INTERNAL TRADE AND ITS TYPES AND APPLICATIONS

LEARNING OBJECTIVES
1) Meaning of whole sale trade and retail trade
2)Services rendered by a wholesaler and a retailer
3) Types of retail trade- itinerant and small scale fixed shops
4) Large scale retailers- departmental stores, chain stores, mail order
business.
5) Concept of automatic vending machine.
6) Chambers of Commerce and Industry: basic functions
7) Main documents used in internal trade: Performa invoice, invoice,
debit note, creditnote, LR(Lorry Receipt) and RR(Railway Receipt)
8) Terms of Trade : COD (Cash on Delivery), FOB(Free on Board ) ,CIF
(Cost,
9)Insurance and Freight), E&OE (Errors and Omissions Excepted)203

INTERNAL TRADE
Buying and selling of goods and services within the
geographical boundaries of a nation is called internal trade.
Internal trade can be classified into :-
a) Wholesale trade
b) Retail Trade

WHOLESALE TRADE
 It refers to buying and selling of goods and
services in large quantities for the purpose of
resale or intermediate use.
 Wholesalers serve as an important link
between manufacturers and retailers
 They purchase in bulk quantities and sell small
lots to retailers or industrial users

SERVICES TO MANUFACTURERS
1. Facilitate large scale production:-
wholesalers collect small orders from a
large numbers of retailers and pass on to
the manufacturers and make bulk
purchases. This enables the manufacturers
to undertake production on a large scale

2. Bearing risk
Wholesalers take delivery of large quantity of
goods from manufacturers and keep these
goods in their own warehouse. In this process
they undertake a lot of risks such as risk of
fall in price, theft, pilferage, spoilage etc.
3. Financial assistance
Wholesalers generally make cash payment
for the goods purchased by them. Sometimes
they also advance money to the producers
for bulk orders placed.

4. Expert advice
As the wholesalers are in direct contact with
retailers, they are in a better position to advice the
manufacturers about the various market
information such as customer’s tastes and
preferences, market condition, competitive factors
and the features preferred by consumers.
5. Help in marketing function
wholesalers take the responsibility of distribution
of goods to a large number of retailers spread over
a wide geographical area. This helps the
manufactures to concentrate on production

6. Facilitates continuity
wholesalers facilitate continuity of
production activity through out the year by
purchasing goods as when these are
produced
7.Storage
Wholesalers take delivery of goods as soon
these are produced and store in their own
warehouses. This reduces burden of
manufactures of providing storage facilities
for the finished goods.

SERVICES TO RETAILERS
1. Availability of goods
Retailers have to maintain adequate stock of
various commodities. Wholesalers make the
products of various manufacturers readily
available to the retailers.
2. Marketing support
wholesalers perform various marketing functions
such as advertisements and other sales
promotional activities to induce customers to
buy the goods. This will increase the demand
for the products and support the retailers

3. Grant of credit
wholesalers generally grant credit facilities
to regular retailers. This enables the retailers
to operate their business with small amount
of working capital.
4. Specialised knowledge
wholesalers deal in a particular line of
product and know the pulse of the market.
They inform the retailers about the new
products, their uses, quality, price etc.

5. Risk sharing
wholesalers purchase goods in large
quantities and sell in relatively small
quantities to retailers. By purchasing goods in
small quantities, retailers are in a position to
avoid the risk of storage, pilferage, reduction
in prices and demand etc.

RETAIL TRADE
A retailer is engaged in the sale of goods and
services directly to the ultimate consumers.
He purchases goods in large quantities from
wholesalers and sells them in small
quantities to the ultimate consumers.
A retailer performs a different functions in
the distribution of goods and services.

INTERNAL TRADE AND ITS TYPES AND APPLICATIONS

SERVICES TO MANUFACTURERS AND WHOLESALERS
1. Help in distribution of goods
A retailer provides an important service to
the manufacturer and wholesaler in the
distribution of goods by making it available
to the final consumers spread over a wide
geographical area.

