What is trade? Types of trade and examples

Buying and selling of goods and services within the boundaries of a nation are referred to as internal trade. Whether the products are purchased from a neighbourhood shop in a locality or a central market or a departmental store or a mall or even from any door-to-door salesperson or from an exhibition, all these are examples of internal trade as the goods are purchased from an individual or establishment within a country. No custom duty or import duty is levied on such trade as goods are part of domestic production and are meant for domestic consumption. In general, payment has to be made in the legal tender of the country or any other acceptable currency.

                    Internal trade can be classified into two broad categories viz., (i) wholesale trade and (ii) retail trade. Generally, for products, which are to be distributed to a large number of buyers who are located over a wide geographical area, it becomes very difficult for the producers to reach all the consumers or users directly so the help of wholesalers and retailers becomes very important.

Wholesale Trade

wholesale trade refers to buying and selling of goods and services in large quantities for the purpose of resale or intermediate use. Wholesaling is concerned with the activities of those persons or establishments which sell to retailers and other merchants, and/ or to industrial, institutional and commercial users but who do not sell in significant amount to ultimate consumers. Wholesalers serve as an important link between manufacturers and retailers. They enable the producers not only to reach large number of buyers spread over a wide geographical area (through retailers), but also to perform a variety of functions in the process of distribution of goods and services. They generally take the title of the goods and bear the business risks by purchasing and selling the goods in their own name. They purchase in bulk and sell in small lots to retailers or industrial users. They perform different types of activities such as grading of products, packing into smaller lots, storage, transportation, promotion of goods, collection of market information, collection of small and scattered orders of retailers and distribution of supplies to them. They also provide credit support to the retailers and relieve them of maintaining large stock of articles. Most of the functions performed by wholesalers are such which cannot be eliminated. If there are no wholesalers, these functions shall have to be performed either by the manufacturers or the retailers.

Services of Wholesalers

Wholesalers provide various services to manufacturers as well as retailers and provide immense help in the distribution of goods and services. By making the products available at a place where these are needed and at a time when these are needed for consumption or use, they provide both the time and place utility. The various services of wholesalers to different sections are discussed below:

Services to Manufacturers

 Major services offered by wholesalers to the producers of goods and services are given as below:

1. Facilitating large scale production: Wholesalers collect small orders from a large number of retailers and pass on the pool of such orders to the manufacturers and make purchases in bulk quantities. This enables the producers to undertake production on a large scale and take advantage of the economies of scale.
2. Bearing risk: The wholesale merchants deal in goods in their own name, take delivery of the goods and keep the goods purchased in large lots in their warehouses. While doing so,they bear variety of risks such as the risk of fall in prices, theft, pilferage, spoilage, fire, etc. To the greater  extent, they relieve the manufacturers from bearing these risks.
3. Financial assistance: The wholesalers provide financial assistance to the manufacturers in the sense that they generally make cash payment for the goods purchased by them. To that extent, the manufacturers need not block their capital in the stocks. Sometimes they also advance money to the producers for bulk orders placed by them.
4. Expert advice: As the wholesalers are in direct contact with the retailers, they are in a position to advice the manufacturers about various aspects including customer’s tastes and preferences, market conditions, competitive activities and the features preferred by the buyers. They serve as an important source of market information which is highly useful for manufacturers.
5. Help in marketing function: The wholesalers take care of the distribution of goods to a number of retailers who, in turn, sell these goods to a large number of customers spread over a large geographical area. This relieves the manufacturers from many of the marketing activities and enable them to concentrate on the production activity.
6. Facilitate production continuity: The wholesalers facilitate continuity of production activity throughout the year by purchasing the goods as and when these are produced and storing them till the time these are demanded by retailers or consumers in the market.
7. Storage: Wholesalers take delivery of goods when these are produced in factory and keep them in their godowns/warehouses. This reduces the manufacturers burden of providing for storage facilities for the finished products. They thus provide time utility.

