This is trade within a given geopolitical boundary as in trade between Nigerians. Our natural endowments are spread across the country due to climatic and vegetational differences. Thus, the south is blessed with tree crops like timber, cocoa, rubber, Palm trees, cola nuts, etc., while the North is blessed with legumes like groundnut, Yam, onions. They also have cattle, grains, tomatoes, etc. Trade between the different towns, cities, and regions of Nigeria is home trade.
Home trade can be further divided into two:
- Wholesale: Buying and selling in large quantities from the manufacturers or producers and selling to distributors or retailers
- Retail: Buying and selling in small and affordable quantities and prices to the consumers or ultimate users.
CHAIN OF DISTRIBUTION
This the movement of goods and services from the producer or manufacturer to the wholesaler and to the retailer and finally to the consumers. Graphically:
Manufacturer – Wholesaler – Retailer – Consumer.
The wholesaler is the middleman in the chain of distribution as a link between the Manufacturer and the retailers. They buy in large quantities from the manufacturer, break the bulk and sell in smaller quantities to the retailers.
FUNCTIONS OF THE WHOLESALER TO THE MANUFACTURER
- Bulk buying: The wholesaler buys in large quantity (bulk) from the manufacturer because they have the capacity to do so.
- Warehousing: They help the manufacturers to store goods in their warehouses thus giving and creating space for more goods to be produces. Some of these storage facilities may be technical to sooth the type of goods concerned. Example is refrigerated storage of sea foods.
- Financing: Wholesaler have the capacity to pay promptly for goods purchased from the manufacturers. They are big firms and can attract financing from banks and finance houses for their business. This is a big relief to the manufacturer who now have steady funding to manufacture more products.
- Market information: They are closer to the market and able to get customer feedback from their numerous retailers about products. This information is very useful to the manufacturer as market intelligence report which should guide them in adjusting production quality and quantity, packaging, relaunching decision and so on. The information is also free.
- Marketing: Wholesalers does a lot of marketing and sales promotion in order to attract customers to their warehouses.
- Branding and Packaging: They also help the manufacturer with branding and packaging of products. Many manufacturers have this arrangement with their wholesalers to enable them concentrate on production.
- Distribution: Wholesalers help to distribute goods the retailers and other major consumers over a large area. This explains why manufacturer chose wholesalers on geographical basis.
- The wholesalers sometimes pay in advance to the manufacturers for goods yet to be collected. This amount to financing the manufacturers.
FUNCTIONS OF THE WHOLESALER TO THE RETAILERS
The wholesalers as a link between the manufacturers and retailer assist the retailers in the following ways;
- Bulk breaking: The wholesalers buy in bulk from the manufacturers and sell to the retailers in smaller quantities that they can afford. Retailers do not have enough capital to buy directly from the manufacturers and they will not break bulk for small orders, rather they usually refer retailers to the wholesaler in their location.
- Wholesalers usually stock their warehouses with goods from different manufacturers. This enables the retailer to buy varieties of goods from one warehouse. This is shopping convenience for the retailer.
- Credit facilities: The wholesaler allows the retailer to buy goods on credit and pay after selling. This is also financing the retailers.
- Advertising: The wholesalers advertise goods in their warehouses for the benefit of retailers who are the nearest to the public in the chain of distribution.
- Information update: They keep the retailers abreast of new products. They also educate them on the necessary details of the various products they stock.
- Price Stability: They stabilize prices by regulating the quantity available in the market. This is necessary to avoid excess supply that could drop prices and profitability.
Despite the numerous functions of the wholesalers, they also have drawbacks as follows:
- Parasites: Wholesalers are often seen as parasites. They produce nothing but feed on the manufacturers and the retailers.
- Price Increase: They increase prices in their desire to cover operating expenses and make profit. It is argued that the prices of goods and services would have been cheaper without the wholesalers. The question however is whether the manufacturers and retailers can do without their services.
- Hoarding: They hoard goods by regulating the supply of goods and services in their bid to stabilize prices. By this action, they deprive the consumers of enjoying the economics surplus supply forcing prices to drop. In the past, perishable goods were exempted from hoarding but with latest technology, cold stores are now available for storage of all kinds of goods.
- Artificial Scarcity: The consumers are made to pay more for goods and services because of unnecessary scarcity caused by the wholesaler while protecting their interest. This explains why regulatory authorities usually visit wholesaler warehouses to verify the reason of sudden scarcity. Most petrol filling stations have been sanctioned in Nigeria for this reason.
A warehouse is a place where goods are kept after production until it is needed by the owner or user. Modern warehouses are well equipped to store and preserve whatever it was designed to accommodate. Modern technology has impacted positively on warehousing to a large extent.
