Chapter 10 Internal Trade – Class 11 Business Studies Notes

 Wholesale Trade

Wholesale trade involves buying and selling goods and services in bulk for resale or intermediate use. Wholesalers connect manufacturers and retailers, making them vital. They buy in bulk from producers and sell in smaller lots to retailers and other businesses. They grade and pack products, store, transport, promote, gather market data, and manage retailer orders. Wholesalers take on business risks by buying and selling goods under their name, offering retailers credit and reducing the need for large inventories.

Short Pointers:

• Wholesale trade refers to bulk buying and selling for resale or intermediate use.
• Wholesalers act as intermediaries between manufacturers and retailers.
• Purchase in bulk from producers and sell in smaller lots to business users.
• Perform essential functions: grading, packing, storage, transportation, and promotion.
• Gather market information and manage retail orders.
• Assume business risks and provide credit facilities to retailers.
• Help in reducing retailers’ inventory requirements.

Services Provided by Wholesalers to Manufacturers

Wholesalers help manufacturers produce, distribute, and market goods efficiently. They consolidate small retail orders into bulk purchases for manufacturers to improve production and economies of scale.
Wholesalers take care of storage, price fluctuations, and damage, relieving manufacturers. They pay cash for goods and advance money for large orders. They can advise retailers on market trends, customer preferences, and competitive strategies due to their direct contact.
Wholesalers market products by distributing them to retailers across large areas. They purchase goods year-round and store them in their warehouses, saving manufacturers time and reducing their workload.

Short Pointers:

• Wholesalers aggregate small retail orders into bulk purchases for large-scale production.
• They bear risks related to storage, price changes, and goods damage.
• Provide financial assistance through cash payments and advances for bulk orders.
• Offer expert advice based on retailer feedback and market trends.
• Aid in marketing by distributing goods to retailers, widening product reach.
• Ensure production continuity by purchasing goods year-round.
• Offer storage facilities, reducing manufacturers’ need for space and logistics management.

Services Provided by Wholesalers to Retailers

Wholesalers serve retailers in many important ways, affecting their operations and customer satisfaction. First, they ensure the availability of a variety of goods from various manufacturers, allowing retailers to offer a wide selection without large inventories. Wholesalers’ advertising and promotions boost retailer demand and profits.
Credit facilities allow retailers to operate with less working capital. Wholesalers also help retailers make informed decisions by sharing their product, market, and customer preference knowledge. Finally, wholesalers share the risk of storage, theft, and obsolescence with retailers by selling goods in smaller quantities, reducing the burdens retailers would face if they had to buy in bulk from producers.

Short Pointers:

• Wholesalers ensure product availability, reducing inventory needs for retailers.
• They provide marketing support to boost demand for products.
• Credit facilities offered by wholesalers enhance retailers’ cash flow.
• Specialised knowledge from wholesalers helps retailers stay informed about market trends and product details.
• Risk sharing by wholesalers lessens retailers’ exposure to storage, theft, and obsolescence risks.

Retail Trade

Retailers sell goods and services directly to consumers for personal or non-business use. Last, in the distribution chain, retailers buy goods in bulk from wholesalers and sell them to consumers.
From in-store to door-to-door and vending machines, retailing emphasises direct consumer interaction. Retailers purchase a variety of products, store them, sell them in small quantities, bear business risks, grade products, collect market data, extend credit to buyers, and promote sales through displays and promotions.

Short Pointers:

• Retailers sell goods and services directly to ultimate consumers.
• The final stage in the distribution process, purchasing from wholesalers.
• Includes various sales methods and locations, focusing on direct consumer transactions.
• Retailers’ functions: purchasing, storage, small quantity sales, risk bearing, product grading, market information collection, credit extension, and sales promotion.

3. What purpose is served by wholesalers providing warehousing facilities?

Answer: Wholesalers providing warehousing facilities serve a crucial role in the distribution chain. By storing goods in their warehouses, wholesalers reduce the need for manufacturers to maintain their own storage facilities, thereby lowering the burden on manufacturers. This allows manufacturers to focus more on production without worrying about storage space for their products. Additionally, by holding stock, wholesalers ensure that retailers can access a steady supply of goods without the need to keep large inventories. This is especially beneficial for retailers as it saves them from the hassle and expense of gathering goods from multiple producers and managing huge inventories. Therefore, warehousing by wholesalers simplifies the supply chain and supports both manufacturers and retailers efficiently.

