TRADE
Trade is the buying and selling
of goods and services for the aim of making profit. It involves distribution of
commodities for price. The movement of goods from the place of production to
the final consumers is possible through trade.
A trader is a person who performs
buying and selling
-
A trader act as intermediary between producers
and consumers and seek to derive profit from the process.
-
Trade as an exchange of goods and services can
be carried out between trader of the same country (home trade) or traders of
the different countries (foreign trade.)
-
Goods produced by the producers winds up the
production until when they had rich the final consumers
-
These goods to arrive at the end of the
production process they have to be distributed so as to satisfy unlimited human
wants. In this case it needs a channel of distribution of goods and services.
DIVISION OF TRADE
There are two main division of
trade which are Home (domestic) trade, and Foreign(international)Trade.
HOME TRADE.
This is the buying and selling of goods or service within the National
boundaries, consisting of wholesale and retail trade.
INTERNATIONAL TRADE.
This is the buying from and
selling to overseas markets. It is therefore made up of import, export and import
trade
CHANNEL OF DISTRIBUTION.
CHANNEL refers to the path
linking to producer or manufacturer of a product with the consumers or users of
the product. The path consists of a set
of business entities like retailors, whole sealers, industries, etc. The term “Channel of distribution” may be defined as routes taken by the tittle
to the product on its journey from the producers to the consumers. Normally channel of distribution follows :-
1. Wholesaler
buys goods from manufacturers
2. Retailers
buys goods from wholesalers
3. Consumer
s buys goods from retailers
In some cases, the manufacturer
establishes their own retail shop and the consumers can buy goods from these
shops. Similarly large retailers can also buy goods direct from manufacturers.
The chain or channel of distribution is concerned with different types of
trade. The following diagram explains
the chain of distribution
CLASSIFICATION
Channel may be classified
according to the members of stages in ownership as
1.
A one stage channel (M C)
This is a channel
through which the manufacturer of goods supplies the consumers direct
2.
A two stage channel ( M R C )
It constitute where
the manufacture supplies the retailer directly
3.
A three stage channel ( M W R C)
It constitutes when
the manufacturer supplies the wholesaler who supplies the retailer and retailer
supply to the consumers.
4.
A four stage channel (M A OR
W1 W2 R C)
It consistute when manufacturer supplies to his agent
who then supplies to the wholesaler who supplies the retailer and supplies the
consumer.
The
channel of this type may be illustrated by the diagram which
follows.
ACTIVITIES
PERFOMED IN CHANELS
a.
TRANSIT
Goods must be divided and moved physically from the
point of origin to the point of destination
b.
SEARCH:
Buyers and sellers must be made aware of the goods and
must brought into market relationship with one another.
c.
MAINTAINANCE OF INVENTORIES
The carrying of inventories in appropriate quantities
is essential if distribution is to be swift and economical
d.
PERSUATION
Advertising campaigns and personal selling are
required if goods are to be marketed so as to satisfy demand.
ACTIVITIES PERFOMED BY CHANNEL
MEMBERS
I.
CONTACTUAL
Buyers and
sellers contact each other to facilitate the flow of goods.
II. MACHANDIZING:
Channel members
order and receive goods with which are demanded by the final consumers.
III. PROPERGANDA
Channel members
have to persuade and influence customers to buy the products
IV. PRICING
Channel members
set prices that cover and ensure margin of profit.
V. PHYSICAL
DISTRIBUTION
It involves the
arrangement of transport warehousing for the goods.
FUNCTION OF CHANNEL
I.
Routinisation of decision:
The well-established channels create the possibility
of routine of decision and resulting transaction in lower cost
II.
Involvement in the pricing process such as to recommend
retail price and operating margins.
III.
To provide general market intelligence
- A
continuous flow of information along channel of distribution enables significant
changes in fashion.
IV.
Finance of business
The carrying of stock and provision of trade credit.
V.
Minimization of number of transaction.
The role of intermediaries such as wholesalers results
in reduction of transactions cost and transport charges
THE IMPORTANCE OF CHANNELS OF
DISTRIBUTION
a.
