Retailing involves activities related to the selling of goods to ultimate consumers for personal or household consumption. It refers to the sale of merchandise from a single point of purchase directly to a customer who intends to use the product. In the current scenario, retail margins are very low.
Retailers survive on low margins due to their remarkable capacity for thrift. In many traditional shops, family labor plays a significant role. Retailers perform multiple functions, including distribution, finance, and risk-taking. Under intense competition, retailers often undercut one another, compensating by taking higher margins on other products or by increasing turnover.
The characteristics of retailing are as follows:
1. Small Quantities: Retailers buy and sell goods in small quantities.
2. Selling to Ultimate Consumers: Retailers sell goods directly to final consumers.
3. Varieties of Goods: Retailers offer various necessary goods to consumers.
4. Personal Contact: Retailers maintain direct contact with customers.
5. Shop Display: Retailers decorate and display goods to attract customers.
6. Last Link in Distribution: Retailers serve as the final link in the distribution channel.
Wholesaling, on the other hand, refers to the sale and all activities directly related to the sale of goods and services to businesses and other organizations for resale, use in producing other goods and services, or operating an organization. Wholesalers primarily buy from producers and sell to retailers, industrial consumers, and other wholesalers.
Read Also: Hookworms: Description, Damages Caused, Control and Preventive Measures
Nature and Importance of Wholesaling
The focus is on firms primarily engaged in wholesaling. Manufacturers, whether small or large, often find it impractical or costly to establish direct links with retailers or customers. On the other end, most retailers and final users buy in small quantities and have limited knowledge of the market and supply sources.
This creates a gap that wholesaling middlemen fill by providing valuable services to manufacturers and retailers. Wholesaling introduces economies of skill, scale, and transactions into the distribution system.
Wholesaling expertise is concentrated in relatively few hands, preventing duplication of effort that would occur if many producers performed wholesaling functions independently. The economies of scale in wholesaling arise from specialization, allowing wholesalers to perform these functions more efficiently than manufacturers could.
Functions and Types of Wholesalers
A. Functions of Wholesalers
Wholesalers perform several functions that facilitate the work of both producers and retailers. These functions include:
1. Selling and Promoting: Wholesalers’ sales forces help manufacturers reach smaller customers at a lower cost. They have more contacts and are often more trusted by buyers than distant manufacturers.
2. Buying and Assorting: Wholesalers select and build assortments that meet the needs of their customers, saving them effort.
3. Warehousing: Wholesalers hold inventories, reducing the inventory costs and risks for suppliers and customers.
4. Transportation: Wholesalers offer quicker delivery to buyers, as they are typically located closer than producers.
5. Financing: Wholesalers provide credit to their customers and finance suppliers by paying bills on time.
6. Risk Bearing: Wholesalers assume risk by taking title to goods, absorbing costs from theft, damage, spoilage, and obsolescence.
7. Market Information: Wholesalers provide suppliers and customers with information about competitors, new products, and price developments.
8. Management Services and Advice: Wholesalers assist retailers by training sales staff, improving store layouts, and setting up accounting and inventory control systems.
B. Types of Wholesalers
Wholesalers can be categorized into three broad categories: Merchant Wholesalers, Agent Wholesaling Middlemen, and Manufacturers’ Sales Facilities.
1. Merchant Wholesalers: These independently owned businesses take title to the merchandise they handle. Examples include:
i. Full-Service Wholesalers: These provide a full set of services, such as stocking goods, using a sales force, offering credit, making deliveries, and providing management assistance. Wholesale merchants mainly sell to retailers, while industrial distributors sell to producers.
ii. Truck Jobbers: They handle limited lines of goods, performing both selling and delivery functions, often selling for cash while making rounds to supermarkets and small groceries.
iii. Drop Shippers: These wholesalers operate in bulk industries like coal and heavy equipment. They do not carry inventory; instead, they arrange for producers to ship goods directly to customers.
2. Agent Wholesaling Middlemen: Independent firms engaged in wholesaling, negotiating the sale or purchase of products on behalf of others, but without taking title to the goods.
i. Manufacturers’ Agents: Agents represent two or more manufacturers of related lines on a permanent basis, negotiating terms like pricing, territories, and commissions.
ii. Brokers: Brokers assist in negotiations by bringing buyers and sellers together. They do not carry inventory or take risks and are paid via brokerage fees. Examples include food brokers, real estate brokers, and insurance brokers.
3. Manufacturers’ Sales Facilities: These include manufacturers’ branches and offices that handle wholesaling functions on behalf of the manufacturers.
Read Also: 17 Medicinal Health Benefits Of Lotus Seed (Nelumbo nucifera)
The Law of Equi-Marginal Utility and Its Application
The law of equi-marginal utility states that a consumer maximizes satisfaction when the last unit of money spent on different commodities yields the same marginal utility. This concept applies to both retailing and wholesaling. For example:
1. Consumption: A consumer achieves maximum satisfaction by spending income in a way that equalizes marginal utility across all goods.
2. Production: A producer maximizes profit by ensuring that the marginal productivity of each factor of production is equal.
3. Exchange: People will substitute goods with higher marginal utility for those with lower utility until the marginal utility is equalized, achieving maximum satisfaction from the exchange.
4. Distribution: National income is distributed among factors of production based on their marginal productivity, ensuring efficient allocation of resources.
5. Public Finance: Taxes are levied in a way that equalizes the marginal sacrifice of each taxpayer, minimizing the tax burden.
Retailing involves selling goods to final consumers for personal use, while wholesaling brings efficiency to the distribution system by concentrating specialized skills in relatively few hands.
This reduces duplication of effort and ensures that producers and retailers can focus on their core functions. Understanding the roles and functions of retailing and wholesaling helps to streamline the flow of goods from producers to consumers, ensuring smooth and efficient market operations.
Do you have any questions, suggestions, or contributions? If so, please feel free to use the comment box below to share your thoughts. We also encourage you to kindly share this information with others who might benefit from it. Since we can’t reach everyone at once, we truly appreciate your help in spreading the word. Thank you so much for your support and for sharing!
Read Also: Top 20 Proven Benefits of Ginger Plant