EXCHANGE: Exchange is the process of giving out value in order to have something of value in return.

Exchange is an important aspect of Commerce. In the olden day’s trade by

barter was the main system of exchange. Exchange arises as a result of high
production process.

RELATIONSHIP BETWEEN PRODUCTION SPECIALISATION AND

EXCHANGE

Exchange is often referred to us an outcome of production and specialization.

Production which is the creation of goods and services can be greatly exchanged
when the production process is broken into small pieces, this leads to mass
production. When this happens, it becomes necessary for these goods to be sold
out. Your products need to be exchanged in order for you to meet all your
requirement which entails the buying from other businesses.

Specialization facilitates production and trade. It requires inter-dependence

between firms and individuals. For example, farmers need to exchange crops and
animals in order to meet all other needs.

TYPES OF GOODS

1. Capital Goods

2. Consumer Goods

Capital goods are goods purchased from the government and organizations for the
production of other goods. They are not meant for consumption. Example;
Machineries, raw materials, tools and equipment.

Consumer goods are goods purchased by the government and other organizations
primarily for consumption and personal use. They are not to be used to assist in
the production of other goods. Example: cloths, foodstuffs, bicycles, books etc.

SCHEME OF WORK

1. Home Trade
2. Retail Trade
3. Small Scale Retail Trade
4. Large Scale Retail Trade
5. Modern Trends in Retailing
6. Wholesale Trade
7. E-SHOP
HOME TRADE

Home trade is a division of commerce concerned with the buying and selling of
goods within a geographical area or country. It is also known as domestic trade,
local trade or internal trade”. It is easier because the same currency is used both in
buying and selling of goods. It is a branch of commerce which comprises
Wholesaling and Retailing

HOME TRADE

Wholesaling Retailing

RETAIL TRADE

This is the business activity of selling goods and services directly to the final
consumer’s / end users. Retailers are the final link in the distribution of goods
services.

Producer

Wholesaler

Retailer

Consumer

It is concerned with all the physical activities carried out to transport goods to the
end consumers at the right place and at the right time.

Retail trade is the most common form of home trade because it does not need a
large amount of capital and it out numbers both production and wholesaling.
WHO IS A RETAILERS

A retailer is a merchant whose main business is to purchase goods from the

wholesaler or producer in small quantities and sells in bits and units to the final
consumer. A retailer is any trader that directs its marketing effort towards the final
consumer for the purpose of buying and selling. The retailer is the only trader that
sells in units. This makes it different from wholesalers and producers.

CHARACTERISTIC OF THE RETAILERS

1. Retailer sells in unit

2. A retailer sells directly to the ultimate consumer

3. A retailer sells various goods in stocks

4. The goods consist of fast selling goods

5. Business location is open to final consumers

6. Retailers are the final link of the distribution chain

FUNCTIONS OF THE RETAILERS

1. Retailers sell in units to consumers

2. They provide after sale services e.g. installation, repairs, maintenance,

delivery. This increases continuous patronage of customer.

3. Retailers sell various goods in stock

4. They offer stock of a wide variety of goods

5. They give information and advice to customers about the goods

6. they sell at convenient locations and hours

7. They are open for long period of time

8. They supply door to door services; they bring goods closer to our homes.

9. They supply information to the wholesalers and producers about complaints

of the customers.

10. They provide outlets to sell manufacturer’s goods

While setting up a retail trade, some important factors have to be considered.

FACTORS TO BE CONSIDERED WHEN SETTING UP

RETAIL TRADE

1. Capital (needed/initial): money available at hand to start the business has to

be fully considered

2. The pricing policy: retailers need to consider the amount or price to be put
on the product depending on the target audience i.e. low or high income
earners.

3. Source of supply: retailers must consider the source that would ensure
constant supply because retailers cannot run out of stock, so they need to
decide whether to buy from the wholesalers or producers to suit his
customers.

4. Types / Nature of goods: retailers must determine the type of goods

(perishable / industrial) he is going to sell to his customers.

5. Terms of sale / trade: The trader / retailer must decide whether to sell on
credit or cash basis only because the progress of the business depends on
this. He /she must know the rate / limit of discount to be given at any point
or time.

6. The experience of the retailer: the retailer must be loaded with business
acumen and managerial abilities to run his business properly.

7. Advertising: He/she must consider the best medium of adverting to suit his
products to create effective awareness.

8. Location of the Business: The site of the business must be decided because
the goods must be close to your consumers to increase patronage.

