Short Answer Questions
1. What is meant by internal trade?
Answer: Internal trade refers to the process of exchanging goods and services within the national boundaries of a country. In other words, the buying and selling of goods and services within the domestic territory of a country is known as internal trade. Purchases of goods from a local shop, a mall or an exhibition are all examples of internal trade. The government does not levy customs or import duties on goods and services that are produced within the country for meeting the domestic demand.
Internal trade can be classified into the following two categories:
(a) Wholesale trade: It refers to the buying and selling of goods in bulk−that is, the exchange of large quantities of goods meant for resale in local markets.
(b) Retail trade: It refers to the buying and selling of goods in small quantities for final consumption.
2. Specify the characteristics of fixed shop retailers.
Answer As the name suggests, fixed-shop retailers are retailers who have permanent establishments. That is, they sell goods and services from fixed shops and do not move from place to place to serve customers—for example, retailers functioning from fixed establishments in the local grocery market.
The following are some of the characteristics of fixed-shop retailers:
(a) Fixed-shop retailers operate on a large scale and have huge resources at their disposal compared with itinerant traders. However, among fixed-shop retailers, there are retailers who operate on a small scale or a large scale.
(b) They generally deal in more than one product—that is, their range of goods varies from consumer durable goods to non-durable goods.
(c) Fixed-shop retailers provide services such as free home delivery and supply of goods on credit to their customers.
3. What purpose is served by wholesalers providing warehousing facilities?Answer Wholesalers purchase goods in bulk from manufacturers, store them and distribute them to retailers in small quantities for further resale. This bulk purchase of goods enables manufacturers to undertake production on a large scale without worrying about storage facilities. By offering warehouses close to the centres of distribution, wholesalers provide what is known as ‘place utility’. Wholesalers not only provide warehousing facilities such as collection, storage and protection of goods but also facilitate marketing and distribution, creating ‘time utility’.
4. How does market information provided by the wholesalers benefit the manufacturers?
Answer Wholesalers provide a variety of information to both manufacturers and customers. To manufacturers, they provide information about the tastes and preferences of customers, conditions prevailing in the market, level of competition in the market and types of goods and features demanded by consumers. This information helps manufacturers to cater to the changing needs of consumers.
5. How does the wholesaler help the manufacturer in availing the economies of scale?
Answer Wholesalers often purchase goods in bulk quantities from manufacturers. Once a purchase is made, the wholesalers distribute the goods in small quantities to retailers for further resale. However, during this process, they provide manufacturers with a variety of warehousing facilities such as collection, storage, marketing and distribution of goods. These services reduce the burden on manufacturers by creating time and place utility, thus enabling them to produce goods on a large scale and benefit from the economies of scale.
6. Distinguish between single line stores and speciality stores. Can you identify such stores in your locality?
Answer Single-line stores are small shops that deal in only one product—for example, garments or shoes. However, single-line stores offer a wide variety of the product. For instance, a single-line store that deals in garments will have a wide variety of clothes in all sizes for men, women and children.
On the other hand, speciality stores deal only in a particular type of product from a selected product line—for example, men’s clothing. Such stores generally sell all the brands of the product in which they specialise. For instance, if a store specializes in men’s clothing, then it will have all the brands of men’s garments.
On the basis of these features, we can identify the different types of stores in a locality—whether they are single-line stores or speciality stores.
On the basis of these features, we can identify the different types of stores in a locality whether they are single-line stores or speciality stores.
7. How would you differentiate between street traders and street shops?
8. Explain the services offered by wholesalers to manufacturers.
Answer Wholesalers offer a wide variety of services to manufacturers. The following are examples of such services:
(a) They facilitate large-scale production: Wholesalers purchase goods in bulk from manufacturers and sell them to retailers in small quantities for further resale. This bulk purchase made by wholesalers enables manufacturers to undertake production on a large scale without worrying about storage facilities. Thus, wholesalers facilitate large-scale production.