The channels of distribution bridge the gap
between the producers and the consumers.
b.
Buying decisions are made a routine matter this lowers the marketing cost
c.
They save as the means of financing the entire
process of moving goods from the producer to the consumer.
d.
They are the interchanging agency to the
producer
e.
They play significant role in the determination
of prices.
f.
They help in promoting the market.
g.
Minimization of transaction
DESIGNING THE DISTRIBUTION CHANNEL.
In designing manufacturer – consumers link there are a
number of basic requirements must be kept in mind.
a.
The channel which provide the links must provide
for the physical transfer of the goods to the consumer in minimum time
b.
The channel should allow for appropriate communication,
it should permit the swift feedback of the market information to the manufacturers.
c.
The channel should be so designed that it can be
adopted with relative easy to change market conditions.
There are three steps in designing distribution
channel
1.
Channel objectives and constraints must be
determined with accuracy. Example, - you must analyze the customer
characteristics product properties and
features
-
Strength and weakness of middle men competition
etc.
2.
Major visible channels alternatives must be
distinguished. This necessitates a close examination eg
- The
type of business intermediaries likely to be involved
- The
member of intermediaries who will be required at each stage
- The
price policies of each stage
3.
Alternative channel must be evaluated: the basic criteria of
evaluation should reflect economic
value ie, cost, return, related to
various channels
-
Central requirements
-
Possible marketing, conflict ,flexibility etc
-
A well-known measure used in estimating the
economic return from
channel
is RETURN ON INVESTIMENT
Where
Rx= return on investment associated with the use of
channel x
Sx = estimated sales associated with the use of
channel x
Cx = estimated costs associated with the use of channel x
Other
thing being equal the channel with highest Rx
will be the preferred
Alternative
EXAMPLE
The following is the information for product x and y.
Chanel x
Estimated sales
associated with the use of channel x = 2,000,000
Estimated costs
associated with the use of channel x= 400,000
Chanel y
Estimated sales
associated with the use of channel y =
3,600,000
Estimated costs
associated with the use of channel y= 760,000
Therefore :-
For channel X
Given
Sx =2000000, cx = 400,000
Rx = 2000000
– 400000 = 4
400000
:. Rx = 4/=
For channel y
Ry = 3600000
- 760000 = 3.74
760000
:. Ry = 3.74
According to the above
calculations, channel x is the one to be chosen because it has higher return on
investment.
THE FACTORS INFLUENCING THE CHOICE CHANNEL OF DISTRIBUTION
a. Is
the production concentrated in one or limited number of small areas or is
production widely dispensed?
b. Does
a commodity require to be processed? Eg oil had to be refined before it is
sold to the final consumer.
c. Is
a farming products like wheat or is it manufactured commodity like bicycle ?
d. Will
the commodity be sold under trade mark or brand name?
e. Will
it quickly deteriorates in quality if delay occurs in its distribution eg
fruits or fish
f.
Is it home products or is it imported from
abroad of it is imported it is subject to customs duty
g. Is
it necessary to provide knowledge to the final user?
h. What
is the purpose for which a commodity is required?
i.
Does there exist a competition from other
product?
MIDDLEMEN
These are the traders who operate
between the procedure and final consumers. They link the producers and the
consumers.
There are several types of middlemen as
follows:-
RETAILERS: they sell goods
in small quantities to the final consumers
WHOLESALERS: they sell
goods to the retailers or onto other wholesalers
AGENTS: these are
retailers on wholesalers who represent suppliers (the principal)
BROKERS: these are traders
who arrange for the purchase on sale of goods without themselves owning them
MERCHANTS: these are
wholesalers who take title to goods that means they buy goods on their own
account.
SPECULATORS: these are
traders who study the market forces of supply and demand and buy when prices
are low and sell when the prices are
high.
AGENT MIDDLEMEN:
Aare those who do not take title
to the goods but du actively assist in the transfer of title from the producer
to the consumers.
CHARACTERISTICS
I.
They do not take title to goods
II.