2. Personal selling
sale of most of the consumer goods
requires personal selling efforts. By
undertaking personal selling effort ,retailers
relieve the manufacturers from the task of
actualizing the sale of the product.
3. Enabling large scale operation
On account of retailers service, the
manufacturers and wholesalers are freed
from the burden of making individual sales
to consumers. This help them to operate on
a large scale basis

4. Collecting market information
As retailers are in a direct and constant touch
with the consumers, they will be able to collect
important market information like taste,
preferences and attitudes of customers. This is
considered as an important information for
taking various marketing decision in an
organisation.
5.Help in promotion
Very often manufacturers and distributors
undertake various promotional activities to
increase the sale. Retailers participate in these
activities in various ways to promote sales

SERVICES TO CONSUMERS
1. Regular availability of products
A retailer is to maintain regular availability
of various goods produced by different
manufacturers. This helps the customer to
purchase goods in small quantities as and
when needed.
2. Wide selection:- Retailers keep a wide
variety of goods of different manufacturers.
This helps the consumers to make their
choice out of a wide variety of goods

3. New product information
Through effective display of product and
personal selling efforts, retailers provide
important information about the arrival,
special features etc. of the new products.
This helps the customers in making
purchase of those products.
4. Convenience in buying :- Retailers purchase
goods in large quantities and sell in small
quantities according to the requirement of
the consumers. Moreover, they are located
near the residential areas and remain
opened for long time.

5. After sale service
Retailers provide after sale service in the
form of home delivery, supply of spare parts
and attending the consumers. This is very
important in buyer’s decision to purchase
the product repeatedly
6. Provide credit facilities
Retailers provide credit facilities to their
regular customers. This enables the
customers to increase the level of
consumption and standard of living.

TYPES OF RETAIL TRADE
On the basis of whether or not having fixed
place of business, retailers are classified into
two
1. Itinerant traders
2. Fixed shop retailers

ITINERANT RETAILERS
Itinerant traders have no fixed place of
business. They keep on moving form one street
to other or one place to other in search of
customers

CHARACTERISTICS
1. They are small traders operating with limited
resources
2. They normally deal in consumer goods of daily
use
3. The emphasis is on providing greater consumer
satisfaction by making the goods available at the
doorstep of the customers
4. As they do not have fixed business
establishment to operate ,they keep very limited
inventory either at home or at some other place.

TYPES OF ITINERANT RETAILERS
1. Peddlars and hawkers
They are the oldest form of retailers in the
market. They are small produces or petty
traders who carry the products on a bicycle, a
handcart, c a cycle rickshaw or on their heads
and move from one place to the other. They
generally deal in non-standardised and low
value products such s toys, vegetables, fruits
etc.

2. MARKET TRADERS
These are small retailers who open their
shops at different places on fixed days or
dates. They usually deal in a particular line
of products like toys, ready made garments
etc. They deal in low priced consumer
products to cater to the needs of lower
income group

3. STREET TRADERS
 They are found at places where huge floating
population gathers such as near railway
stations, bus stand etc. They sell products like
stationeries, news papers, magazines etc. They
are different from market traders in the sense
that they do not change their place of business
so frequently.

4. CHEAP JACKS
 They are petty retailers who have independent
shops of temporary nature in a business
locality. They keep on changing their business
from one locality to another depending on
business potential. They also deal in consumer
goods of daily use but their change of business
place is not as frequent as hawkers and market
traders.

FIXED SHOP RETAILERS
These are the common type of retailers in the
market. They maintain permanent establishment
to sell their merchandise. They do not move from
one place to other to serve customers. The
important features are
1. Compared to itinerant retailers, they have
greater resources and operate at a large scale.
2. They deal in different products including
consumer durables as well as non durables
3. These retailers have greater credibility in the
minds of the consumers and are in a position to
serve the customers in a better way.

TYPES OF FIXED SHOP RETAILERS
On the basis of size of operation fixed shop
retailers can be classified into two:-
1. Small shop keepers
2. Large retailers

FIXED SHOP SMALL RETAILERS
1. General stores:-
General stores are most commonly found in local
market and residential areas. These shops carry a
wide variety of products to satisfy the day-to-day
needs of the consumers residing in near by localities.
These shops remain open for long hours at
convenient timings enabling consumers to purchase
goods of daily use according to their requirement.
They also provide credit facilities to regular customers
and maintain better relation with customers

2. Specialty shops:-
These types of shops are becoming popular in
cities and towns. They deal in a particular line
of products only. Example. Men’s wear, ladies
shoes, electronic goods etc. These are
generally located at central places where a
large umber customers can be attracted and
provide wide choice.

