You are on page 1of 6

3.

Commerce, Channels of Distribution, Wholesale Trade and


Retail Trade
Commerce provides the important links between the producer and consumer. Commerce can
be divided into two clear areas:
Trade is the process of changing ownership. Traders are the businesses directly involved in
the buying and selling of goods and services.
- home trade: trade takes place within a country Home trade involves the activities of
wholesalers and retailers.
- foreign trade: takes place between countries. Foreign trade involves importers (who buy
goods from other countries) and exporters (who sell goods to other
countries).
Services to trade are the commercial activities that assist trade in the job of selling goods and
services.
The activities that provide these services are:
1. Banking: providing short-term finance and providing facilities for easy payment
transfer.
2. Finance: various institutions providing long-term finance for industry, commerce and
consumer credit.
3. Insurance: spread the risks faced by industrial and commercial businesses
4. Transport: engaged in the movement of commodities from one place to another
5. Communications:
- postal: transfer of written communication through mail services
- telecommunications: immediate distance transfer of written, verbal or data
communications by electronic devices
- advertising: provides potential customers with information about goods and
services available.

Diagram of the main branches of commerce

The distribution channel

Frequently there may be a chain of intermediaries, each passing the product down the chain to
the next organization, before it finally reaches the consumer or end-user. This process is
known as the 'distribution chain' or the 'channel.'
Each of the elements in these chains will have their own specific needs, which the producer
must take into account, along with those of the all-important end-user.
Channels
A number of alternate 'channels' of distribution may be available:
Selling direct, such as via mail order, Internet and telephone sales
Agent, who typically sells direct on behalf of the producer
Distributor (also called wholesaler), who sells to retailers
Retailer (also called dealer), who sells to end customers
Advertisement typically used for consumption goods
Distribution channels may not be restricted to physical products alone. They may be just as
important for moving a service from producer to consumer in certain sectors, since both direct
and indirect channels may be used. Hotels, for example, may sell their services (typically
rooms) directly or through travel agents, tour operators, airlines, tourist boards, centralized
reservation systems, etc.
There has also been some evidence of service integration, with services linking together,
particularly in the travel and tourism sectors. For example, links now exist between airlines,
hotels and car rental services.
In addition, there has been a significant increase in retail outlets for the service sector. Outlets
such as estate agencies and building society offices are crowding out traditional grocers from
major shopping areas..
Channel members
Distribution channels can thus have a number of levels. Kotler defined the simplest level, that
of direct contact with no intermediaries involved, as the 'zero-level' channel.
The next level, the 'one-level' channel, features just one intermediary; in consumer goods a
retailer, for industrial goods a distributor, say. In small markets (such as small countries) it is
practical to reach the whole market using just one- and zero-level channels.
In large markets (such as larger countries) a second level, a wholesaler for example, is now
mainly used to extend distribution to the large number of small, neighbourhood retailers.
In Japan the chain of distribution is often complex and further levels are used, even for the
simplest of consumer goods.
Channel structure
To the various `levels' of distribution, which they refer to as the `channel length', Lancaster
and Massingham also added another structural element, the relationship between its members:
'Conventional or free-flow - This is the usual, widely recognized, channel with a range
of `middle-men' passing the goods on to the end-user.
Single transaction - A temporary `channel' may be set up for one transaction; for
example, the sale of property or a specific civil engineering project. This does not share
many characteristics with other channel transactions, each one being unique.
Vertical marketing system (VMS) - In this form, the elements of distribution are
integrated.

Retail trade:
The part of commerce, where goods are sold to the final consumer.
The retailer performs a number of important functions:
- He buys in large quantities and cut up into small quantities.
- Outlet: provide the producer with an outlet for his products, thus saving the producer
from the need to market his own goods.
- Stocks: hold stocks which the consumer can purchase locally in small, convenient
quantity.
- Choice: the consumer is able to choose from the variety of products of different producers
offered by retailer.
- Information and advice: the retailers expert knowledge enables them to advise and
inform customers on quality and suitability of products.
- Feedback: he provides a feedback of consumer responses to wholesalers and producers.
This helps the producer to become aware of what the consumer market wants,
and also help to ensure that consumers requirements are satisfied.
Types of retailer:
1.)Door to door: traders involved in this form of selling generally deal in sales of minor items
of goods and services.
- Pedlars: carry goods from door to door on foot.
- Hawkers: use some method of transport
- Mobile shops: a vehicle adapted to serve as a travelling shop.
2.) Market traders: are operate from stalls in open or covered areas, sometimes in street or
areas specially kept for markets. They are often able to keep prices low,
because they avoid overheads e.g. heating, high rent, shop fitting.
3.) Independent shops (sole traders): is owned by a sole trader or small partnership, and is
typically sited away from town centres. It often
specialises in offering a single commodity or service.
(barker, butcher)
Its advantages are:
- gives personal attention to customers
- saves customers for need to travel into town
- sometimes allows customers credit
Disadvantages:
- Cant buy in very large quantities
- prices often higher than in larger shops
- carries a limited range of goods
- difficulties in running shop if the owner is sick
4.) Multiples: (Chain sores): are chains of shops trading under a single name of common
ownership. They are generally controlled from central
headquarters and often be sited in town centres and shopping
precincts.
It enjoys many advantages over smaller retailers:
- their large size enables them to by-pass wholesalers and buy in large
quantities from the producer.
- a single national advertisement can cover all branches nation-wide.

