merits and demerits of retail trade and wholesale trade
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In restaurants the chef never serves food to the customer directly, he or she only cooks food but the serving of food is done by the waiters, hence it is the waiter who acts as a link between customer and chef in case of restaurants. In the same way in case of goods producers never sell goods directly to retailers rather it is the wholesaler who acts as a link between producer and retailer. A wholesaler is a term used in the context of marketing; it refers to that person or company who buys a lot of goods from producers at a low price and sells those goods to retailers in smaller quantities at a higher price. In order to understand more about wholesalers, one should look at the advantages and disadvantages of wholesalers –
Advantages of Wholesalers
No Problem of Marketing
The biggest advantage of wholesalers is that one does not has to do much marketing as retailer’s orders are fixed and it is the producer or company which markets the product and wholesaler have to supply goods to retailers. Hence there is no pressure of achieving a monthly target or doing any extensive marketing and wholesaler has to concentrate only on supplying and up keeping of goods until retailers take goods from them.
Fixed Margin of Profit
Another benefit of wholesaling is that wholesaler will get fixed margin of profit which is usually between 3 to 10 percent and hence one does not has to worry about profit margin in this business because you know exactly the amount of profit you will make if you sell a particular amount of goods to retailers.
Bridge the Gap between Producers and Retailers
Wholesalers act as a bridge between producers of goods and retailers because once producers have produced goods they need to sell it in order to have adequate working capital and since retailers cannot buy goods in bulk quantity due to lack of funds it is the wholesalers who act as a bridge by purchasing goods from producers and giving those goods on credit to retailers for selling to consumers of goods.
Disadvantages of Wholesalers
High Capital Requirement
The biggest disadvantage of wholesalers is that it requires high capital because when one purchase product in bulk quantities it does not get resold immediately to retailers and hence the wholesaler needs to have enough capital so that he or she can maintain enough stock so as provide supply to the retailers as and when they come.
Goods on Credit
Another disadvantage of wholesalers is that one purchases goods in cash from producers of goods but he or she has to sell goods on credit to retailers as retailers usually pay after 15 to 30 days of purchasing goods from wholesaler and hence wholesaler is at disadvantage as he or she has to recover and do follow up with retailers for repayment of goods taken on credit by them.
Advantages of Wholesalers
No Problem of Marketing
The biggest advantage of wholesalers is that one does not has to do much marketing as retailer’s orders are fixed and it is the producer or company which markets the product and wholesaler have to supply goods to retailers. Hence there is no pressure of achieving a monthly target or doing any extensive marketing and wholesaler has to concentrate only on supplying and up keeping of goods until retailers take goods from them.
Fixed Margin of Profit
Another benefit of wholesaling is that wholesaler will get fixed margin of profit which is usually between 3 to 10 percent and hence one does not has to worry about profit margin in this business because you know exactly the amount of profit you will make if you sell a particular amount of goods to retailers.
Bridge the Gap between Producers and Retailers
Wholesalers act as a bridge between producers of goods and retailers because once producers have produced goods they need to sell it in order to have adequate working capital and since retailers cannot buy goods in bulk quantity due to lack of funds it is the wholesalers who act as a bridge by purchasing goods from producers and giving those goods on credit to retailers for selling to consumers of goods.
Disadvantages of Wholesalers
High Capital Requirement
The biggest disadvantage of wholesalers is that it requires high capital because when one purchase product in bulk quantities it does not get resold immediately to retailers and hence the wholesaler needs to have enough capital so that he or she can maintain enough stock so as provide supply to the retailers as and when they come.
Goods on Credit
Another disadvantage of wholesalers is that one purchases goods in cash from producers of goods but he or she has to sell goods on credit to retailers as retailers usually pay after 15 to 30 days of purchasing goods from wholesaler and hence wholesaler is at disadvantage as he or she has to recover and do follow up with retailers for repayment of goods taken on credit by them.
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