(b) They provide storage facilities: When wholesalers purchase goods in bulk quantities from manufacturers, they store these goods in their godowns or warehouses, reducing manufacturers’ burden of finding proper storage .
(c) They collect market information: Wholesalers provide different kinds of information to manufacturers, such as information about the tastes and preferences of customers, prevailing market conditions, level of competition in the market and type of goods demanded by consumers. This in turn helps manufacturers to produce goods according to the market needs.
9. What are the services offered by retailers to wholesalers and consumers?
Answer Retailers offer a variety of services to wholesalers and customers. Some of these services are listed below.
(a) They provide information to customers: Retailers provide information to customers about the new products available in the market, their features, prices, etc. This information helps customers decide which product to buy.
(b) They provide information to wholesalers: Retailers provide information to wholesalers, such as the tastes and preferences of customers, prevailing market conditions and level of competition in the market. Wholesalers pass on this information to manufacturers.
(c) They store a wide variety of goods: Retailers generally store a wide variety of goods based on consumer tastes and preferences and thus allow customers to choose from the available range of products.
(d) They facilitate distribution of goods: Retailers facilitate the distribution of goods to consumers for final consumption.
(e) They help in promotion of goods: Since retailers are in direct touch with customers, they can promote the sale of goods through personally interaction. Thus, retailers help wholesalers and manufactures in promoting the sale of goods.
Long Answer Questions
1. Itinerant traders have been an integral part of internal trade in India. Analyse the reasons for their survival in spite of competition from large scale retailers.
Answer Itinerant traders are retailers who do not have a fixed place of operation. That is, they do not have a shop from where they sell their products. They are also known as mobile traders as they keep moving from place to place in order to sell their products. They are generally found on street sides, and they shift their place of operation in search of more customers. They usually sell low-priced and non-standard goods.The reasons that itinerant traders survive in spite of the tough competition from large-scale retailers can be attributed to the following factors:
(a) Low price of goods: Itinerant traders generally deal in low-priced goods that are of daily use to customers, such as toiletries, vegetables, fruits, etc. These traders do not have to spend on storage and advertising, and they keep their inventories short and limited. Hence, the prices of their goods are lower than the prices of goods sold by large-scale retailers.
(b) Personal attention to customers: Itinerant traders deal directly with consumers and are, therefore, able to give more attention to them. As they supply goods to customers at their doorstep, they provide greater customer-care services by eliciting proper feedback and passing on the information to manufacturers.
(c) Easy availability at short notice: Itinerant traders move from place to place and provide goods at the customer’s doorstep. On the other hand, large-scale retailers have shops in central locations away from residential areas, and it is often difficult for customers to buy goods at the time they require them. Therefore, they depend on itinerant traders.
(d) Lower possibility of losses: Large-scale retailing involves a higher probability of incurring losses, because the retailers concerned deal in high-priced goods. Thus, in case the tastes and preferences of customers change, large-scale retailers are forced to sell the goods that have fallen out of favour. These goods are often sold at low prices in clearance sales, causing huge losses to the retailers. On the other hand, as itinerant traders deal in consumer goods that are low priced and of daily use, the probability of their incurring losses is minimised.
2. Discuss the features of a departmental store. How are they different from multiple shops or chain stores.
Answer Department stores are basically large, fixed establishments that deal in a wide variety of products. The following points highlight the features of a department store:
(a) Central locations: Department stores are generally located in central areas so as to attract a large number of customers.
(b) Defined hierarchy: The management in department stores follows the same hierarchy that is generally followed in any joint stock company. That is, the top management consists of a board of directors, with the managing director, the general manager and the department managers under it in that order.
(c) Absence of middlemen: Department stores purchase goods directly from manufacturers and sell them to customers. Thus, they eliminate the role of middlemen.
(d) Centralised purchase with decentralised sales: In a department store, the purchases from manufacturers are handled by a single division that follows a centralised purchase policy. On the other hand, the sales are handled by the respective sections of the department store, which follow a decentralised policy for sales.