They work on commission based on % on the volume
of sales or purchases negotiated by them
III. They
are used by the manufactures in the
place of their sales in other markets located in jurisdiction of their own
salesman
IV. They
serve the interest both sellers and buyers.
KINDS OF AGENTS.
Agents differs from themselves in
their operational techniques and services rendered. There are several different
kinds.
·
MANUFACTURING AGENT
-
Is an independent person engaged by the manufacturer to sell
part of his entire product in specific territory
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He is not an employee of the manufacture
-
The manufacturer fixes the price and terms of
sales.
·
SELLING AENT
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Is an agent who is employed by the manufacture to
undertake the entire marketing functions of all his output for the entire
market.
-
He can exercise much greater authority in marketing
than the manufacturer agent.
-
He does not need to consult his principal while
determining prices and term of sale
·
DEL – CREDERE AGENT
Is an agent of
any kind who arrange with his principal that he will him selves liable for the
deficit of the customer (bad depts.) introduced by himself.
-
He is paid extra commission for undertaking this
risk in additional to carrying out the normal business of an agent.
·
THE FACTOR
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Is an agent employed to sell good in a
merchandised or delivered to him or his principal for a compensation
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He deals in his own name rather than the name of
the principal.
The power rested
to him:-
a.
To sell on his own name
b.
To sell at such time and price he thinks best
for his principal
c.
To sell on the usual term of credit
d.
To receive payment of the price and give the valid receipt
e.
To keep a lien on the goods in his possession
for the changes due to him.
·
THE BROKERS
Is an agent employed
to make bargaining and contract in matters of trade, commerce between two
parties for the compensation called BROKERAGE.
They are specialized in a particular branch of commerce as
I.
Stock and share brokers who purchase and sell
government securities who operate in stock exchange.
II.
Ship brokers who are employed to transact
business connected with sea transport.
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They negotiate for charter of a ship
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Procuring of cargo
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Buying and selling of ships etc.
III. Insurance
brokers are those agents who are mainly occupied in the negotiation of
different type of insurance.
-
They affect insurance on behalf of the owner
IV.
The court brokers are those agents who seize and
sell properties of persons according to the order given by the court.
Different
between the broker and the factor
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broker
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factor
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Does not take the possession of goods
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Has no authority to sell goods in his own name
-
Broker cannot receive payment
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Has no insurable interest in the goods to be
transacted
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Has no right of lien on the goods
-
Cannot sue or be sued on the contract he engaged
-
He is a special mercantile agent
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They take the possession of goods
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Has authority to sell goods on their own name
-
They receive payment and give valid receipt
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Has insurable interest in the goods to be
transacted
-
Has the right of the goods in his possession
for the unpaid charges
-
Can sue or be sued on the contract made by his
own name.
-
He is a general mercantile agent
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·
AUCTIONEERS.
-
Is a special mercantile agent authorized to sell
goods or property at auction .
-
He is legally the agent of the seller until the goods
are “knocked down” to the highest bidders
-
He is responsible for trying to obtain the
maximum price for the goods or property that entrusted to them for auction
sale.
-
He has an authority to sell by auction only and cannot
sale the goods or property entrusted to them for public auction for
private contract even if higher prices is offered.
·
CLEARING AND FORWARDING AGENT
Are those
persons employed to collect deliveries and forward goods on behalf of other
-
Forwarding agents receives goods from exporter
and arranges for shipment to their destination.
-
Clearing agents receives goods from abroad on
behalf of the importers at the part of destination.
I.
They examine for their quality and their
quantity
II.
They make arrangement for their delivery to
their importers.
THE IMPORTANCE FOR EXISTANCE OF MIDDLEMEN
(i)
To assists the customers who cannot buy from the
producers in bulk.
(ii)
To assist consumers who cannot travel long
distance for their provisions
(iii)
Reduces the cost of production by grading,
sorting, packing and branding of goods received.
(iv)
Provision for storage which provide for time place
and ownership utilities
(v)
It provides and facilitates the implementation
of distribution policy among the middlemen themselves.