CLASSIFICATION OF RETAIL TRADE

Retail trade can be classified into two (2) groups: they are

* Small scale activities

* Large scale activities

SMALL SCALE ACTIVITIES:

They include;

a. Hawking, Itinerant trading

b. Road side retailers

c. Kiosk owner’s/stall holders

d. Mobile retailers / shops

e. Market traders

f. Rural / Urban stores

LARGE SCALE ACTIVITIES:

a. Supermarket

b. Department stores

c. Multiple / chain stores

d. Variety stores

e. Mail-order

f. Hyper market

g. Franchise

METHODS OF CLASSIFICATION OF RETAIL STORES

1. Range of goods offered for sale

2. Functions performed by the goods

3. Size based on the number of employees / turnover (sales)

4. by Ownership (independent or cooperative)

5. By location (rural / urban area)

SMALL SCALE RETAIL TRADE: It is a retail trading with small scope of

operation, with little capital to start up.

HAWKERS: Hawking is a form of itinerant trade in which the merchants

move their goods from one place to another on their heads, bicycles,
vehicles etc. in order to sell various articles to consumers. They can be
seen in motor parks and bus stops.
FEATURES OF HAWKERS

1. Small scale retail trade requires little capital to start

2. They need little or no money to pay rent
3. They bring goods closer to homes
4. They use word of mouth to attract / advertise to consumer
5. They are mobile i.e. they move around
6. It is a small scale retail trade
7. They sell food and wares
8. They provide door to door selling
9. They sell in small units
10.Their goods are cheap
11.It involves low cost of advertising

ADVANTAGES OF HAWKERS

1. They need only small amount of capital to set up

2. Provide door to door service to ultimate customer

3. It provides employment opportunities for young school leavers

4. It is a form of advertising

5. The goods are sold at low price

6. Running cost of business is low; no need to pay rent, electricity, water etc.

DISADVANTAGES OF HAWKERS

1. Exposed to danger of road mishaps e.g. road accidents

2. Disturbance of free flow of traffic
3. Contribution to the refuse problem in the cities
4. Young hawkers are introduced to bad influences such as social miscreants
5. Limitation to the quantity of goods they carry

STREET / ROAD SIDE TRADERS

Road side traders usually stay in one place along busy streets or roads or outside
gates of schools, hospital offices etc.

FEATURES OF ROAD SIDE TRADERS

1. They operate from a particular point

2. They stock a variety of goods e.g. food, cloths, wares etc.

3. They are found on busy road and junctions

4. They display their wares on structures

5. Their customers are usually passerby’s

MOBILE SHOP

These are shops that move around and the goods are arranged in a motor van and
moved from one place to another to reach the final consumers. They take their
services to rural or urban areas to sell.

FEATURES OF MOBILE SHOPS

1. The goods are moved from one place to another through vans, trucks,
Lorries, bicycles etc.

MARKET TRADER / STALL HOLDERS

This is another method of retail trade in Africa. Buyers and sellers are brought
together to transfer ownership of goods. Markets are built by the local
government and their stalls are arranged in rows.

There are two (2) types of stall holders. They are:

1. Open stalls

2. Lock-up stalls

In open stalls owners bring the goods into the stalls, fresh, every day to avoid the
stealing of the goods. In lock-up stalls, owners lock up their stalls at the end of the
day with their goods in the store.

Examples of the main markets in Lagos:

Oshodi Market

Balogun Market
Dosunmu Market

Alade Market

Oyingbo Market

Markets sell a variety of goods such as cloths, foodstuff, accessories, books.

FEATURES OF MARKET TRADER/STALL HOLDERS

1. They have stalls in market places

2. They open at specific times of the day
3. They are zoned according to the type of goods sold

STORES

These are retail outlets which operate in the rural or urban areas

FEATURES OF STORES

1. They store wide ranges of goods

2. They are not really owned by one “individual”.

REASONS FOR THE SURVIVAL OF SMALL SCALE RETAILERS

1. Delivery services: Small scale retail stores are very flexible in delivery

2. Credit facilities – they are open to offer credit services to customers

3. Low price: low overheads cause low prices

4. Convenience: They are very convenient to operate because of close

proximity / distance

5. Flexibility of working hours: they are able to open early and close late

6. Personal relationship: owners are able to have good and cordial relationship
with customers

7. Quick decision making: there is no need to consult others in order to make

decisions for the business

8. They require small capital to start

9. They cater for individual needs

10. They enjoy customers’ loyalty and patronage

DIFFICULTIES ENCOUNTERED

1. Competition: They are exposed to stiff competition from large scale

retailers.

2. Lack of experience: they are not experienced regarding function of retailers;

they eat into their capital which causes lack of resources.

3. Low capital: they lack adequate capital for investment

4. Poor location: Most of the small-scale retail stores are located in the
neighborhood. This does not encourage patronage or more customers.

LARGE – SCALE RETAIL TRADE

Large scale retailers achieve their growth by increasing the size of their unit.
Large scale retailing Could exist in

 Chain or multiple store

 Departmental store
 Supermarkets
 Mail-order
 Discount Houses
 Franchising
 Hyper-markets
 Variety stores
 Retail cooperative society

Chain / Multiple Store: This a group of retails stores basically of the same type,
centrally owned with a degree of centralized control of operation and selling the
same range of products. They have; identical store design, same layout, same
stock layout. They operate multiple outlets. They are usually owned by the same
person, a group of people or another organization.

