler in sales promotion

§  Popularizing new products;

Service to consumers

§  Selection of goods

§  Ready availability

§  Consumer education

§  Credit facility

§  Assistance in buying

§  Door delivery and after sales service

Types of retail trade

Itinerant traders

            Retailers who move from door to door, selling goods to consumers are called itinerant traders. With no fixed place of business, they operate on a small investment and with limited stock.

a) Hawkers and pedlars: hawkers carry goods on vehicles, while pedlares on their backs or heads moving from door to door in residential areas to sell their goods

b) Cheap jacks: they do business in rented shops or sheds, shifting from one locality to another. Cheap jacks sell their goods in temporary sheds during festivals

c) Market traders: these traders sell their goods on periodical markets- weekly, monthly, etc.. They also occupy fronts of main shops on holidays and do thriving business

d) Street vendors; these traders display their goods in busy street corners or pavements near railway stations, bus stands, cinema houses.etc...

Fixed shop traders

            Fixed shop traders carry on business in a fixed building either owned or rented. Selection of site is made after considering factors like line of business, nature of customers, easy accessibility etc..

a) Small-scale fixed retailers

They operate on small capital at a fixed place.

·     General shops: set up in residential areas, general shops deal in a variety of products needed by the locals. They also offer credit facility and home delivery.

·     Street stall: these are fixed retail shops erected in the minimum space available at street corners. Travelling public usually depend on these shops.

·     Second –hand goods shops: second –hand books, furniture, cloth and other household items are bought through their agents. The poorer sections of society buy second-hand goods from these shops.

·     Specialty shops: these shops specialize in a single line of products. They are found moistly in buy shopping centers in towns and cities.

b) Large –scale fixed retailers

            Large scale fixed shops have become common today, reaping the benefits of large scale operations.

·     Departmental store

·     Multiple shop

·     Super market

·     Mail order business

·     Consumer co-operative stores

Departmental stores

A departmental store is a large –scale retail organization consisting of many departments each dealing in one item, under one roof and management.

Features:

·     Large size: it is a large –scale retail organization

·     Central location : to attract more customers , it is located in central place

·     Spacious premises: it is generally housed in a spacious building to accommodate different departments

·     Variety of goods: it offer widest variety of goods under one roof

·     Amenities and attractions: it offers a great number of amenities and attractions to the customers

·     No credit: it deal on cash and carry basis

·     Centralized purchases and decentralized sales: the purchasing department buys everything needed for various departments but sells in each department

·     Advertising: to increase sales, they resort to expensive advertisement.

·     High cost of operation: rent, advertising and provision for amenities increases the cost of running a departmental store

·     Serving the upper class: it generally serves the salaried and rich class

·     Door delivery: some departmental stores undertake door delivery

Advantages

v Ideal location: being centrally placed they serve people from all parts of a town or city

v Easy shopping: a whole range of goods displayed in the same store make shopping easy

v Economic purchases: large-scale purchase from manufactures being down the price of consumer items, and the benefit is passed to consumers

v Efficient staff: a departmental store is in a better position to employ efficient staff to run departments

v Large capital: as it is usually formed as a joint stock company, it commands large capital

v Amenities and attractions to customers: free home delivery, restaurants, reading rooms, telephone booth etc... in the store are added attraction to the customers

v Effective sales promotion: being a large organization, a departmental store can introduce effective publicity through various media, thereby increasing sales and profit.

Disadvantages

v Heavy operational cost; high rent in cities, provision for amenities and specialized staff increase operational cast of departmental stores

v High prices: heavy establishment charges lead to higher prices of goods sold.

v Location: always situated in town and cities these stores serve only a section of society leaving out the vast majority in the villages

v Lack of personal contact; larger the organization, lesser the personal contact with customers

v Inflexible nature: because of its inflexible nature, losses pile up. A particular department which incurs loss cannot be closed down

v Managerial problems: effective co-ordination and control of staff become practically impossible

v Serves only the rich and not the masses: goods sold through departmental store usually are needed by the rich and seldom by the low income strata

v Dependent on advertisement; the success of a departmental store depends upon advertisement and publicity. If there is poor response to the advertisement, it will affect sales and profitability of a departmental store.

