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Lesson Note

Subject: Economics
Topic: Distributive Trade
Lesson Objectives: At the end of the lesson, learners should be able to;
i. Explain the chain of distribution
ii. Explain the process of distribution
iii. Define a wholesaler, retailer and middlemen
iv. List out the functions of Wholesalers to manufacturers and retailers
v. State the characteristics of the retailer
vi. List and explain the functions of a retailer
vii. Distinguish the different types of retail trade
viii. State the differences between wholesaler and retailer in a distribution
ix. State the advantages and disadvantages of middlemen
x. Give reasons or circumstances that would warrant by-passing of the middlemen
xi. State the various roles of government and co-operative societies in a distributive trade
xii. List and explain the problems associated with distribution of commodities in West Africa
xiii. State the various economic activities that can improve effective distribution and marketing of commodities in West Africa

Lesson Summary

Distributive trade is also known as chain of distribution. It refers to the various stages or channels through which finished goods are moved from the manufacturers or producers to the final consumers. The channel of distribution is the path through which goods move from the producer or manufacturer to the final consumers. The channel is a path through which the ownership of products is transferred as it moves from the producer to the final consumers.
The chain of distribution can be illustrated below:

Chain/Channel Of Distribution: itsmyschoollibrary.com

Process of distribution

The process of distribution of goods involves all human and physical means which aid the smooth transfer of such goods from the manufacturer to the final consumers.
The process of distribution involves the following;
i. Middlemen: The middlemen or agents are the human elements involved in the distribution of goods from the manufacturers to the final consumers. The middlemen are the wholesalers and retailers.
ii. Transportation: This is the medium through which the finished goods are moved by air, land or by water from the manufacturers to the final consumers. The means or medium of transportation are by aeroplane’s, ship, cars, worries, train, etc.
iii. Advertisement: Advertising is the process of creating awareness in the minds of the public about the existence of a product. Advertising may be used to stimulate demand so as to increase sales. Goods can be advertised by radio, television, newspaper, magazines, etc.
iv. Warehousing: Warehousing is a process which ensures that goods produced are stored until they are needed. Warehousing is an important aspect of trade aimed at seeing that there is a regular and steady supply of goods to consumers.

The Wholesaler

A Wholesaler is a merchant who purchases goods in large quantities from the manufacturer and sells in small quantities to the retailers. The Wholesaler is the middleman essential to the distribution of goods.

Functions Of The Wholesaler To The Manufacturer

i. Bulk breaking: The wholesaler purchase goods in bulk or large quantity from the manufacturer and sells in small quantities to the retailers.
ii. Financing: They finance production by ensuring prompt payment to the manufacturer and this will facilitate production process.
iii. Information dissemination: They provide the necessary information to the manufacturer regarding the retailers’ and consumers’ views about the products. The views may concern changes in taste, fashion and defects.
iv. Warehousing: The Wholesaler provides warehousing facilities to get rid of stockpiling at the production point. Goods are stored here until they are bought, hence it spurs the manufacturers to keep on producing.
v. Advertising: The wholesaler helps in carrying out product advertising and sales promotions and by so doing creates awareness for the products.
vi. Price stability: They help to prevent price fluctuation by stocking the goods until they are demanded.
vii. Credit Facilities: The wholesaler can give credit facilities to the manufacturer, sometimes by paying upfront for the products.

Functions The Wholesaler To The Retailers

i. Provision of variety of goods: The wholesaler enables the retailers to stock variety of goods, which they purchase from different manufacturers.
ii. To advise the retailer: The wholesaler can advise the retailer as a result of the expert knowledge of the wholesaler about the goods. The wholesaler can inform the retailer about new developments in the market.
iii. Transportation services: The wholesaler can help to transport or convey goods to the retailers’ shop.
iv. Grading and packaging of goods: The wholesaler puts finishing touches to production by grading, branding or repackaging of products before selling to the retailers.
v. Price stability: The manufacturer carries out this duty for the retailer by storing the goods in his warehouse and releases them according to the demand of the retailer.
vi. Risk bearing: The wholesaler bears the risk of fall in prices on behalf of the retailer by buying and storing of products in large quantity.
vii. Links the retailer and the producer: The wholesaler provides a link between the producer and the retailers as information concerning the products flow from the producer through the wholesaler to the retailer.