FEATURES OF CHAIN / MULTIPLE STORES

1. They have identical layout, stock display and design e.g. Mr. Biggs, Sweet
Sensation, Chicken Republic etc.

2. They have centralized form of administration and ownership

3. They sell similar range of products /line of merchandise

4. Their supplies are received from head office

5. They are found in town and urban areas

6. They have similar stores scattered all over the country

7. They carry out group advertising, promotional activities are used

8. They practice minimum customer service

ADVANTAGES OF CHAIN / MULTIPLE STORE

1. Customers can easily locate them anywhere

2. They spread promotional expenses over multiple outlets

3. They can achieve economies of scale through centralized distribution system

4. It can spread risk or losses over different stores in many different locations.

5. They buy in bulk which ensures cheaper prices

6. Flexibility in movement of staff from one branch to another

7. The problem of bad debt cannot be experienced because of cash and carry;
which is usually applied

DISADVANTAGE OF MULTIPLE STORES

1. They practice the system of cash and carry

2. There is less personal relationship between shop attendants and customers

3. Extra cost is expended for transportation of goods from the head office

4. Managers in the branches have no control over goods being sold as a result
of centralized control

5. Delay in implementation of decision

6. Concentrate on limited range of products

DEPARTMENT STORES

These are a collection of shops under one roof with ownership of each shop or
department specializing in selling a special range of goods. The shops are divided
into departments and sections. Each section has a manager who oversees the store
and its affairs e.g. marks and spencer, ASDA, Sainsbury. These stores specialize
in different items, e.g. clothes, foodstuffs, home appliances etc. They are not into
centralized buying, so each department buys their own stock; stock control.
Department stores are large retail units that handle a wide variety of goods. Each
department has its own members of staff and they handle their own promotional
activities.

FEATURES OF DEPARTMENT STORES

1. There is high degree of departmentalization

2. Each department has its own manager

3. They provide customer services

4. Provision of a wide range of specialized goods in one location

5. Each department deals with one line of product

6. Buying and selling are decentralized

7. It is a horizontally integrated retail institution

ADVANTAGES OF DEPARTMENT STORES

1. There is a wide variety of specialized goods in one location

2. There is provision of special services

3. It ensures bulk buying

4. Loss of a department would be offset by the gains of other departments

5. Provides convenience to customers as they are located in major areas

6. Allows free movement around the store

7. Store cards and credit facilities are available

8. Delivery services for large items are available

DISA DVANTAGE OF DEPARTMENT STORES

1. It require large capital for set-up

2. It involves high running cost

3. They are not easily accessible to customers outside the major urban centers

4. There are impersonal relationships between staff and customers

5. Running cost may lead to highest prices

SUPERMARKETS

Supermarkets are large retailing stores / outlets that sell mainly food and household
items. They sell wide variety assortment under one roof. There is emphasis on
merchant appeal; there are adequate check-out counters and parking lots.
Supermarkets must have a minimum of 2000 feet and minimum of three checkout
points. They sell grocery, dairy products, fresh food etc.

FEATURE OF SUPERMARKETS

1. The products are arranged and well displayed with price tags

2. They sell a wide variety of goods

3. They are usually located around residential areas

4. It deals mostly with household goods and food

5. Large facilities are available for shopping comfort

6. Available in large quantities and bulk and sold in units

7. They provide trolleys and baskets for comfort

ADVANTAGE OF SUPERMARKET

1. Impulse buying is encouraged

2. It ensures convenience because customers can buy all their needs from one
place

3. Provide wide variety of goods

4. They ensure self service

5. There is less labor cost

6. There is a readily accessible reserved stock

7. Customer can make right choices without the influence of assistants.

DISADVANTAGE OF SUPERMARKETS

1. People are able to steal from shelves; pilferage rate is higher

2. There is less personal attention to customers

3. Extra running cost is incurred from the provision of trolleys and baskets.

MAIL-ORDER

This is a form of large scale retailing in which buying and selling is carried out by
post.

They can only thrive where there is an efficient postal system. They contact
prospective customers by mail by sending small catalogues as a form of
advertisement. They make their deliveries by mail but they do not use courier
services. Mail-order usually involves the use of specially prepared catalogues that
present the retailers products either visually or in writing. Each product in the
catalogue has a reference number and the price. Payments are either by cash with
order (CWO) cash on delivery or by installments. This form of trading is very
common in developing countries with well-developed postal service system e.g.
USA, Europe etc.