3. Street stall holders:-
They are found at street crossings or other
places where flow of traffic is heavy. They
deal in goods of cheap variety of goods like
toys, soft drinks etc. They are very small
business so maintain small quantity of
stock. They provide convenient service to
customers to purchase goods of their needs.

4. Secondhand goods shop:-
These shops deal in second hand or used
goods like books, clothes, furniture etc.
These are located at street crossings or in
busy streets to cater to the needs of
modest means of customers by selling
goods at low prices.

5. Single line shops :-
These shops deal in a single product line
such as ready made garments, watches,
computers etc. These shops keep a wide
variety of items of the same line and are
located at central places.

LARGE FIXED SHOP RETAILERS
1. Departmental store:-
It is a large scale establishment offering a wide
variety of goods classified into well defined
departments. It has a number of departments, each
dealing in a particular line of goods. It aims at
providing maximum consumer satisfaction by
providing all requirements under one roof. For
example there may be separate departments for
medicines, electronic products, furniture, clothing
materials etc.

Features of departmental store.
1.These departmental stores provide all
facilities under one roof
2. These are located at central places
3. As the size of the business is very large,
these are formed as joint stock companies
4.Departmental stores combines both the
functions of retailing as well as warehousing
5.They have centralised purchasing and
decentralised sales through various
departments

ADVANTAGES OF DEPARTMENTAL
STORE
1. Attract large number of customers:- As these
are located at central places, they attract a
large number of customer during the best part
of the day.
2. Convenience in buying:- By offering wide variety
of goods of daily use under one roof, the
departmental store provide convenience to
customers in buying. Customers need not visit
different shops to get their daily requirements.

3. Attractive services:-
A departmental store provides maximum services
to customer which include home delivery facility,
rest rooms, telephone facilities, restaurants etc.
4. Economy of large scale operation:-
As these are organised on a large scale basis,
they enjoy the benefit of economies of large
scale operation.
5. Promotion of sales :-
They are in a position to spend a large amount
of money on advertising and other promotional
activities to increase the sales

LIMITATIONS OF DEPARTMENTAL
STORE
1. Lack of personal attention:-
Due to large scale operation it is very difficult to
provide personal attention to customers.
2. High operating cost.
As they emphasis on providing better services to
customers, their operating cost tend to be more.
This increases the selling price of the products.
Therefore, these are not attractive to low income
group customers

3. High possibility of loss :-
As a result of large scale operation and high
operating cost the chances of incurring loss
are high.
4. Inconvenient location :-
As these departmental stores are located at
central places, people living far away from
cities are deprived of the facility of
departmental store . Moreover purchase of
goods that are needed at short notice also can
not be purchased

2.CHAIN STORE OR MULTIPLE SHOPS
These are the retail shops that are owned and
operated by manufacturers or intermediaries.
Under this type a number of shops with similar
appearance are established in different
localities. These shops deal in standardised
and branded products. These are run by same
organisation with identical strategies, product
display and other policies.

CHARACTERISTICS
1. These are located at fairly populated areas where a large
number of customers can be approached.
2. The manufacturing or procuring of goods are done
centrally and distributed to all the shops according their
requirements
3. Each shop is under the supervision of a Branch manager.
4. The prices in these shops are fixed and sales are on
cash basis.
5. All the branches are controlled by head office which
responsible for formulating policies and its
implementation.
6. The head office appoint inspectors who are responsible
for day-to-day supervision of the shops.

ADVANTAGES
1. Economies of scale:- as the production or
procurement of goods are centralised, it enjoys the
economies of large scale.
2. Elimination of middle man:- By selling goods
directly to consumers, it eliminates middlemen in
the distribution channel.
3. No bad debts:- as the sales are strictly on cash
basis ,there is no chance of any bad debt.
4. Transfer of Goods :- the goods that are not in
demand in a particular locality can be transferred
to the other shop where there is more demand for
the same.