THE DISTRIBUTION POLICY.
Distribution policy refers to the
decision by a manufacturer or the number of middlemen to be used on the intensity
of distribution.
In other words it is decision on market
coverage for product.
There are three policy options
which are:-
(i)
INTE NSIVE OR MASS DISTRIBUTION.
-
Under this strategy , a manufacturer tries to
sell his product through every possible outlet in order to obtain maximum exposure
-
This policy is usually employed for the marketing
of consumers products of everyday use eg, toothpaste, cosmetics, food products,
soap etc.
-
The strategy can be successful when the
manufacturer obtains cooperation from all middlemen and advertise his products on
a large scale.
(ii)
SELECTIVE DISTRIBUTION
-
This policy involve the use of few middlemen
selected in each sales territory
-
It may be employed at both wholesale are retail
levels
-
It is appropriate in the case of specialty goods
and accession
-
It is more economical and provides the
manufacturer sufficient control over distribution of his product.
-
With limited member of middlemen dealers are
likely to take greater investment in the display and promotes of the products.
(iii)
EXCLUSIVE DISTRIBUTION
-
This involves the use of one dealer in each
sales territory
-
The dealer is granted exclusive right to the product in the
specific territory through an agreement
with the manufacturer
-
The dealer is prohibited from dealing in the
competitive products
-
The policy is adopted in case of shopping and specialty
goods enjoying brand loyalty.
-
However this policy is less flexible and does
not permit wide distribution of the production
COMMERCIAL TRANSACTIONS
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As any process which involve the transfer of title of
the goods or services between two parties from one of them to the other for
consideration (money or monetary worth)
-
Commercial transaction may be between the
wholesaler and the retailer or the manufacturer and the final consumers.
-
The commercial transaction can be either made on
cash or made in credit.
(i)
CASH TRANSACTION
-
Is a transaction whereby cash is paid
immediately in exchange of either goods or services
-
In cash transaction there is execution of two things
ie, payment and delivery whereas the buyer pays cash when goods are delivered.
(ii)
CREDIT TRANSACTION
-
This is the transaction whereby goods or services
are delivered to the buyer but payments is made letter.
-
In this case cash is paid after a specific duration
stipulated on the terms of sale
PROCEDURES AND DOCUMENTS USED IN CREDIT TRANSACTION
Is the record of summary of the transaction which
has taken place between the buyer and the seller
1. AN
ENQUIRY LETTER (1ST STAGE)
Is a letter written
by a prospective buyer to the seller
seeking an information to weather a a certain variety of goods or services can
be supplied for sale, the price and the term of sale.
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2. REPLY
TO AN ENQUIRY (2ND STAGE)
` A supplier may reply an enquiry letter in
either of the following:-
(i)
CATALOQUES.
-
Is a document which contain the detail of goods
offered for sale and they may sometimes be illustrated
-
The items of a catalogues are usually numbered for easy location
-
Prices are shown along with the description of items or else, a separate
price list is enclosed showing the prices of the items
(ii)
PRICE LIST
-
Is the document which contains the prices of the
goods listed at the time it was made out
-
However the price list does not constitute a
promise to sell the goods at the price stated.
(iii)
QUOTATIONS
-
Is an offer to supply goods according to the
terms and conditions stated
-
Quotations are of two types:-
a)
These which are given by the manufacturer or
producers to traders or consumers directly known as FIRST HAND QUOTATIONS
b)
Those which are given by traders to traders a consumers known as SECOND HAND eg
“subject to being unsold at receipt of order”
- subject to acceptance within three weeks”
- A proforma invoice may sometimes serve the purposes
of a quotation
3. THE
ORDER (3RD STAGE)
-
After studying catalogues and price list sent to
them the prospective customers will make up their mind whether to buy the goods
or not.
-
The acceptance of the quotation is affected in
the form of order.
-
When delivery of the goods is urgently required acceptance may be oral but it should be
confirmed in writings by a letter or the firms official order form
BOUGHT NOTE:
Is a contract
made sent by a buyer stating the terms and conditions of sales arranged only.