FEATURES OF MAIL-ORDER

1. Transactions are through the postal services / post offices

2. Payment is through cash with order or through cash on delivery basis

3. Catalogues or price lists are used.

ADVANTAGE OF MAIL-ORDER

1. Opportunity for advertising through catalogue

2. The issues of bad debts are reduced as goods are sold by cash on delivery
basis

3. Goods are sold in urban and rural areas where there is post office

4. It makes it easier for people who are not able to visit the various store
because of distance or nature of jobs

5. They buy in large quantity which reduces the price

6. The operating profit margin is very high

8. They provide credit facilities to customers; they pay by installment

DISADVANTAGE OF MAIL ORDER

1. It depends on the efficiency of the postal system

2. Goods cannot be demonstrated for customer before making their choice of

purchase

3. High chance of damage during transportation of goods

4. There is no personal service

5. The range of products are limited

6. Catalogue need to be regularly updated which requires high cost of

advertising

DISCOUNT HOUSES

This is another form of large scale retailing but is not common in Nigeria. It
features a large variety of products which they sell on a low price basis because
they are bought in bulk. They operate on a low markup therefore; profit margin is
low. They offer minimal customer service; self-service. It is very popular in the
US. They reduce their overhead cost and buying in bulk in order to reduce cost.
They sell a wide variety of goods at less than traditional retail prices.

FEATURES OF DISCOUNT HOUSE

1. Minimal customer services

2. They sell a wide variety of goods

3. Products are offered at low prices. This is their major appeal

4. The stores are usually large

5. Purchase are made in cash; no credit facilities.

FRANCHISING

This is a type of large-scale retailing in which a conditional right is given to the

retailer to market the franchise. This is a situation whereby a well-known
organization gives a conditional right to another person to use his/her name. The
franchisor, supplies the product while the franchisee supplies the capital and enters
into a contract to use the franchisors’ name.

ADVANTAGES OF FRANCHISING

1. It requires relatively low capital to start

2. The management skills are taught (the franchiser provides managerial
services)

3. It gives exclusive selling rights for a specific geographical area.

HYPER-MARKETS

These are large supermarket usually with a minimum of 25 checkout points with at
least 50,000 square feet of selling space all on the same floor /level. They offer a
wide range of products with self-service and free car parking lots and are common
in the USA. They are general merchandise warehouse retailer; they sell a wide
variety of products. The goods are usually displayed in a wired basket, metal
racks, wooden bins. They are located outside the town.

Checkout points is a place where customers go to pay for goods they want to buy.

VARIETY STORES

These are stores which handle a wide assortment of goods. The goods are not
necessarily related to each other. They sell toys, cosmetics, hardware etc. A group
of variety stores may constitute a chain

FEATURES OF VARIETY STORES

1. They offer a wide range of unrelated goods

2. There is absence of credit and delivery services

3. Limited direct advertising

4. They are sited in major urban areas

5. Counter service and display are provided

RETAIL COOPERATIVE

This is a form of cooperative in which many small independent retailers pool their
resources together to enable bulk purchase and then sell the goods at lower prices
at profit. They share the profit in the proportion of the purchase made by the
members.
MODERN TRENDS IN RETAILING

These are new trends that have been introduced in retail as a result of the dynamic
systems of trade. In order to enhance and facilitate business, new ideas have been
introduced. Such as:

- E-Commerce

- Vending Machines

- Branding

- After sale services

- Customer services

- Self Services

SELF – SERVICES

This method was developed by retailers in order to encourage people to help

themselves instead of being served. They are able to go into shops and select what
they want and need to buy without shop attendants. For convenience, baskets and
trolleys are provided; they also ensure effectiveness. Self-service is usually found
in large scale retailing like supermarkets. The goods are paid for before leaving
the store.

FEATURES OF SELF-SERVICES

1. Customers move around to select their choice of goods

2. Use of trolleys and baskets are available

3. Goods are displayed with price tags

4. Goods are paid for at checkout points before leaving the store

5. Large space is required

6. Goods are displayed to encourage impulse buying

ADVANTAGE OF SELF-SERVICES

1. Impulse buying is encouraged

2. Customers have freedom to select goods without the help of shop attendant

3. Purchasing is quick and fast

4. There is no need to waste money to employ many sale attendants.

Therefore, labor cost in reduced; overhead cost is also reduced.

5. Convenience for customers as a result of baskets and trolleys

DISADVANTAGE OF SELF-SERVICE

1. Additional cost will be used to provide trolley and baskets

2. It increase the running cost as large space is required

3. It creates high opportunities for pilferage

4. There is less personal attention given to customers

AFTER-SALE SERVICES

These are extra services which retailers render to customers after purchasing their
goods. This is in order to ensure constant patronage. These after-sale services are
made available after goods are purchased. Some of these after-sale services
include:

- Delivery

- Installation

- Repair

- Maintenance

- Replacement of faulty parts

ADVANTAGE OF AFTER SALES SERVICES

1. It ensures continuous patronage

2. There will be an increase in sales

3. Assurance of good quality products

4. There is enjoyment of better personal attention by attendant to customers.

tDISADVANTAGE OF AFTER-SALE SERVICES

1. Higher prices are charged for extra services

2. Customers may be wrongly advised

VENDING MACHINES -

Vending machines ensure sale of goods to ultimate consumer/ customer through

coin or bank notes operated machines. They are usually located in areas where a
large number of people congregate such as offices, shopping centers, airports,
school, sport arena/ stadiums.