5. Diffusion of risk :- the losses incurred by one
hop can be covered by the profits made by other
units, thus reducing total risk of the
organisation.
6. Low cost :- Because of centralised purchasing,
elimination of middlemen , centralised
promotion of sales and increased sales, the
multiple shops have lower cost of operation.
7. Flexibility:- If a particular shop is not operating
at a profit ,it can be shifted or closed without
affecting the overall profitability of the
organsiation.

DISADVANTAGES
1.Limited selection of goods:- They deal in a limited range of
products, mostly those produced by the marketer. They do not
deal in products of other manufacturers.
2. Lack of initiative:- the branch mangers have to obey the
instructions received from the head office. This makes them
waiting for head office instruction on all matters and takes away
the imitative from them.
3.Lack of personal touch:-Lack of initiative in employees
sometimes leads to indifference and lack of personal touch in
them.
4. Difficult to change demand :- If the demand for the goods
handled by the multiple shop changes rapidly, the management
have to sustain huge loss.

DIFFERENCES BETWEEN DEPARTMENTAL STORE AND
MULTIPLE SHOP
1. Location :-
A departmental store is located at central place
where a large number of customers can be attracted,
Whereas a multiple shop is located at a number of
places for approaching a large number of customers.
2. Range of products :-
Departmental store maintain a wide variety of
goods,but a multiple shop maintain a limited range
of products

3. Services offered.
Departmental stores provides maximum services to
customers. Whereas a multiple shop provides very limited
services to customers
4. Pricing .
Multiple shops sell goods at fixed prices and maintain uniform
pricing policies, but departmental stores donot have uniform
pricing policies for all the departments
5.Class of customers.
Departmental store cater to the needs of high income group.
Whereas multiple shop cater to the requirements of different
types of customers.
6. Credit facility.
Departmental store provides credit facility to regular
customers but sales in multiple shops are strictly on cash
basis.

MAIL ORDER BUSINESS
Mail order business sell their products through
mail. There is no direct personal contact
between the buyer and seller. This is not
suitable for all types of products. This method
is suitable for graded and standardised
products, easily transported at low cost, ready
demand for the product , available through out
the year, involve less competition and can be
described through pictures.

ADVANTAGES
1. Limited capital requirements.
It can be started with small investment as it
does not require heavy expenditure on
building and infrastructure.
2. Elimination of middle men.
It helps in eliminating intermediaries between
buyer and seller thus result in a lot of savings
to both buyer and seller.

3. Absence of bad debts.
Since mail order business do not offer credit
facility, there are no chance of bad debts.
4. Wide reach.
Under this system goods can be sent to all
places connected with postal service. This
provides wide scope for this type of business.
5. Convenience.
Goods are delivered at the doorsteps of the
customers, there for it provides convenience
in buying.

LIMITATION
1.Lack of personal touch.
Since there is no personal contact between buyer and
seller, there are chances of misunderstanding and
mistrust under this method.
2. High promotion cost.
The success of mail order business depends on
advertisement and other promotional methods, this
results in high operating cost.
3. No after sale service.
There is no after sales service in mail order business,
which is very important for the satisfaction of the
customers.

4.No credit facilities.
Since there is not credit facility in this method
customers with limited income may not be interested
in this method.
5. Delayed delivery.
There is no immediate delivery of goods as there is
time lag between receipt of order and delivery of
goods.
6. High dependence on postal service.
The success of mail order business depends on the
availability of efficient postal service. But many places
in our country are still not connected with postal
facilities.

CONSUMER COOPERATIVE SOCIETIES
These are owned, managed and controlled by
consumers themselves.
The objective is to reduce the number of
middlemen who increase the cost of the
products. They purchase goods directly from
manufacturers or wholesalers and sell them
directly to consumers at reasonable price.
The profit earned by the society is used for
distributing bonus to members on the basis
of purchase made by them.

ADVANTAGES
1. Ease in formation.
It is easy to form a consumer cooperative
society as any 10 members can come together
to form a voluntary association and get it
registered under cooperative societies act.
2. Limited liability .
The liability of the members is limited to the
amount of capital contributed by them.