Differences between department stores and multiple shops
3. Why are consumers cooperatives stores considered to be less expensive? What are its relative advantages over other large scale retailers?
Answer Consumer cooperative stores are formed by groups of consumers to provide goods at reasonable prices to members of consumer societies. In such societies, the role of middlemen is eliminated as these societies purchase goods from manufacturers or wholesalers directly and sell them to society members at reasonable rates. As consumer cooperative stores do not aim at profit making, the prices of goods offered by them are much lower than the prices of goods at retail shops. Compared with large-scale retailers, the capital requirement for starting a consumer cooperative society is very low. Thus, consumer cooperative stores do not require much investment, and the goods sold by them are priced lower.
The following are some advantages that consumer cooperative stores have over large-scale retailers:
(a) Democratic management: Consumer cooperative stores are democratic organisations as they are managed and controlled by elected managing committees of consumer societies. The members of managing committees are elected by the members of consumer societies on the principle of ‘one member, one vote’.
(b) Limited liability: The liability of the members of consumer cooperative societies is limited to the amount of shares held by them. Thus, in case a society’s liabilities increase beyond the assets, the members will not be liable to repay the debts using their personal assets.
(c) Low price of goods: As the goods offered by consumer cooperatives are directly purchased from manufacturers and wholesalers, the role of middlemen is eliminated. Therefore, consumer societies are able to sell goods at lower prices.
4. Imagine life without your local market. What difficulties would a consumer face if there is no retail shop?
Answer Retail shops are the final stage of distribution through which retailers directly sell goods to the final consumers. Retail shops act as a link between manufacturers/wholesalers and consumers as they buy goods from manufacturers/wholesalers and sell them directly to consumers. They play an essential role because of the following features.
(a) Product information: Retailers provide customers information about new products, their features, prices, etc. This information helps the customers in deciding which product to buy, thus facilitating their product choice.
(b) Wide range of goods : Retail shops generally offer customers a wide variety of goods such as stationery goods, dairy products and food items.
(c) Convenient locations: Retail shops are generally established close to residential localities. They remain open for long hours, providing convenience to customers.
(d) Credit facilities: Retailers at times offer goods on credit to their regular customers. This helps customers to maintain their level of consumption even when they are facing financial difficulties.
(e) Regular availability of products: Retail shops ensure regular and timely availability of goods produced by different manufactures. Thus, they make it possible for customers to purchase the goods they require as and when the need arises.
(f) After-sales services: Many customers look for after-sales services, such as repair of equipment, and many retail shops provide these services to its customers or arrange for them.
5. Explain the usefulness of mail order houses. What types of products are generally handled by them? Specify?
Answer Mail-order houses are trading units that use the mail for merchandising their products. These houses inform the customers about the features and prices of products, terms of payment, etc., by placing advertisements in newspapers and magazines or by mailing circulars or price lists to customers.
The following are some of the features of mail-order houses:
(a) Wide geographical reach: As goods are sent via mail, the sellers are able to pass on information about their merchandise to customers spread all over the country.
(b) Customer convenience: Mail-order houses deliver goods at the doorstep of the customers, providing their customers convenience in terms of time and effort in making purchases.
(c) Reduced costs due to elimination of middlemen: Mail-order houses eliminate the role of middlemen as they deal with consumers directly. This results in a substantial reduction in cost to consumers.
(d) Limited capital requirement: The amount of capital required to start mail-order houses is usually low. This is because they do not require large buildings to stock or showcase their goods. Thus, their overall capital requirement is limited to the extent of their mailing operations.
Mail-order houses generally deal in goods that are non-perishable and easily transferable. They do not trade in perishable goods, bulky goods and goods that cannot be easily handled. This is because they deliver products through postal services. Mail-order houses prefer to trade in the following types of goods.
(a) Goods that are easily gradable and standardised.
(b) Those involving low transportation cost.
(c) Those having a high demand in the market.
(d) Those that are readily available in bulk quantities throughout the year.
(e) Those that involve the least competition in the market.
(f) Those that are simple to describe.