Goods are displayed in machines. These machines were developed in the late
1940s. It became an important retailing method for making products available
when and where store retailing is not present the products are typically small and
branded such as potato ships, drinks, chocolates, cigarettes, tea/coffee machines.

ADVANTAGES OF VENDING MACHINES

1. They ensure time and place convenience

2. They are self-operated, ensures self-services

3. It is good for emergency situation

4. There is uniformity in price for same quantity of goods

5. There is no need for assistance

DISADVANTAGE OF VENDING MACHINES

1. It is vulnerable to pilferage

2. No provision of change

3. It attracts additional maintenance cost

4. Profit is low

BRANDING

This is the general term covering brand names, designs and symbols. They have
symbols for each brand which may be used by a producer to distinguish from that
of other organizations. It is a modern trend in retailing and also a prerequisite for
product differentiation in manufacturing. It is necessary to enhance originality; it
prevents product adulteration.

ADVANTAGE OF BRANDING

1. It ensures high quality goods

2. It saves cost of advertising; brand names are a form of advertisement

3. Consumers can select without any problem

4. Goods are standardized and parked uniformly

5. It prevents product adulteration

DISADVANTAGE OF BRANDING

1. Lots of money spent by manufacturer on re-advertising brand name

2. Branding can create false buying on the part of the consumers

E-RETAILING

This is a new development in retail business. E-retailing is a place on the internet

for direct retail shopping with twenty-four hours’ global reach. It ensures the
provision of information and interaction between the sellers and buyers. Goods
can be ordered through the internet. In 1997, Dell computer was able to sell
computers worth several millions of dollars a day. A number of other businesses
have recorded considerable success.

ADVANTAGE OF E-RETAILING

1. It provides twenty-four-hour service

2. E-retailing has global reach

3. There is increase in sales revenue

4. Provision of information to customers

5. It has multimedia prospects.

CUSTOMERS SERVICES
Customer service is the provision of services to customers before, during and after
a purchase. Customer service is the act of taking care of the customer’s needs by
providing and delivering professional helpful high quality service and assistance
to customers after their requirements are met. It is the process of ensuring
customer satisfaction with a product or service. Often, customer service takes
place while performing a transaction for customer, such as making a sale or
returning an item. Customer service can take the form of an in person interaction,
a phone call, self-service system and other means.

ADVANTAGES OF CUSTOMER’S SERVICES

1. It ensure continuous patronage if a good customers service is applied

2. Customer service gets a seller more customers and advertises the goods if
customer service is satisfactory

3. Increase in profit

4. A seller would gain competitive advantage

5. Creates customer satisfaction

6. Seller gains more knowledge of the product because of question asked by

customers

DISADVANTAGE OF CUSTOMER SERVICE

1. Lack of innovation

2. Ever changing customer needs

3. May become self-serving

WHOLESALE TRADE

Wholesale trade is a form of trade which involves buying in large quantities or in

bulk directly from the producer or the manufacturer and selling in small quantities
to retailers and other merchants. Anyone involved in this type of trading activity
is referred to as a WHOLESALER. A Wholesaler can be an individual or a firm
(company).
The role of the wholesalers is to buy finished goods from the producers or
manufacturers once production processes are over. The wholesalers are only
involved in the marketing processes.

Producer

Wholesaler

Retailer Middlemen

Consumer

Wholesalers are second on the distribution channel, between the producer /

manufacturer and the retailer. Goods bought from the producers are stored in
warehouses. The wholesalers have duties to perform to the producer and also to
the retailer.

FUNCTIONS OF THE WHOLESALER TO THE PRODUCER

1. The wholesalers buy in large quantities from the producer and sell in small
quantities to the retailer: this is known as bulk breaking.

2. They provide warehousing facilities for goods bought from the producer;
they keep the goods in good condition so the producers can continue with
production processes

3. They use their own means of transportation in order to move and distribute
the goods to the retailers.

4. They advertise the goods on behalf of the producers by carrying out

promotional activities for the goods.

5. The storage of the goods brings about price stability in the goods, they
prevent price fluctuation until they are demanded for by the retailers.

6. They bear the risks of the goods; they take and accept responsibility of
losses of the goods.
7. The wholesaler takes charge of the market research on behalf of the
producer. The wholesaler gives feedback from consumers about their
satisfaction back to the producer. They also give information about the
market of the goods.

8. Branding and marketing / packaging of goods bought from producers are

done by the wholesaler before getting to the consumers.