Mindmap to remember this answer:

• Purpose of Warehousing: Simplifies supply chain.
• Benefit to Manufacturers: Reduces need for their own storage.
• Benefit to Retailers: Access to steady supply, less inventory needed.
• Efficiency: Supports efficient distribution of goods.
• Storage: Wholesalers manage storage, allowing focus on production and sales.

4. How does market information provided by the wholesalers benefit the manufacturers?

Answer: Wholesalers play a vital role by providing essential market information to manufacturers. They offer insights into customer preferences, market conditions, competitive activities, and desired product features. This information is invaluable as it helps manufacturers make informed decisions regarding their production and marketing strategies. For instance, understanding customer preferences allows manufacturers to tailor their products to meet specific needs, enhancing customer satisfaction and competitive edge. Additionally, being aware of market conditions and competition helps manufacturers adjust their strategies to maximise their market presence and profitability.

Mindmap to remember this answer:

• Key Role of Wholesalers: Provide market information.
• Customer Preferences: Insights into what customers like and dislike.
• Market Conditions: Current trends and market dynamics.
• Competitive Activities: Information on what competitors are doing.
• Product Features: Preferred features by customers.
• Decision Making: Helps manufacturers strategize production and marketing.

5. How does the wholesaler help the manufacturer in availing the economies of scale?

Answer: Wholesalers significantly contribute to the economies of scale for manufacturers by aggregating orders from numerous retailers. They collect these smaller orders and place them as bulk purchases with manufacturers. This system allows manufacturers to produce goods on a larger scale, which is more cost-effective. Larger production runs mean that the cost per unit of production decreases, which is beneficial for the manufacturers. This process not only streamlines the production but also helps in optimising resource allocation and reducing manufacturing costs, enabling manufacturers to maximise their production efficiency and cost savings.

Mindmap to remember this answer:

• Role of Wholesalers: Collect small orders from retailers.
• Bulk Purchases: Aggregate these orders into large quantities.
• Economies of Scale: Enable large-scale production for manufacturers.
• Benefits for Manufacturers: Lower costs per unit, more efficient production.
• Optimization: Better resource allocation and reduced manufacturing costs.
• Outcome: Increased production efficiency and cost savings.

6. Distinguish between single line stores and speciality stores. Can you identify such stores in your locality?

Answer: In retail, single line stores and specialty stores are two distinct types. Single line stores carry a variety of items that fall under one product category or line. For example, a store that sells only readymade garments encompasses various types of apparel but sticks to clothing alone. On the other hand, specialty stores narrow this focus even further, dealing exclusively in a specific subset of a product line. A shop that sells only children’s garments is a prime example, specialising solely in children’s apparel without branching into adult clothing.

In my locality, both types of stores are common. For instance, there’s a store that sells sports clothing and accessories which is a single line store because it only deals with sports-related items. Nearby, there is a shop dedicated to just running shoes, which qualifies as a specialty store, as it focuses on a very specific part of the sports apparel market.

Mindmap to remember this answer:

• Single Line Stores: Sell one type of product line. Examples: Clothing stores, electronics stores. Broader focus within one category.
• Specialty Stores: Sell a specific part of a product line. Examples: Children’s clothing store, running shoe store. Narrow focus, highly specialised.
• Examples in Locality: Sports apparel store (Single Line). Running shoes store (Specialty).
• Comparison: Single line: Broader within one category. Specialty: Narrower and more focused.

4. Which type of trade involves buying and selling in large quantities for the purpose of resale or intermediate use?

Answer: B) Wholesale trade

5. What is the main role of wholesalers in the distribution of goods?

Answer: B) Assisting in the distribution of goods to large numbers of buyers over a wide area

6. Which service is not typically offered by wholesalers to retailers?

Answer: C) Direct sales to consumers

7. Retail trade is characterised by the sale of goods in:

Answer: B) Small quantities to ultimate consumers

8. Which of the following is a common feature of itinerant retailers?

Answer: C) Selling goods from place to place

9. A retailer that sells a variety of consumer goods directly to the ultimate consumers operates in which segment of internal trade?