The Retailer

A retailer may be defined as a trader who buys goods in small quantities from the wholesaler and sells in bits or units to the final consumers. In other words, a retailer is merchant whose main business is to purchase goods from the wholesalers in small quantities and sell in smaller units directly to the final consumers. A retailer is distinguished by the nature of its sales, which is in units. He is one of the middlemen essential in the chain of distribution of goods.

Characteristics of the Retailer

i. Retailers sell in small quantities
ii. They sell directly to the final consumers
iii. The business location of retailers is open to the general consumers.
iv. Retailers stock and sell a wide variety of products.
v. Their wares consist of fast selling products, i.e consumer goods.
vi. They are the final link in the chain of distribution of goods.

Types of Retail Trade

i. Hawking: Hawking is a form of retail trade in which the traders move their goods from one place to another on their heads, bicycles or vehicles, etc. They move from one settlement to another, selling various articles to the consumers.
ii. Mobile shop retailing: Mobile shops are those in which goods are arranged in a motor van and are moved from one place to another to reach the final consumers. A wide variety of goods are sold through mobile shops. As they move from one place to another, different advertising techniques are used to create awareness for their wares.
iii. Street or roadside retailing: Street or roadside traders who display their wares or products along the streets, roads, or outside the gates of schools, companies, offices in town, e.g clothes, shoes, breads, snacks, books, etc along major roads. Passers-by are their major customers.
iv. Market or stall holder retailing: Market or stall holding is another method of retail trade in Africa. These are markets where buyers and sellers are brought together to transfer ownership of goods. The market trader opens at a specific time of the day. They construct sheds or stalls in a particular location to transact business.
v. Small store retailing: Stores are retail outlets which operate in rural or urban centres.
They are located in rented places or residences of traders which are easily accessible to customers. They stock for sale a wide range of goods to meet customers’ needs.
vi. Department stores: The department store is a collection of shops under one roof with ownership of each shop or department specialising in selling a special range of goods. Each department normally buys separately, exercises its own stock control and sets its own product policy. It is also a large retailing unit handling a wide variety of shopping and speciality goods but organised into separate departments for the purpose of promotion, service and control, e.g Kingsway and Leventis stores.
vii. Supermarket: A supermarket is a large retailing business unit selling mainly food and household items on the basis of high turnover, wide variety and assortment, self services with much emphasis on merchandise appeal.
viii. Mail order: Mail order is a form of large retailing in which buying and selling is carried out by post. They contact prospective customers by mail, receive their orders by mail and make their deliveries by mail. It involves the use of specially prepared catalogue that presents the retailer’s products both visually and in writing. Payment is either cash with order, cash on delivery or by instalments.

Functions Of A Retailer

i. He sells in small quantities to consumers: The retailer purchases in small quantities from the wholesaler and breaks the goods down into units for the customers.
ii. He provides after-sales services: He provides after-sales services like installation, repairs, servicing, etc to the consumer.
iii. He grants credit facilities to the consumers: The retailer can grant credit facilities to the consumers so as to enable them enjoy goods without payment immediately.
iv. Stock variety of goods: The consumers can buy varieties of goods from the retailers, hence they are exposed to a wide range of goods.
v. He supplies information to the wholesaler and manufacturer: The retailer is in the best position to collect information and feedback about the market, as well as the needs of the consumers and makes it available to the wholesaler and manufacturer.
vi. Ensures door-to-door services: The retailer ensures that goods are brought to the doorstep of the consumers or nearer to their houses.
vii. He sells at convenient locations and hours: The retailer sells goods to the consumers at any time of the day and at convenient places.
viii. He gives advice to the consumers: He can advise the consumer on the quality, uses, specifications and performance of products.