A typical wholesale warehouse has the following structure:
BUYING DEPARTMENT: This department consist of managers or buyers and each of them is responsible for the purchase a specified product for the warehouse. They are very knowledgeable about the market and can buy at low prices for the warehouse.
THE STORES DEPARTMENT: This is manned by storekeepers who are well trained in the rudiments of store keeping especially for the products in their charge. They receive goods from the buyers and store in designated places or racks. They also issue to requesting departments on receipt of requisition notes.
PUBLICITY: This department is vested with the responsibility of creating awareness of the products to the public. They engage in advertising and sales promotion using different media like Television, radio, pamphlets, posters etc. They also use social media and email marketing strategy to reach their target market or a large audience.
SALES: This department receive orders from customers directly or by mail. They are usually in direct contact with the retailers. They must have very good knowledge of products and be ready to deploy excellent customer service in order to create goodwill for the warehouse.
ACCOUNTS DEPARTMENT: It carries out all accounting functions in the warehouse. It is responsible for all receivables and payables. They also manage customer accounts in respect of credit. It is a support department to other departments.
ADMINISTRATION: This department is saddled with all administrative duties including the human resources management of the warehouse. It also ensures the smooth running of the warehouse and liaises with statutory organizations of government. It is the engine room of the warehouse.
A typical warehouse organization chart is like every standard chart showing these departments and operational units.
THE CHANNEL OF DISTRIBUTION
The movement of goods from the manufacturer or producers to the final consumer. Goods can be classified as:
- Consumer goods: These are goods that are used up or consumed by purchaser. Examples are food, creams, drugs and others. The channel of distribution of consumer goods looks like this:
Producer – Wholesaler – Retailer – Consumer
- Industrial goods: There are goods are in the form of equipment and machinery that are needed to produce other goods for the final consumer. The channel of distribution of Industrial goods is thus:
Manufacturer – Wholesale Outlet – Wholesaler – Business User.
FACTORS DETERMINING THE CHAIN OF DISTRIBUTION
A lot of factors determine the type of channel goods must go through:
- The nature of the goods: This is a major determinant. Industrial goods cannot be handled by retailers because of the capital required to finance it. In the same manner, consumer goods like cosmetics or food are sold by retailers to the final consumer.
- Competition: Goods with high competition would be channeled through the consumer channel more than the industrial channel.
- The Consumer demand: The ultimate consumer also determines the channel. Goods that are mass consumed would naturally go through the Consumer channel. The demand for industrial goods is rather restricted.
- Legal ethics involved: Some products require some legal procedure to transfer ownership. We don’t not need a lawyer to buy food items but would be required to buy a building, a vehicle or ship.
TYPES OF DISTRIBUTION
There are three types of distribution. These:
- Intensive or general distribution: This require passing goods to the ultimate consumer as quickly as possible. This method is deployed for consumer goods. Many retailers are usually involved in intensive distribution.
- Selective Distribution: Goods are sold to accredited buyers or a selected few. Example are pharmaceutical products and others that require certain knowledge or expertise to handle.
- Exclusive Distribution: Here only manufacturers distributors or agents are involved in distribution. The manufacturers closely monitor the distribution of their product. Sometimes, the manufacturer manufactures directly for the consumer by special order. Example of this is where heavy capital outlay is involved. The purchase of airplanes, Ship, bullet proof cars or those specially ordered with specific features come under this category.
When we studied the chain of distribution, we saw that the retailer are those buy from the wholesalers and sell to the consumers in affordable quantities. It is the last link in the chain of distribution and close touch with the consumers. They try to meet their needs in quantity and price.
This is the additional cost added to the price of a product by the retailer. In the course of business, the retailers incur some expenses and make provision for profit. These are added to the cost price to arrive at their selling price. The difference between the wholesalers’ price and the retailers’ selling price is referred to as retail cost. If the consumer is opportune to buy directly from the wholesaler, the price will be less (minus the retail cost).
FUNCTIONS OF RETAILERS
The retailers are very useful in the chain of distribution. Their functions include:
- Stocking of a variety of goods: The average retail shop is stocked with products from different manufacturers. The consumer can buy from a variety of goods on display from one shop. However, some retailers stock only one product but different brands. Example are cement sellers who may display Elephant, Bua, Dangote brands. Retailers offer a variety to the advantage of the consumers
- Sells in affordable quantity: The retailers sell in bits and pieces to enable the retailer to buy according to his/her purchasing power. With the retailers everybody is welcome buy small or large. This is also referred to as breaking the bulk. They in bulk, open it and sell in small quantities.