Multiple shops

            A multiple shop is a large scale retail organization with a number of branches at different places under one ownership and management and dealing in one variety of goods. The head office controls, owns and manages the branches through a branch manager. Multiple shops are organized by the manufactures to eliminate middlemen.

            Multiple shops may be defined as “ a system of branch shops operated under a centralized management and dealing in similar line of goods”

Important features

·     It is a large –scale retail organization

·     It is generally organized as a joint stock company

·     It operates through a large number of branch shops spread over a wide area

·     Each shop deals in the same type of product

·     Each shop is decorated in the same style and fashion

·     The product dealt in are meant for everyday use , are durable and have a steady demand

·     Their purchases are centralized and their sales are decentralized

·     It generally sells goods on cash and carry basis

·     It possesses flexibility in operation. An existing unprofitable branch can be closed down easily

·     It is an attempt on the part of the manufacturer to eliminate the middleman from the chain of distribution

Organization

            Organised as joint stock companies, multiple shops are controlled by the board of directors. But the actual management is by the managing director or general manager. Each branch is headed by a manager who is responsible for the efficient working of his branch. He maintains proper record of sales, stock and expenses and submits periodical statements to the head office.

Advantages

a)    Economy: as all purchases are made by the central office for all branches, they gain economy of large scale buying like higher discounts, lower rates, less transportation cost, advertisement, etc

b)    No bad debts: cash down sales prevent bad debts

c)    Increase in sales: multiple shops are uniform in style. This attracts more customers

d)    Inter-branch transfer: excess of stock in one branch can be transferred to where there is shortage. Thus dead stock can be reduced

e)    Uniform prices: uniform prices in all the branches create confidence in the consumers

f)     Flexibility: new branches , if necessary , can be opened and unprofitable branches can be closed down

g)    Elimination of middlemen: middlemen are eliminated by direct purchase from the manufacturers

h)    Risk spread over: dull business in one branch is compensated by brisk business in other branches. Risk is thus geographically spread

Disadvantages

a)    Absence of choice: as multiple shops deal in limited line of products, and generally one brand, they cannot offer variety or choice

b)    No personal touch: the multiple shops constitute a number of branch shops with paid employees who lack personal touch which is very important in retail selling

c)    No credit facilities and other extra services; they do not provide credit facilities and other attractive service like free home delivery, canteen facilities, telephone facilities etc.

d)    Lack of proper control: as all the branches are scattered , the central office fails to exercise effective control

e)    Resentment on the part of local retailers: the local retailers may not be happy with the multiple shops functioning at their place operated by a remote organization.

Distinction between departmental stores and multiple shops

Departmental stores	Multiple shops
1)These offer wide variety of products	Offer only limited line of products
2)All the departments operate in the same premises	A number of similar branches in different places
3)Higher cost of operation due to extra services	Comparatively lower cost of operation
4)Always centrally located in spacious buildings in big cities	Not always located in big cities: these are found even in small towns
5) more risk of business as they operate in only one place	Risk is spread out because of selling goods in different places
6) not at all flexible	It is highly flexible
7) the prices charged are higher because of high cost of operation	Lower prices are charged due to lower cost of operation
8) extra services like free from home delivery , reading room, telephone, recreational facilities etc., are provided to customers	No  such extra services to customers
9) there is no uniformity among departments .they deal in different types of goods	Uniformity among all branch shops
10) serve mainly the rich class	Serve the masses
11) shortage of goods cannot be met by transfer from one department to another	Shortage of stock at one branch can be overcome by transfer of stock from nearby branches
12) sell goods both for cash and on credit	Always on cash basis
13) managers have wider power regarding purchases	Branch managers have no power to make purchases
14) as the areas of operation is limited customers attracted are few	As the multiple shop establishments are spread over a large area, they attract a large number of customers.

Super market

            A unique feature of the super market is the absence of salesman to serve the consumers. The consumers pick up the required products and payment is made at the counter. In super markets, goods are sold on cash basis. The super market serves a large number of consumers. in India super markets are mostly organized on a co-operative basis.

Mail order business

            Mail order business is a kind of retail business which receives orders and delivers the articles through post. Post office plays an important role here. There is no direct contact between the buyer and the sellers. This system of retailing enables the consumers to get the goods at their door steps without the expense and trouble o going to the shops.