Differences In Function Between The Wholesaler And Retailer In The Distribution Of Commodities

i. The wholesaler buys in large quantities from the manufacturer and sells in small quantities to the retailer while the retailer buys in smaller quantities from the wholesaler and sells in bits to final consumers.
ii. The wholesaler requires a large space (warehouse) to store goods while the retailer requires a small space (shop) to display wares.
iii. The wholesaler stocks limited varieties of goods in his warehouse while the retailer stocks several varieties of goods in his shop making it possible for consumers to make choices.
iv. The wholesaler acts as an intermediary between the two of retailer and the manufacturer while the retailer acts as an intermediary between the wholesaler and the final consumers.
v. The wholesaler interacts freely with the manufacturer while the retailer interacts freely with the final consumers.
vi. The wholesaler may travel long distance to buy goods from the manufacturer while the retailer mostly buys goods from the wholesaler within his vicinity.
vii. The wholesaler grades, blends and repacks the goods while the retailer do not grade, blend and repack his goods.

The Middlemen

The Middlemen are the wholesalers and retailers who specialise in performing activities relating to the purchase and sale of goods in the process of their flow from manufacturer to final consumers or buyers. They are situated in the marketing channel at points between the manufacturer and final consumers.

Advantages or Survival of Middlemen

The Middlemen have continued to wax stronger in spirit of all the strong arguments for their elimination. The Middlemen continue to survive because the functions they perform to both the producers and ultimately to consumers cannot be performed by either the manufacturer or the consumers.
Having gone through the functions of the wholesaler and the retailer, it becomes clear that they would continue to flourish.

Disadvantages Or Elimination Of Middlemen

A school of thought supports the total elimination of the Middlemen, i.e wholesaler and retailer, because of the following disadvantages associated with them.
i. Longer channel of distribution: The wholesalers and retailers make the channel of distribution of goods longer.
ii. Creation of artificial scarcity: The wholesaler and retailers normally create artificial scarcity of products through hoarding.
iii. Increase in prices: The middelemen also cause unnecessary price increase to the dismay of the final consumer.
iv. Misinformation: The middlemen sometimes misinform the consumers.
v. Fluctuation of prices: The middlemen can also cause price fluctuation, especially when too many of them are involved in distribution of products.
vi. Disguised unemployment: The present of wholesalers could encourage large scale disguised unemployment.

Reasons Or Circumstances That May Warrant The By-passing Of The Middlemen

Some manufacturers by-pass the wholesalers and even the retailers and sell their goods directly to the consumers. This is done for the following reasons;
i. Increase in profits: Manufacturers can increase their profits if they are able to sell their products directly to the consumers.
ii. Ownership of warehouse: Some large retailers have large warehouses and this can make the manufacturer to by-pass the wholesaler.
iii. Cheap products: Customers are able to buy products at cheaper prices when the activities of both wholesaler and retailers are cut off.
iv. Development of mail order system: There may be no need of Middlemen in mail order system, since most of the transactions are done by mail.
v. Presence of technical goods: The manufacturer can sell directly to the consumers if the goods produced are highly technical and required special specification, e.g computer.
vi. Perishable products: Middlemen can also be eliminated when perishable goods e.g tomatoes, are involved because the goods can easily get spoilt.
vii. Branded products: Middlemen can also be by-passed when the products are branded for easy identification by the manufacturers.
viii. Involvement of expensive goods: Manufacturers also prefer to sell expensive goods directly to the consumers because they normally have low volume of sales.

The Role Of Co-operatives In Distributive Trade

A co-operative society is defined as a voluntary business organisation in which a group of individuals with common interest pool their resources together to promote the economic and welfare of their members in production, distribution and consumption of goods and services.
The producers and the consumers’ co-operative societies do engage in the distribution of products either directly from the manufacturer or wholesalers and sell to their members (consumers) at reduced prices. The role of co-operative societies include;
i. Sell in small quantity to members: The co-operative societies buy in reasonable quantity from wholesaler and sell in bits to the members.
ii. Bring products closer to consumers: They also ensure that products are brought to the door step of the consumers.
iii. Stock variety of goods: The consumers co-operative societies buy variety of goods from the manufacturer or wholesaler hence they are exposed to a wide range of goods.
iv. Fight hoarding: They fight against hoarding by wholesalers and retailers by ensuring that they stock lots of the products for use by consumers.
v. Stabilise prices: They also help in stabilising the prices of goods by selling them at affordable prices to members.
vi. Elimination of Middlemen: They can eliminate the activities of middlemen by buying their goods directly from manufacturers and selling them directly to the consumers.