- Retailers offer credit facilities: Most retailers eventually become friendly with their regular customers. They often extend credit facilities to these customers on a regular basis. Therefore, a lot of people prefer to shop from a retailer because of the raining day.
- Transportation services: Some retailers run large and well stocked shops. This usually enable large purchases from some customers who would eventually need help to deliver to their destinations. Many urban retailers render this service at a small or no cost. This service is part of excellent customer service of the retailer.
- After sales service: Where goods are technical in nature and may require assistance to install, the retailer may offer to help. This is true of many complex electronic and mechanical products. Example is DSTV products. The retailers would tell you to buy from them and get free installation. It is also a marketing strategy by some retailers.
- Advertising: The retailer helps in the marketing of goods through window dressing, display of goods in markets, road sides or hawking. A lot of people get to know about some products from the retailer’s activities.
- Market information: As the last link in the chain of distribution, retailers get feedback from the consumers. The consumer reactions, positive or negative about any of its product is passed onto the wholesalers who in turn pass same to the manufacturers. This information become vital in product packaging decision to the manufacturer.
- Offer product advice: The retailers advise the consumer on the use of products purchased from them especially if this is important for effectiveness. Example is the pharmaceutical industry where the patent medicine seller must explain the dosage of drugs to their patients to ensure compliance.
There are two types of retail outlets: These are the small- and large-scale retail outlets. Examples of small retail outlets are:
- Hawkers and costermongers
- Unit or single stores
- Market stall holders
- The petty traders
- Vending points
Large scale retail outlets are:
- Mail order stores
- Hyper markets
- Mobile shops
- Discount or tied houses.
HAWKERS AND COSTERMONGERS
These are retailers with small capital, and they sell from one point to the other. These are the commonest especially in cities. Their goods can be food items, simple tools and electronics, clothing materials, motor accessories and so on.
Costermongers are advanced hawkers. They have graduated from carrying their wares on their heads to using trucks and wheel barrows. They have made some money from hawking but not enough to rent a shop. They will however graduate to become shop owners if they remain focused.
ADVANTAGES OF HAWKING
- Hawkers make products easily available to the public. You can buy products from them in traffic, at home or work. They are everywhere selling even water.
- They help to save time. Consumers can buy many things from them and save the time of going to the shop or market. Their services are convenient enough to their customers.
- Hawkers pay more attention to the customer than the conventional shops. They spend time with the consumer to convince them to buy.
- Hawkers helps to advertise goods for the benefit of other members of the chain of distribution.
- They increase turnover. Many shop owners hire boys and girls to hawk their goods for quick turnover which would not be attained while waiting for the consumer to visit the shop. In the rural areas where meat, fish, vegetables, pepper and tomatoes are hawked, it is a culture to hawk especially perishable goods where there are no storage facilities.
- They have limited capital. Many of them trade for daily subsistence. It takes extra hard work to advance as a hawker.
- Lack of managerial skill. Most hawkers are illiterate or semi illiterate. They therefore lack the necessary managerial training or skill to succeed.
- Unlimited Liability: Their business is not secured against liability as enjoyed by corporate organizations. The owners bear all the business risk. When the business goes down, they go with it.
- Limited opportunity: The advantage of employees reaching the heights of their career is not available in hawking. The business can also be seasonal. The employees can be hired today and fired tomorrow.
- As a sole trader, the hawker takes decisions alone. He consults nobody neither is there any form of criticism about his mode of operation. He has no supervisor and his decision is final. There is no assurance of continuity.
OTHER TYPES OF RETAIL OUTLETS
SUPERMARKETS: A supermarket is a mini market where people can access many goods. Their products range from food items (including refrigerated food), cosmetics, beverages, electronics, shoes and slippers, books and cards, musical instruments, drinks and so on. It is also a serve service center and mostly located in urban and commercial areas where their customers are located. Their goods are neatly arranged in shelves according to brand and with their prices conspicuously displayed to aid shopping experience. Supermarkets are convenient one stop shopping centers.
HYPERMARKETS: These are large retail outlets situated at the outskirt of town. The reasons advocated for their location include the need to decongest the city centers so that car owners who may not be able to secure comfortable packing spaces could be accommodated. The cost of operation is less compared to shopping locations in town centers. They however sell at relatively higher prices due to comfort offered and the limited patronage they receive. Recently however, some hypermarket has been able to secure locations at or near busy business districts and enjoy huge customer patronage.
DISCOUNT HOUSES: These are also known as tied shops. They are retail outlets operated directly by manufacturers and they sell only their products to whosoever patronize them. They are often referred to as direct distribution centers in manufacturers’ attempt to sell to the public. These outlets sell at very low prices and at discounts. Where distributors are not available in some locations, this may be adopted to serve consumers. It is often argued that they are outlets to dispose of goods nearing expiration by the manufacturers to avoid waste and losses. They are highly patronized and sometimes run out of stock.