Answer: C) Retailing

10. Which type of store is characterised by sales of diverse goods under one roof, typically located in central urban areas?

Answer: C) Departmental store

4. What functions do wholesalers perform in the distribution process?
   Answer: Wholesalers perform functions like grading products, packing, storage, transportation, and promotion.
5. List two services provided by wholesalers to retailers.
   Answer: Wholesalers provide retailers with regular supplies and marketing support.
6. Mention two major services wholesalers offer to manufacturers.
   Answer: Wholesalers facilitate large-scale production and offer financial assistance to manufacturers.
7. Define retail trade.
   Answer: Retail trade involves selling goods directly to the final consumers.
8. What role do retailers play in the distribution of goods?
   Answer: Retailers play the role of linking producers and final consumers, providing goods to end-users.

2. Identify the two main categories of internal trade.
   Answer: Internal trade is primarily divided into two main categories: wholesale trade and retail trade. Wholesale trade involves the bulk purchase and sale of goods for resale or intermediate use, usually to retailers and other merchants. Retail trade, on the other hand, deals with selling goods in smaller quantities directly to the final consumers.

Mindmap to remember this answer:

• Two Categories: Wholesale and Retail
• Wholesale Trade: Bulk purchase, for resale
• Retail Trade: Direct sales to consumers in small quantities

3. Define wholesale trade.
   Answer: Wholesale trade is the activity of buying and selling goods in large quantities, which are then resold to retailers or other merchants, and not usually to the end consumers. Wholesalers typically operate from warehouses and do not deal directly with the public.

Mindmap to remember this answer:

• Definition: Buying/selling in large quantities
• Purpose: Resale to retailers, not end consumers
• Operation: Typically from warehouses

4. What are the main functions of wholesalers in the distribution process?
   Answer: Wholesalers play a crucial role in the distribution process by performing various functions. They purchase goods in bulk, break them into smaller lots, store, transport, and provide important market information to retailers. They also collect and distribute small orders from retailers, extending credit and helping in the promotion of goods.

Mindmap to remember this answer:

• Functions: Purchasing bulk, breaking into smaller lots, storage, transportation
• Additional Roles: Market information, credit extension, promotion of goods

5. Describe two services that wholesalers provide to retailers.
   Answer: Wholesalers offer several vital services to retailers including making products available by maintaining sufficient stock and supporting marketing efforts. They also extend credit facilities to retailers, enabling them to manage their businesses with less capital.

Mindmap to remember this answer:

• Services to Retailers: Availability of goods, marketing support, credit facilities
• Key Points: Help retailers manage stock and capital

 Wholesale Trade

Question: An electronics manufacturer relies heavily on its wholesalers to distribute its products across the country. These wholesalers purchase electronics in bulk, store them, and sell them to retailers. This system ensures a steady flow of products from the manufacturer to the end consumer.

(i) Identify the key functions performed by wholesalers that are crucial for the electronics manufacturer.

(ii) What would be the impact on the manufacturer if wholesalers stopped providing market information?

Answer: (i) The key functions performed by wholesalers crucial for the electronics manufacturer include:

• Bulk Purchasing: Wholesalers buy large quantities of electronics, which helps manufacturers achieve economies of scale.
• Storage: Wholesalers store the products, reducing the manufacturer’s need for extensive warehousing facilities.
• Distribution: Wholesalers efficiently distribute products to various retailers, ensuring a steady supply chain.
• Market Promotion: Wholesalers promote the products, increasing sales and brand visibility.

(ii) If wholesalers stopped providing market information, the impact on the manufacturer would include:

• Lack of Insight: The manufacturer would lack critical information about market trends, consumer preferences, and competitive strategies.
• Delayed Adjustments: The manufacturer might not be able to promptly adjust their production and marketing strategies to meet market demands.
• Reduced Sales: Without timely and accurate market data, the manufacturer’s sales strategies could become less effective, potentially leading to reduced sales and market share.

 Wholesale Trade

Question:
A prominent electronics manufacturer relies heavily on its wholesalers to distribute its products across the country. These wholesalers purchase electronics in bulk, store them, and sell them to retailers. This system ensures a steady flow of products from the manufacturer to the end consumer.

(i) Explain the values upheld by the wholesalers in their distribution process.