9. The wholesalers have the role of financing the manufacturer. They pay
promptly to the producers, which facilitates further production process.
They also provide credit facilities by paying up front before the goods are
supplied.

10. The wholesaler also gives advice to the manufacturers on the brand of goods
needed by the consumers; market situation of the goods.

FUNCTIONS OF THE WHOLESALER TO THE RETAILER

1. They sell to the retailers in small quantities

2. They transport the goods to the retailer’s place of business at the expense of
the retailers

3. They provide credit facilities to the retailers; the retailers can then buy and
pay for the goods later.

4. They provide the retailer with a variety of goods

5. They advise the retailers on the goods and about new development in the
market.

6. The wholesaler links the retailer and the producer. Information moves from
the retailer to the wholesaler and then to the manufacturers.

7. The wholesalers advertise goods on behalf of the retailers.

8. The wholesalers store goods in warehouse and this reduces price fluctuation
and the price of the goods are stable.

CHANNELS OF DISTRIBUTION

Channels of distribution are paths through which the goods flow from the
producers to the final consumers. It can also be defined as the path through which
the ownership of goods is transferred as it moves from the producers to the end
consumers.

Producer Consumer
In this channels, the goods have to pass through the hands of certain people known
as MIDDLEMEN.

The Middlemen consist of wholesalers and retailers who specialize in performing

activities relating to the purchase and sale of goods in the process of their flow
from producer to final buyers.

PRODUCER WHOLESALERS RETAILERS CONSUMERS

MIDDLEMEN

Middlemen can also be institutions situated in the marketing channel at points

between the producer and the final buyers. There are several channels of
distribution. Some factors help the sellers know the channel of distribution to use
in order to get the goods to the consumers.

THE DIFFERENT CHANNELS OF DISTRIBUTION

1. Producer Consumer

2. Producer Retailers Consumers

3. Producer Wholesalers Retailers Consumer

4. Producer Agent Consumer

5. Producer Agent Retailer Consumer

6. Producer Agent Wholesaler Retailer Consumer

7. Producer Wholesaler Consumer

1. Producer - Consumer

This channel of distribution can be linked to the distribution of expensive

goods. This is because wholesalers cannot stock expensive goods in their
warehouses. Perishable goods are also likely to use this channel of
distribution. Examples are jets, tomatoes, vegetable etc.

2. Producer – Retailer - Consumer

This channel of distribution can also be associated with perishable goods.

Perishable goods such as tomatoes vegetable are a good example of these
types of goods.
3. Producer - Wholesaler - Retailer - Consumer

Goods manufactured in large quantities pass through this channel of

distribution. The goods are bought in bulk by the wholesalers to the
producers and sold in large quantities to the retailers before being sold in bits
and units to the consumer.

4. Producer - Agent - Consumer

Here, the producers appoint agents to distribute and advertise their products.
The agents get the goods from the producer and sell in bits and units to the
final consumers.

5. Producer – Agent - Retailer - Consumer

Here, the agents buy in bulk from producers and sell in small quantities to
the retailers, and then the consumers buy from the retailers in bits / units.
The agents are known as authorized distributors.

6. Producer – Agent – Wholesalers – Retailer - Consumer

The agents purchase in large quantities and sell to small scale wholesalers,
who then sell in small quantities to the retailers before the goods finally
reach the consumers in bits / unit. Examples of this type of goods are
Colgate. Most goods that pass through this channel are imported from other
countries.

7. Producer – Wholesaler - Consumer

The wholesalers buy directly from producers in bulks and sell to consumers
in bit/units. Most of these types of goods are industrial goods and are not
too expensive

Industrial goods egg. Raw materials: cotton, timber,

Supplies or consumables egg. Lubricants, oil etc.

FACTORS TO CONSIDER WHEN CHOOSING CHANNELS OF

DISTRIBUTION

1. The number of potential buyers: if the number of potential buyers is low, a

shorter channel of distribution can be used. If the buyers are many a larger
channel can be used
2. Competitors channel: The producers and middlemen have to consider
channels used by their competitors before choosing theirs, they do this to be
sure of the market.

3. Nature of the Goods: The nature of the goods has to be considered before
choosing a channel. For expensive goods, they will need to go through a
shorter channel of distribution.

4. Size of Order: When the size of the order is large, the producer can bypass
the middlemen and get the goods straight to the consumers.

5. Location of the Customer: if the customers are dispersedly located, a longer

channel of distribution will be needed. If they are highly concentrated in a
particular place, a shorter channel will be used.

ELIMINATING AND SURVIVAL OF MIDDLEMEN

Some people believe that middlemen are essential and carryout important
functions. They believe that middlemen should not be eliminated because
their job cannot be performed by others. Others believe that middlemen have
contributed to the increase in price and hoarding of goods. They believe that
producers should deal with the consumers without the aid of middlemen.