SOLD NOTE
-
Is a note sent by a seller to a buyer stating
the terms and conditions of sale arrange
orally
-
It is similar to bought note except it states
“sold to” instead of “bought of”
LOCAL PURCHASE
ORDER (LPO)
-
Is a document only used in home trade to make an
order.
-
It is a document which forms a basis for a
contract of sale between a buyer and seller.
4. DELIVERY
OF GOODS (4TH STAGE)
-
After receiving
the order from the buyer the seller make arrangements to deliver those
goods
The following
documents are involved in the process.
(i)
DELIVERY NOTE
Is the document showing a list of goods without
showing prices which is sent to the buyer.
It is used for checking the goods without the use of
invoice.
When goods are delivered to the buyer he is supposed
to retain one copy and return the other copy to the seller duly signed by him.
It is a proof that the buyer had received the goods
(ii)
PACKING NOTE/LIST
Is the list/ note which show list of item packed in a
particular box.
(iii)
CONSIGNMENT NOTE
-
Is the document provided by the carrier in which
the sender fills in the details of the goods to be dispatched.
Name and address
of the seller and the buyer consigner and consignee are shown
-
It indicate whether the freight is already paid,
whether the buyer has to pay it at the destination when the goods are delivered
by the carrier
-
The consignee has to sign it as a proof that the
goods have been delivered to him
5. INVOICING
-
After goods have been delivered to the buyer the
seller sends an invoice to the buyer.
-
An invoice is the document which setout the
description of the goods dispatched and state the amount which is being debited
to the buyer .
-
When goods have been received the buyers check
them against the invoice to make sure the quantity and quality are in order.
-
It is abbreviated E.&O.E means “error and omission Excepted means that the seller
receives the right to correct any error on omission on the invoice but not the
buyer /consignee
THE PRO- FORMA INVOICE
-
Is the invoice which does not debit the buyers.
It saves to show what the buyer would have to pay if he boght.
-
It may be simply a special form of quotation or
it may accompany goods sent on approval so that if they are kept payment may be
made in accordance with the pro-forma invoice.
-
It is also used when a seller is unwilling to
grant credit so it act as polite way of asking payment before delivery of goods
-
It saves for customs purposes when goods are
sent abroad as to help calculation of duty payable.
-
It is used when goods are sold on consignment
basis
6. STATEMENT
OF ACCOUNTS
-
These are statements sent at periodical
interval normally every month showing the
transaction which have taken place since the date of the last payment
-
Is sent by a seller to the buyer
7. PAYMENTS
-
This is the final stage of credit transaction
-
On receipt of the statement the buyer checks
amount due to the seller
-
If he find that the amount owing to the seller is
correct arrangement of remittance of money is made to the seller.
OTHER DOCUMENTS
CREDIT NOTE
-
Is the document shows the decease on claim of money by the seller as a
correction of invoice issued if he overcharged
the buyer or if some of the goods purchased
have been returned back by the buyer
DEBIT NOTE
-
This is the document sent by the seller to a
buyer to correct for the undercharged on the original invoice.
-
It is also issued when the buyer fails to return
containers or packing cases not charged for the invoice.
ADVICE NOTE
-
Is the document issued by the seller to a buyer
to inform him coming of goods.
RETURN NOTE
Is the document
issued by the seller to buyer when goods supplied are returned back to the
supplier for any reasons.
TERMS OF PAYMENTS
1. C. W. O. cash with order
This means that cash
must be paid when the order is sent
2. C. O. D. – cash on delivery
-
Payments must be made at the time goods are
actually handed to the buyer by the carrier.
3.
SPOT
CASH.
This means that
cash must be paid when the buyer takes over the title to goods or properly in
the goods.
4.
PROMPT
CASH
Means that
payments must be coming in few days when reasonable time has been given for
examining the goods and checking of the invoice.
5.
TRADE
DISCOUNT
Is the amount
allowed off the list price of goods to traders who buy goods for resale (to
sale again)
“THAX MR KATULAGAZA…”