Services to Retailers

The important services offered by wholesalers to the retailers are described as below:

1. Availability of goods: Retailers have to maintain adequate stock of varied commodities so that they can offer variety to their customers. The wholesalers make the products of various manufacturers readily available to the retailers. This relieves the retailers of the work of collecting goods from several producers and keeping big inventory of the same.
2. Marketing support: The wholesalers perform various marketing functions and provide support to the retailers. They undertake advertising and other sales promotional activities to induce customers to purchase the goods. The retailers are benefitted as it helps them in increasing the demand for various new products.
3. Grant of credit: The wholesalers generally extend credit facilities to their regular customers. This enables the retailers to manage their business with relatively small amount of working capital.
4. Specialised knowledge: The wholesalers specialise in one line of products and know the pulse of the market. They pass on the benefit of their specialised knowledge to the retailers. They inform the retailers about the new products, their uses, quality, prices, etc. They may also advise them on the decor of the retail outlet, allocation of shelf space and demonstration of certain products.
5. Risk sharing:  The wholesalers purchase in bulk and sell in relatively small quantities to the retailers. Being able to purchase merchandise in smaller quantities, retailers are in a position to avoid the risk of storage, pilferage, obsolescence, reduction in prices and demand fluctuations in respect of larger quantites of goods that they would have to purchase in case the services of wholesalers are not available well in time. 

Retail Trade

Retail trade is the business activity associated with the sale of goods to the final consumer, the ultimate customer. It is the link between  wholesalers or manufacturers and the customers of the product. Typically, retailers sell goods in small quantities to consumers for personal use, not for resale or business use. Retail is the final step of the distribution channel. the retailer will buy the goods from the wholesaler, or sometimes directly from the producer, in bulk (large quantities) at a discounted price. And then it sells the goods to the final consumers of the goods, in small units or quantities, at retail price enjoying the benefits in the process. Retail trade can take a lot of forms. It is not necessary that the goods are sold from a store, retail trade can even happen over the phone, via post or mail service, door to door selling etc. So the place of sale can also differ greatly, for example, a store, a supermarket, the customer’s house itself or even a vending machine. But one thing which remains common in all of the above cases is that the buyer of the goods is its final consumer. As far as this is true, it will be a retail trade.

Services of Retailers: Retailers are the important link between  manufacturers and customers. They are the final point of sales and are valuable to the entire distribution channel. They, in fact, provide services to both the wholesalers and the consumers. Let us have a look.

Services to Wholesalers or Manufacturers

1. Final link in the distribution of goods: This is a function of place utility. Wholesalers or manufacturers cannot cover a wide geographical area and markets to sell the goods to the final consumer. It falls upon the retailer to create place utility and ensure that the goods are distributed throughout a wide market  and reaches all consumers. Retailers are the link between the wholesalers and the final consumers
2. Personalised Selling Efforts: There are certain goods that require personal selling. These are non-standardised goods that cannot just be picked off the shelves. But the manufacturer is not there to sell the product, that responsibility falls on the retailers. They use personal selling techniques to realize the sale. One of the example of such products where personal selling might be useful is selling of shoes . Apart from this, there are numerous products which always require a touch from the retailer.
3. Permit Economies of Scale: A manufacturer can produce goods in bulk, and a wholesaler can buy goods in bulk because retailers perform the function of breaking up the bulk. Although they buy in bulk themselves, they sell in smaller (sometimes individual) units. This allows the producers and even the wholesalers to enjoy the economies of scale.
4. Source of Market Information: Retailers are the only ones in direct contact with the final consumers on a daily basis. They are in a unique position to provide the manufacturers with a highly valuable feedback they have collected from the consumers. If a consumer has complaints or problems, the retailer is the first person he contacts. Such information is valuable to the manufacturers in their quest to improve their products.
5. Advertising and Promotions: Retailers will even help manufacturers and wholesalers with their promotions and advertisements. Retailers will frequently take part in promotional activities, put up advertisements of the product inside their shops, run offers, discounts, etc.

Services to Customers

1. Convenience: Retailers overcome the barrier of place, and allow the consumers to buy all their products from the local market near their house. Consumers also do not have to worry about sourcing the products they require because the retailers perform this function for them. So if a consumer in Chennai, wants to buy a product manufactured in Mumbai, he/she only need to visit their local retail store.
2. Assured Availability: A consumer also does not have to bother with buying the goods in bulk. He/she can buy them in individual units as and when required. The retail store will make certain that the product is available when the need for it arises. There is no worry about storage or warehousing as such for the consumer.
3. Variety: Another important service retailers provide to consumers is that they provide them with a lot of options. The variety offered enables the consumer to make the best decision for themselves, after having reviewed all the options.
4. After Sales Service: Certain products at times require some installation, demonstration or any such after sale service. It usually falls upon the retailers to provide such services to the consumer.
5. Credit Facility: A retailer at times will offer the consumer a financing option or a credit facility to make the payment in monthly instalments, or to simply defer the payment to another date. This allows the consumer to buy the products they need even if they do not currently have the entire finance for it.
6. After-sales services: Retailers provide important after-sales services in the form of home delivery, supply of spare parts and attending to customers. This becomes an important factor in the buyers’ decision for repeat purchase of the products.