REASON FOR ELIMINATION

1. Middlemen can be eliminated when perishable goods are involved because

perishable goods need to move quickly and directly and from producers to
consumers.
2. Producers can bypass middlemen when they open their own outlets where
their goods can be directly purchased from.
3. Technical goods require special specification; sometimes consumers have to
deal directly with the producers.
4. Middlemen can be bypassed when the products are branded for easy
identification.
5. Producers prefer to sell expensive goods directly to consumers because they
usually have low volume of sales.

TYPES OF WHOLESALERS
They are classified into two broad categories:

1. Merchant Wholesalers
2. Agent Middlemen

1. MERCHANT WHOLESALERS: Merchant Wholesalers are wholesalers

that normally buy and sell goods on their own account, taking title to the
product. The goods are now in their own name. they handle and convey the
title directly to the people they deal with; retailers and consumers. They
derive profit from the marginal difference between the purchase and selling
price. Majority of the wholesalers fall into this category of merchant
wholesalers.

FUNCTIONs OF MERCHANT WHOLESALERS

1. They arrange credit terms, give customers credit facilities

2. They undertake the storage of goods gotten from the producer

3. They provide promotional services

4. They provide delivery services using large trucks / vehicles that can
adequately move the goods

5. They provide advisory services; they advise their customers on goods that
are moving in the market.

TYPES OF MERCHANT WHOLESALER

1. Specialist wholesalers: These group of people restrict their services to a

particular trade/ area in which they have specialized knowledge. It requires
special skills. An example is a computer engineer selling computer
accessories

2. Rack Jobbers: These people sell specialized line of merchandise to retail

stores and provide certain special service. They usually service
supermarkets, specializing in either one or two lines (housewares /
toiletries). Managers served by rack jobbers are relieved of handling the
merchandise

3. Cash and carry wholesalers: These wholesalers are mainly concerned with
grocery products. Customers have to pay first. They do not offer credit
facilities or delivery services. Once you pay, you carry your goods. They
operate on lower margins. The retailers have to order, pay cash and carry
away the goods.
4. Truck wholesalers: they combine selling, delivery and collection in one
operation. They carry only a limited range of stock; the selection may be
rather completed. Most truck wholesalers handle perishable goods e.g.
Tomatoes, fish, vegetables. They have an assortment of a certain type of
goods / line of goods, the ability to make fast and frequent delivery is their
major appeal to customers.

5. The drop shipment: these wholesalers handle goods physically but leave the
performance and storage to the producers as well as transportation. The
producers send directly to the retailers. The wholesalers pick the orders and
send to the producers. The goods move from the production line to the
retailer through transportation. The producers bill the drop shippers at
factory prices. The wholesalers put their own margin on the goods so they
make profit and share with the producers.

They take orders from the retailers and ensure that producers deliver goods
to the retailers that have placed the order. They deal mostly with bulky goods egg.
Coal. Drop shippers take title of the goods but do not physically handle them.

6. General Wholesalers: these wholesalers who purchased goods from

different producers. They sell only provision bought from different
producers. They store the goods in their warehouses. They have to pack the
goods in small quantities before selling to the retailers.

7. The wholesale cooperatives society: This is the coming together of different

retailers. These large scale retailers pool their resources together and
purchase goods in bulk directly from the producer and sell to retail
cooperatives. They are able to pool large capital Therefore; they have a
better bargaining power on the goods. They buy the goods directly from the
producer and act as wholesalers.

2. AGENT MIDDLE-MEN

They are mostly engaged in wholesaling rather than retailing. They assist in
negotiating sales and purchases or both on behalf of their principals. They do not
take title to the goods. They do not sell in their own name; they represent the
principal, producers and gain commission. They are:

1. Broker

2. Manufacturer Agents

3. Auctioneer

4. Commission Agent
5. The Factor

6. Del Cruder Agent

Broker: they are agents that link or connect seller with the buyers, they do not
take title over the goods. They receive a commission called BROKERAGE: they
specialize in a narrow range of products. They represent buyers and sellers in
negotiating. They do not have any physical control over goods.

Manufacturer Agent: they are usually appointed by the producers to market the
products in a specific area. Then manufacturers pay them commission. They are
engaged in industrial and durable goods.

Features of Manufacturer Agent

1. The agent has extended contractual relationship with the principal

2. He handles sales of products within a limited territory

3. They can represent manufacturers of non-completing, but related line of

goods

4. The agent possesses limited authority in regards to the term of sale and price

5. They are rarely involved in credit collection and risk. He is not expected to
sell on credit

Auctioneers: They are agents approved by the government. they are agent who
offer goods to prospective buyers through public auction. They sell goods to the
highest bidder. They deal in unique goods such as artwork, houses etc.

Commission Agent: they buy and sell goods on commission basis; he usually
exercises physical control of goods and terms of sales of the goods handled by
them. This is one of the exceptions to agents.

