Trade or trading refers to the buying and selling of goods or services for non-personal use with the aim of making profit.
It is the interchange of products between the producers and consumers at a price or consideration.
Trader: is that person who buys goods or services and sells them.
Trader: is divided into home trade and foreign trade.
– Home trade is buying and selling of goods within national boundaries, it consists of wholesale and retail trade.
– International trade is buying and selling of goods or services to overseas market between countries, it includes import, export and entrepot trade.
Characteristics of trade.
- Buying for resale. The aim must be buying for resale.
- Product: There must be goods or services to be bought and sold.
- More than one partly: Exchange involves at least two parties seller and buyer who are interests in a particular product to be exchanged.
- Profit motive: Trade aims at making profit.
- Price:- Trade involve nglish-swahili/distribution” target=”_blank”>distribution of good or service for a consideration and price.
- Possession utility: Trader allow creation of possession utility and therefore obtain effective satisfaction.
- Ownership utility.
- Series of transactions: there must be continuous buying and selling to constitute trading.
- Area: There should be an areas (physical or no physical) for a commodity to be transacted.
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Role of trade
- Trade enables goods produced in a particular area to be used by the consumers in the whole country or other countries.
- Trade promotes social economic and political relations between nation’s peoples through trading operations conducted by traders, which can result into International peace and harmony.
- Trade provides employment both in public and private sector leading to social and economic welfare.
- Trade ennglish-swahili/courage” target=”_blank”>courages mass production by providing ready and profitable markets for their products.
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CHANNELS OF DISTRIBUTION (TRADE OR MARKETING CHANNELS)
A channel of nglish-swahili/distribution” target=”_blank”>distribution is defined as a description of the paths/routes taken by goods and rights of ownership of goods as they move from point of production to point of consumption.
It is the path linking the producer or manufacturer of a product with the consumer or user. The path which products and title follow until reach final users.
Classification of channels of nglish-swahili/distribution” target=”_blank”>distribution:
Channels may be classified according to the stages in ownership in the distributing of goods. (We will concentrate on the channels of nglish-swahili/distribution” target=”_blank”>distribution for locally produced product)
- A one stage channel. Is where the manufacturer supplies direct to consumers. It is called direct channel of nglish-swahili/distribution” target=”_blank”>distribution.(M-C)
- A two stage channel: Is where the manufacturer supplies direct to the retailer who in turn supplies to consumer. (M-R-C)
- A three stage channel: is where the manufacturer supplies the wholesaler and the wholesaler suppliers to the retailer who in turn sells to the final consumer.(M→W→R→C)
- A four stage channel: is where manufacture supplies to an agent (Primary wholesaler) who supplies wholesaler (Secondary wholesaler) who supplies to retailer who in turn supplies final consumer (M-A(WI)-WZ-R-C)
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Functions/Roles/advantages of a channel of nglish-swahili/distribution” target=”_blank”>distribution
- A well-defined and structured channel makes it possible for decisions to be made in a defined way.
- Pricing: Channels enable prices to be determined at each stage.
- Provision of general market intelligence: A free flow of information useful in the improvement of product quality.
- Finance of business: Trade credit offered by channel member fuel the flow of goods therefore traders are able to facilitate the flow of goods without having large operating or working capital
- Creation of utility: Place time and ownership or possession utility.
- Fill the gap in modern economic system between producers and consumers.
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Activities performed in channels (By channel members)
- Contractual:- Buyers and sellers contact each other to facilitate flow of goods. Eg A manufacturer has to establish effective contact with the other channel members
- Promotion: Promotional tools are used to inform persuade and remind customers if goods are to be marketed so as to satisfy them.
- Merchandising: Channel member’s orders and receive goods which are demanded by their customers.
- Pricing: Channel members set prices that covers costs and ensure margin of profit.
- Transit: This is physical nglish-swahili/distribution” target=”_blank”>distribution which involves the arrangement of transport for effective flow of goods from producer to final user.
- Maintenance of inventories: The carrying of stock or inventive in appropriate quantities to allow swift nglish-swahili/distribution” target=”_blank”>distribution.
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DESIGNING DISTRIBUTION CHANNEL
Factors to be considered when designing nglish-swahili/distribution” target=”_blank”>distribution channel:
- A channel designed should provide physical transfer of goods to the consumers in minimum time.
- A channel designed should allow appropriate communication ie. Feedback of market information to the manufacturer.
- A channel designed should be easily adopted relative to change in market conditions.
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STEPS IN DESIGNING DISTRIBUTION CHANNEL
- Stating and identifying channel objectives and constraints:
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→Objectives:- what should be attained by the channel must be clearly stated. E.g: to reach as many consumers as possible or to use as many dealers as possible.
→Constraints must be clearly identified in respect to:-
-product strengths and limitations
-Customers characteristics
-Company characteristics
-Middlemen characteristics
-Environment characteristics
- Major feasible channel alternatives must be distinguished from minor alternatives.
- Evaluation of alternative channels using following criteria.
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a) Economic values:- Costs and returns related to various channels
b) Control requirement: Those which require effective control and those which require minimum control.
c) Flexibility of the channel especially where nature of supply of products dealt varies with time, season etc.
- Measuring economic return of alternative channels:
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A popular method used in measuring or estimating the economic return from a channel is (ROI) –Return on investment.
Formula:
ROI =RX = SX –CX
CX
Where:
RX = Return on investment associated with the channel x
SX= Estimated sales associated with the use of channel x
CX= Estimated costs associated with the use of channel x
Note other things being equal, the channel with the highest Rx will be the preferred alternative.
Other factors influencing the choice of a channel of nglish-swahili/distribution” target=”_blank”>distribution
- Nature of goods: A supplier chooses a certain channel which suit the nature of the goods, example Perishable and fashionable goods needs a very short channel, thus they may be sold directly to consumers, also technical and high valued goods like aircrafts may be sold directly to consumers.
- Market costs: if a manufacture is economic not able to meet market cost will dispose off his products
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-through middlemen such as retailers and whole sellers. Example some goods require some facilities like refrigeration storage for commodities like fruits vegetable.
- Size and nature of the market: When the market is local (near) and large purchase direct sale is possible but if the market is scattered and small quantity purchase direct sale may not be economical.
- Scale of production: Producers in small quantities can sell direct to consumers eg: small scale farmers.
- Business policy: Some producers have policies which have to be adhered to Example Price control policy where producer wishes to reduce the number of middlemen to avoid increase in Price.