The Role Of Government In Distributive Trade

The government – whether at the federal, state or local level has a major role to play in the distribution of goods or commodities. Government is able to participate in the distribution of commodities through the establishment of distributive agencies. Examples of such agencies include:
a. The Nigeria National Supply Company Limited (N.N.S.C). This agency was set up in 1972 to supplement private efforts in product distributions. It is now moribund.
b. Marketing board: Several marketing boards for various products were set-up to enhance the marketing of products in the country.
c. The River Basin Authorities were also set up to encourage large production and distribution of agricultural produce.

The role of government in the distribution of commodities include;
i. Provision of transport system: This helps to move products from where they are produced to where they are needed either by rail, road, air, water, etc.
ii. Provision of storage facilities: Government also provides storage facilities to store certain products when they are in excess.
iii. Control of prices: Government agencies purchase goods in large quantities and sell them to the consumers directly at controlled prices.
iv. Prevention of artificial scarcity: When the agencies discover that some middlemen are hoarding some commodities, they release the products from strategic reserves thereby preventing artificial scarcity.
v. Importation of essential Commodities: When government agencies discover that certain commodities are scarce and their prices are going up, they can import such commodities in order to prevent scarcity and increase in their prices.
vi. Price Stabilisation: The agencies through the distributive activities are able to stabilise prices in order to check inflation.

Problems Of Distribution Of Commodities In West Africa

Middlemen (wholesalers and retailers) do encounter lots of problems in the course of the distribution of commodities in West Africa. These problems are;
i. Inadequate infrastructural facilities: Facilities like telephone, electricity, etc which can help to facilitate processing and marketing of goods are not adequate.
ii. Inadequate storage: This especially affects perishable products which come seasonally. During harvest, there is excess supply of these products; but there is scarcity as soon as the excess is over.
iii. Hoarding and speculation: The traders can create artificial scarcity for some commodities especially during festive periods such as Christmas and Ramadan. Artificial scarcity can also occur as a result of change in government policies. This disrupts the distributive process and increases price unnecessarily.
iv. Packaging problems: The packaging of goods is not standardised. This may result in damage or loss in transit.
v. Inadequate transport system: The poor transport system also affects commodity distribution and marketing in the country. The roads are so bad that commodities sustain great damage due to accidents.
vi. Insecurity on our roads: Distribution is affected as a result of the activities of armed bandits on the roads.
vii. Inadequate information: The producers, sellers and buyers do not get adequate information regarding the prevailing market conditions.

Economic Activities That Can Improve Effective Distribution And Marketing Of Commodities In West Africa

i. Establishment of more market places: The establishment of more market places in rural areas will make commodities easily available for purchase.
ii. Encouragement of co-operative societies: The formation of co-operative societies should be encouraged as they help to buy commodities in bulk and sell to consumers at cheaper prices.
iii. Establishment of a national supply company: The establishment of a national supply company like the N.N.S.C will go a long way to stabilising prices and make goods readily available.
iv. Construction of roads: This will help to move harvested products from the rural areas to urban centres.
v. Provision of storage facilities: Provision of adequate storage facilities is necessary to prevent wasteful and ensure that goods produced are not taken to the market at once.
vi. Establishment of marketing boards: Marketing boards should be established to handle the distribution of certain agricultural products.

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Take a quick test for this lesson

i. What is distributive trade
ii. Explain the process of distribution of commodities.
iii. Who is a wholesaler? List and explain five functions of wholesalers to manufacturers
iv. Give five features of retailer
v. List anf explain the types of retail trade
vi. State five differences between wholesalers and retailers
vii. List and explain five reasons that may lead to by-passing of Middlemen
viii. State five roles of Co-operative society in distributive trade
ix. List and explain five roles of government in distributive trade
x. Discuss five problems of distribution of commodities in West Africa.
xi. State five economic activities that can improve distribution and marketing of commodities in West Africa.

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