The Factor: They are the opposite of the brokers; they do not buy goods but they
take possession. They provide both warehousing and handling facilities and for
this, they receive commission.

Del-Credere Agent: They are agents who undertake or guarantee to indemnify

the principal against any loss arising from failure of people to pay for the goods
purchase by them. For this reasons, they are paid extra commission known as
DEL-CREDERE commission.

FEATURE OF DEL-CREDERE AGENT

1. They take possession of goods bought from producers

2. They can sell on their own name

3. They undertake to restore the principal back to his original position against
any loss

4. They receive higher commission known as Del-Credere Commission

WAREHOUSING

Warehousing is an essential part of distribution. Warehousing is the act of storing

goods produced or brought in a place until they are needed. Warehousing is an
essential part of distribution. Warehousing is also an aid to trade that enhances
trading activities. Warehousing ensures that there is a regular and steady supply of
goods. The producer or wholesaler must hold stock until the consumer’s demand
for it.

A warehouse is a place where goods are stored until they are demanded for by the
consumers.

IMPORTANCE OF WAREHOUSING

1. It ensures production of goods ahead of demand, encourages mass

production

2. It ensures stability of price

3. Warehousing serve as storage facilities, the goods are kept safely

4. They provide security for goods

5. Employment opportunities are provided (managers, carriers of goods)

6. Ensure constant supply of goods throughout the year

7. Seasonal problems are eliminated; seasonal goods are stored until they are
needed

8. Warehousing facilitates repackaging, branding etc.

TYPES OF WAREHOUSES

There are basically five (5) types of warehouses

1. Bonded warehouse

2. State Warehouse

3. Wholesale Warehouse

4. Public Warehouse

5. Manufacturers Warehouse

6. regional distribution centers

7. retail warehouses

8. giant barns

9. cold-storage warehouses

10. Cash and carry warehouses

1. MANUFACTURERS WAREHOUSE

These are owned by the manufacturer or producer of goods to store their own
products until they are demanded for. they are located within their factories to
store goods produced by them. Some manufacturers have regional distribution
centers such as Coca-Cola.

2. WHOLESALE WAREHOUSE

These are owned by the wholesalers used to keep all the goods bought from the
manufacturers. They are usually located near distribution and sale centers so the
retailer can have good access to them
 3. PUBLIC WAREHOUSE

There are warehouses usually owned and operated by private individuals. These
individuals let it out to anyone for safe keeping of goods. They are usually located
near seaports, airports, markets and so on. Anyone who hires a public warehouse
will pay rent to the owners for services rendered.

4. STATE WAREHOUSE

They are usually owned controlled by the government of a country. They are
places where contrabands or smuggled goods seized by customs authority are kept
until they are auctioned.

5. BONDED WAREHOUSE. These are used to store goods or materials that

have been imported by a company or an individual on which custom duties
have not been paid until the duties are settled. They are usually located at
the seaports for storing goods until the duties are paid.

The first bonded warehouse was introduced by Walpole a 1724 for tea. Warrants
are issued when goods are stored in a warehouse. A warrant is a document issued
out at the bonded warehouses which entitles a named person to the goods stated on
the warrant.

IMPORTANCE OF BONDED WAREHOUSE IN INTERNATIONAL TRADE

1. It facilitates international/foreign trade

2. It provides security for goods imported from other countries whose duties
have not been paid

3. Custom authorities will have the opportunity to calculate the actual value of
import duties

4. It will afford the importer adequate time to pay the charged custom duties

5. Goods in a bonded warehousing can be easily sold by the importer

6. Production processes; branding, packaging, can be done while they are still
in the warehouse

7. The prospective buyers would have the chance and opportunity to see goods
before purchase.

FACTORS TO BE CONSIDERED WHEN SIGHTING A WAREHOUSE

1. Location of the factory

2. Nearness to the Market

3. Nearness to the Distribution center

4. Operating cost of the warehouse

5. Cost of building a warehouse

6. Transportation (road networks/rail networks are easily accessed)

7. Consumers buying patterns / pattern of consumption.

COMMERCIAL & ENVIRONMENTAL EFFECTS OF E-COMMERCE

E-shop: An E-shop is a website or application by means of which goods or services

are sold over the internet. It is an online business that sells varieties of goods and
services just like a retail store but instead of having a physical location, its location
is on the internet. E.g. One can own an E-shop selling bags or shoes

CHARACTERISTICS OF AN E-SHOP
1. It is easy to setup
2. There are no geographical boundaries
3. Much cheaper than traditional business
4. There are flexible business hours
5. Marketing strategies cost less
6. There are few security and integrity issues
7. Buyers and sellers don’t meet
8. Delivery of products takes time
9. There is a transaction risk which is higher than the traditional business
Anyone can buy anything from anywhere at any time