Answer:
(i) The values upheld by the wholesalers in their distribution process are:

1. Support and Risk Management: Wholesalers assume the risks of storage, price fluctuations, and potential damage, providing stability for the manufacturer.
2. Financial Assistance: Offering cash payments and advances, which aids manufacturers in managing their finances effectively.
3. Market Insight: Providing valuable market data and trends to manufacturers, helping them understand consumer preferences and adjust their strategies accordingly.

Retail Trade

Question:
A chain of grocery stores focuses on providing high-quality products and excellent customer service. They ensure their stores are well-stocked, offer a variety of goods, and maintain convenient locations for consumers.

(i) Identify the values provided by the grocery chain to its consumers.

Answer:
(i) The values provided by the grocery chain to its consumers are:

1. Convenience: Ensuring easy access to a variety of goods in well-located stores.
2. Customer Service: Providing excellent service and after-sales support to enhance customer satisfaction.
3. Quality and Variety: Offering a wide range of high-quality products to meet diverse consumer needs.

Types of Retailers

Question:
Street vendors operate without a fixed location, moving from place to place to sell their goods. They often sell items like fresh produce, snacks, and household essentials directly to consumers.

(i) Discuss the values demonstrated by street vendors in their mode of operation.

Answer:
(i) The values demonstrated by street vendors in their mode of operation are:

1. Accessibility: Bringing goods directly to consumers, especially in areas where access to fixed shops might be limited.
2. Affordability: Offering low-cost goods that cater to the daily needs of consumers.
3. Personal Interaction: Engaging directly with consumers, building trust and providing personalised service.

2. Discuss the roles and functions of wholesalers in the distribution of goods. How do they add value to the internal trade system?

Answer: Wholesalers play a pivotal role in the internal trade system by acting as intermediaries between manufacturers and retailers. They purchase goods in large quantities from producers and sell them in smaller lots to retailers. This process is crucial for manufacturers who produce goods on a large scale and need to distribute them across vast geographical areas without directly reaching each consumer. Wholesalers add value by handling the storage, transportation, and grading of products, which reduces the burden on manufacturers and retailers. They also gather market information and provide it to producers, helping them make informed production decisions.

Mindmap to remember this answer:

• Role: Intermediaries between manufacturers and retailers
• Functions: Storage, transportation, grading
• Value Added: Market information, reduce logistics burden
• Benefits: Helps manufacturers distribute widely, supports retailers with smaller quantities

3. Describe the various services that wholesalers provide to manufacturers. How do these services facilitate large-scale production and market distribution?

Answer: Wholesalers offer several crucial services to manufacturers that facilitate large-scale production and ensure efficient market distribution. They aggregate orders from various retailers, enabling manufacturers to produce in bulk, which economises on costs and enhances production efficiency. Wholesalers also bear significant risks by holding inventory, which relieves manufacturers from potential losses due to price fluctuations or unsold stock. Financially, they often provide upfront payments for goods, which improves the cash flow for manufacturers. Additionally, by offering expert market insights and handling the distribution, wholesalers allow manufacturers to focus more on production rather than market dynamics.

Mindmap to remember this answer:

• Services: Order aggregation, risk bearing, financial support, market insights
• Facilitation: Enables bulk production, handles distribution
• Financial Support: Upfront payments, improves cash flow
• Market Insights: Trends, customer preferences

4. Examine the relationship between wholesalers and retailers. What specific services do wholesalers offer to retailers to support their operations?

Answer: The relationship between wholesalers and retailers is symbiotic, where both parties benefit from the services provided by wholesalers. Wholesalers support retailers by ensuring a steady supply of goods, which helps retailers maintain sufficient inventory without the need for large storage spaces. They also extend credit facilities to retailers, aiding in better cash flow management for small businesses. Moreover, wholesalers assist in marketing efforts by providing promotional materials and information about new products, which helps retailers attract more customers. By doing so, wholesalers ensure that retailers can focus on selling to the end consumer while mitigating risks associated with inventory and cash handling.

Mindmap to remember this answer:

• Relationship: Symbiotic, mutually beneficial
• Services: Inventory supply, credit facilities, marketing support
• Benefits to Retailers: Reduced storage need, better cash flow, customer attraction