MOBILE SHOP: These are also known as moving shops. They use buses or trucks fitted as shops for the purpose of outdoor sales. Some of them are sponsored by manufacturers and service providers. It is not uncommon to see products like beverages, Telephone sims, food items such as noodles been sold in this manner. Some of them employ music and dance competitions to attract customers. Mobile shops have succeeded in bringing their products to the public at relatively low prices and discounts.
VENDING MACHINES: These are labor saving devices used widely in selling minor things that should have been sold by an attendant. Products vended could be newspapers and magazines, chocolates and sweets. Owners of vending machines simply load it in the morning and proceed to do other things. Customers can purchase what they need by slotting the required amount in the hole as instructed and their product is released. The financial sector has adopted this method in banking. There are ATMs where you can now deposit and withdraw money without any banker’s assistance.
DOCUMENTS USED IN HOME TRADE
These are the documents used in home trade by members of the chain of distribution (from the wholesaler to the consumer). Let us examine these below.
LETTER OF INQUIRY: As the name implies, it is a letter seeking information about products . It could be from the consumer to a retailer or wholesaler and sometimes to the manufacturer. The retailer could also make inquiries to the wholesaler or the manufacturer. Anyone interested in a certain product or service could write a letter of inquiry.
CATALOG AND PRICE LIST: In response to a letter of inquiry, the wholesaler or manufacturer would send a catalog with or without a price list. It is a pictorial presentation of goods sometimes in beautiful colors and a description of the products, functions, operations, model, how to order, delivery and warranttee if any. This could be for a single product or many products from the same manufacturer (if it from a manufacturer) or products of similar functions (from a wholesaler). This is similar to a brochure issued from service organisations. A prospective purchaser is able to decide whether to buy the product or not by carefully going through the catalog. It represent a company and its products to the public.
PURCHASE ORDER: A decided buyer would usually request for the products through a purchase order. it is an intention to buy a given product. It means that the buyer is satisfied with the quality, quantity, presentation, packaging, mode of delivery, payment terms and price. Once a purchase order detailing the items to buy is sent to the seller, delivery is expected according to the terms and conditions of the offer.
ADVICE NOTE: This is a note sent to the buyer by the seller to inform him of the delivery date and place of delivery. It may be delivered straight to the premises of the buyer, the nearest railway station, a motor pack, an airport, courier service and so on. This will prepare the buyer to expect and receive the goods ordered.
DELIVERY NOTE: A delivery note is usually sent with the goods to enable the buyer to ascertain the correctness or otherwise of products ordered with what is received. Where there is a difference, it would be carefully noted on the delivery note to ensure that the invoice would be correct. The receiver and dispatch or deliverer must sign and date the delivery note. It does not contain the prices.
PROFORMA INVOICE: Sometimes, a buyer may want to do a market survey on some products by visiting the sellers to ascertain the prices. Instead of obtaining an invoice, he gets a proforma invoice. From this we can say that it is an invoice stating the price at which a product is to be sold. It could be converted to a formal invoice if the buyer pays on it without requesting for a proper invoice.
AN INVOICE: This is the list of goods purchased and the prices sent by a seller to the buyer to enable him to effect payment. It has to correspond with the delivery note in terms of quantity.
CREDIT NOTE: It is sent when there is an over-payment due to many factors. This happens when payment is made before delivery, The reasons for a credit note could be a short supply, damaged goods in transit, returned container or where goods are not fit for the purpose for which it was ordered. This means that the seller is owing the buyer the amount on the credit note. It simply means ‘you owe me’.
DEBIT NOTE: This is the opposite of the credit note. A debit note indicates that the buyer is owing the seller. The seller is usually the sender indicating that the buyer is a debtor or indebted to the seller.
RECEIPT: Once an invoice is paid, a receipt is issued. It is the evidence of payment in every transaction. It is issued by the seller to the buyer indicating that payment has been received for the goods or services purchased. Where there is no difference between the amount on the receipt and the invoice, the transaction is said to have closed or settled. Differences usually result in debit and credit notes.
STATEMENT OF ACCOUNT: A statement of account is the summary of transactions between two parties over a given period of time. This time, it would be between a buyer and a seller. It would show who is owing the other or a clean statement indicating no indebtedness between them. It also shows the volume of trade between the parties involved.
E & O EXEMPTED: This may sometimes be written on an invoice. It is a way of been cautious by implying that there is a possibility of error or omission in an invoice. This means that a debit or credit note may emanate from the transaction.