Origin

            Mail order business originated in U.S.A. As it is a vast country inhabited by people at remote areas , mail order business appealed to them. Today it has spread to large countries with high literacy and cheap postal facilities, in India there are many mail order business houses to satisfy the needs of people who reside in remote areas.

Suitability of goods for mail order business

1.      They should be standardized , graded and branded

2.     They should be light in weight and convenient for sending by posy

3.    They should be well known for their utility so that there is no need of convincing the people about their usefulness

4.     They should be relatively valuable in proportion to their weight

5.    They should be available in large quantities throughout the year

6.    They should not be easily perishable

7.     They should not get damaged in transit

8.    They should not be locally available

Advantages

·     Convenience in buying: the customers obtain their requirements at their door steps. So the customers are saved from the trouble of going out shopping

·     Wider market: the area of operation is not limited to a particular locality but cover the entire country

·     No bad debts: sales of this type of business are on cash basis

·     Economy in operation: the cost of running a mail order business is very low

·     Limited capital: this type of business can be stated with a small amount of capital

Disadvantages

·     No personal touch: no personal contact between the seller and the buyers

·     No selection of goods: the consumers are deprived of the opportunity to make selection of goods

·     Fraudulent dealing: the customer cannot inspect them before they purchase . so, there is scope for fraudulent dealing . a dishonest mail order business house may deceive the customers.

·     No credit facilities : the customers cannot get the goods on credit

·     Delay in delivery: as the goods have to bee sent by post ,there is delay in the delivery of goods

·     Expensive advertisement; huge amount have top be spent for advertising, packing and postage.

·     Serves only literate persons: filling in order form,  collecting the goods by V.P.P and corresponding with the dealers can be done only by literate persons.

·     Limited goods: only certain specific articles can be dealt in.

·     No after sale service : due to the inherent nature of mail order business, it cannot provide after sales service

·     Replacement difficulty: replacement will cause much delay, inconvenience and expenses to customers

·     Loss due to refusal to take delivery of goods

Consumer’s co-operative stores

            A consumer’s co-operative store is a voluntary association of consumers belonging to the middle and low income groups for the purpose of supplying pure and unadulterated goods to its members at fair prices.

            It is formed primarily for the purpose of eliminating middleman. Its primary notice is service: profit making is only secondary. Profit, if any, will be distributed among the members in proportion to the purchases made by them. a consumers co-operative store generally sells goods on cash basis.

Advantages

1.         Reasonable prices: consumers are provided with quality goods at reasonable price

2.       Low operating costs: as the goods are sold to its members or the neighboring public, a co-operative store need not spend huge amounts on advertising again, cash selling eliminates the chances of bad debts.

3.       Check on monopoly: co-operative style of functioning, it is possible to have a check on monopoly and wasteful competition

4.       Democratic management: this induce the members to put in their sweat and blood to the efficient functioning of the co-operative stores

5.       Promotes thrift and economic security: it promotes thrift among members and increases their economic security.

Disadvantages

1.      Lack of finance; inadequate financial resources adversely affect their functioning

2.     Lack of business training: ability or experience of the personnel managing the affairs put the co-operative store into difficulties

3.    Dependence on honorary service: too much dependence on the honorary services of some of the members proves to be futile in many cases.

Vending machines

            Vending machines are especially useful for selling pre-packed items of low priced products, with uniform size and weight. Initial cost of the machine and its maintenance charges on regular basis and repair are quite high. Another drawback is that consumers cannot see the product before buying. No return of goods is also possible. In spite of these limitations, vending machines have become popular in retail sales of high turnover, uniform size and low priced products.

Role of commerce and industry associations in promotion of internal trade

            Association of commerce and industries are formed to promote and protect their common interests. Associations that are present in our country are associated chamber of commerce and industry (ASSOCHAM), confederation of Indian industry (CII) and federation of Indian chamber of commerce and industry (FICCI). These three are the national level associations act as guardians of trade, commerce and industry. These associations usually intervene in the following matters to protect the interests of trade, commerce and industry.

·        Interstate movement of goods

·        Harmonization of sales tax structure and value added tax

·        Marketing of agro products

·        Weight and measures and prevention of brand duplication

·        Excise duty

·        Labour legislation

·        Streamlining of excise duties