- they have the resources to rent or buy stores in prime central sites with large
car parking space.
- They can afford to attract customers with loss leaders (goods sold at below
cost price)
5.) Self-service stores and supermarkets:
It is considered to be a supermarket when it has more than 2000 square feet of shopping
area and 3 or more check-out points.
Advantages:
- These shops deal particularly in pre-packed, price-labelled products.
- Loss-leaders are frequently used to attract customers
- Customers serve themselves, so they save in staff because the
customers do much of the work.
- Shopping trolleys reduces the customers awareness of the weight of
their purchases and encourages
impulse buying (unplanned purchase)
- They benefit from economies of scale (able to employ specialist staff
e.g. butchers, bakers)
Disadvantages:
- large premises in prime areas are expensive
- pilferage (stealing) levels are high
- customers receive little personal contact
- shopping trolleys are stolen
Loss leaders: Usually the supermarkets pursue this policy, which means: cutting the
price of some popular article very much below the market price in order to
attract customers to the shop.
6.) Department stores shop of shops
It is divided into commodity departments. Each department is operated like a single
shop responsible for its own profitability.
Advantages:
- customers can do the shopping in comfort
- wide variety of goods available under on roof
- shop assistants give personal service
- sited in towns and convenient to transport and car parks.
Disadvantages:
- large central sites are expensive
- cant compete with prices of multiples
- comfort surrounding can be a drain on profit
7) Hypermarkets:
They are a very large form of supermarket with a shopping area in excess of 50000
square feet. They offer a very wide range of goods in many specialist department similar
to the divisions in a department store.
- Parts of the hypermarket complex may be rented out to other traders.
- They are usually one of many in a chain.
- they are frequently sited on the outskirts of towns, where sites are cheaper.
- good parking facilities are provided and some late night trading
8.) Mail-order:
Products are sold in a variety of ways through the mail order method:
- advertising in the press, TV, radio, inviting potential customers to buy by post.

- direct selling to customers choosing articles from a catalogue at home


- part-time agents selling to friends from catalogues in return for a commission.
Advantages
- interest free credit often given
- buying in comfort of home
- goods chosen at leisure
Disadvantage:
- prices often more expensive than shops
- difficult to assess quality from a catalogue
- can be inconvenient to return unsuitable goods.
9.) Vending machines:
- retail outlets open 24 hours a day and provide a wide variety of products
(hot and cold snacks, confectionery, drinks, petrol).
they are sited in busy public spaces and they sometimes suffer as a result of
vandalism.
Recent developments in retailing:
1.) Shopping centre:
It is an area exclusively devoted to shops. It consists of a whole range of shops, including
department stores, chain stores and small shops. In 1986 Duna plaza was opened. It is the
first western-style shopping centre in Hungary.
2.) Franchising franchisor helps in: advising, training, supplying, advertising
3.) Use of technology: a feature of retail trade has been the increasing use of electronic
equipment:

Electronic check-outs: Many items have bar codes on their label. At the check out
these labels can be passed through a laser beam, which reads the information and
transmits it to the electronic cash register. The register then produces for each
customer a detailed list of the items bought.

Light pens: can be used to scan the bar codes of products on the shelves of a store.
This allows the firm to know precisely what goods are in stock. Bar codes convey
information about an item, e.g. the manufacturers name or the brand name of the
product.

Wholesale trade
Wholesalers are businessmen who handle goods in the intermediate position between the
producer and the retailer, buying in large quantities and selling in smaller, more convenient
lots to the retailer. Traditionally they have always dealt in large quantities. Their premises
are usually a large warehouse divided into sections. Retailers may visit the wholesaler to
choose their purchased, or orders may be telephoned in or passed to the wholesalers
representative.
Functions of the wholesalers:
1. Acting as an intermediary: He is positioned between the producer and the retailer. But
there are exceptions where the producer will sell direct to the
retailer or even straight to the consumer.

2. Breaking of bulk: buying in large quantities from the producer and selling in small lots,
usually to the retailer.
3. Taking on risks: if the wholesaler buys goods immediately they have been
manufactured, then the risks will no longer be borne by the
manufacturer but by the wholesaler.
There is always the risk that
- the price of a finished product may fall or
- the goods wont be needed because there is no demand.
- they can be disposed off (tlad) only at a lower price than the cost price
(nkltsgi r) to the wholesaler
- deterioration: (megromls)
- theft and misappropriation (eltulajdonts), which are specially high
when goods are in transit
4. Warehousing: by storing goods the wholesaler saves space for both the producer and
the retailer.
5. Offering credit: he may supply goods and allow the retailer to pay at some later date
(trade credit). This gives the retailer the opportunity to possibly sell the
goods before he has paid for them
Services provided by the wholesaler
For the producer:
- reduces transport costs: transport goods from the point of production
- advises producer of current market trends
- finishes goods by grading, packing and branding
- make mass production possible by ordering in large quantities and therefore reducing
production cost
For the retailer:
- offers choice of products from many producers
- supplies small quantities to suit retailers needs
- locally situated providing quick access to goods and open until late in the evening
- advises latest trends and best buys
- pre-pack goods for the retailers shelves (graded, labelled, priced, weighted)
Types of wholesaler three basic forms:
1.) General wholesalers: operate very large warehouses sited for convenient access from
many local towns
2.) Cash and carry wholesalers: dont allow credit and dont deliver goods. Retailers
come to warehouses, select goods, pay for them and provide their own transport.
3.) Co-operative Wholesale Society: it supplies its own retail outlets, often obtaining
goods from its own factories, farms and plantation.
Elimination of wholesaler:
Sometimes the producer will by-pass the wholesaler and sell directly to the retailer (in these
cases)
- if the retailer is part of a large multiple chain, it can buy in large quantities and deal direct
with the producer
- where after-sales service is particularly important: durable consumer goods