3. Democratic management.
These are managed by a managing committee elected by
the members. Each member has one vote irrespective of
the number of shares.
4. Lower price.
Elimination of middlemen helps in reducing the price of
the goods sold by society.
5.Cash sales.
All sales are on cash basis. This reduces the need for
working capital.
6. Convenient location.
These societies are generally opened at convenient
location where the members and other consumers can
easily buy goods.

DISADVANTAGES.
1.Lack of initiative.
As the societies are managed by members on
honorary basis, there is lack of initiative and
motivation among the them.
2. Shortage of funds.
These stores face shortage of funds as the funds
are raised by issue of shares and members do
not invest too much money in the society

3.Lack of patronage.
The members of the society do not always
patronage the society, this results in
ineffective functioning of the cooperative
stores.
4. Lack of business training.
The people entrusted with the management
of the society lack expertise in managing
the society as they are not properly trained.

SUPER MARKETS
A super market is a large scale retail store
selling a wide variety of consumer goods at
reasonable price under one roof. The goods
traded are generally food products of and
other low priced, branded and widely used
consumer goods. These retail shops are
generally operated on a self service basis
and do not provide services like free home
delivery, credit facilities etc.

FEATURES
1. It carries a complete line of food items and
groceries in addition to non food convenience
goods
2. The consumers can purchase different items
under one roof.
3. The supermarket operates on self service basis
4. The prices are lower than other types of retail
shops
5. Sales are on cash basis
6. It is usually located at central places

ADVANTAGES.
1. One roof, low cost. It provides wide variety of
consumer goods under one roof at reasonable
price
2. Central Location. It is located at central places
where a large number of consumers have easy
accessibility.
3. Wide selection. It keeps a wide variety of goods
of different designs, colour , brands etc. this
provides wide selection to consumers.

4. No bad debts. As the sales are on cash basis,
there are no chances of bad debts.
5. Benefits of being large scale. A super market is
a large scale retail shop. It enjoys all the
benefits of large scale operation

LIMITATIONS
1. No credit. Super markets sell goods only on
cash basis. No credit facility is offered to
consumers. This restricts the purchasing
power of consumers.
2. No personal attention. super market function
on the principle of self service. As a result
consumers do not get any personal attention.

3. Mishandling of goods. some customers
handle the goods kept in the shelf
carelessly. This may raise cost in the super
markets.
4. High overhead expenses. Super markets
incur high operating cost. Thus it may not be
able to create low price appeal among the
customers
5. Huge capital investment. Establishing and
running a supermarket involves huge capital
investment.

VENDING MACHINES
Coin operated vending machines are useful in
selling several products like hot beverages,
platform tickets, milk , soft drinks etc. Vending
machines can be useful for selling pre packed
brands of low priced products which have high
turnover and which are uniform in size and
weight. Consumers cannot see or feel the
product before buying and don't have the
opportunity to return the unwanted products.

ROLE OF CHAMBER OF COMMERCE AND INDUSTRY
1. Transportation or interstate movement of
goods.
2. Octroi and other local levies.
3. Harmonisation of sales tax structure and
value added tax.
4. Marketing agro products and related issues
5. Weights and measures and prevention of
duplication brands
6. Promoting sound infrastructure.

MAIN DOCUMENTS USED IN INTERNAL TRADE
1. Performa invoice.
It is an estimated invoice sent by the seller to the buyer.
It is a document that contains details as to the quantity,
grade, design, size , weight, and price of the goods and
the terms and conditions of sale of the goods
2. Invoice.
It is a document issued by a seller to the buyer
indicating the product quantity and agreed price for the
product or service. It indicates a sale transaction only.

3. Debit note.
A debit note is a document evidencing a
debit to be raised against a party for reasons
other than sale on credit. It is prepared at
the time return of goods to supplier
4. Credit note .
A credit note prepared when a party is to
be given a credit for reasons other than
credit purchase. It is prepared at the time
of sales return.

6 Railway receipt(RR)
A railway receipt is a document issued by the
railway authorities to the consignor of goods
undertaking to carry the goods from the booking
station to the designation and deliver the same as
per instructions of the consignor.
5 Lorry receipt.
It is the document issued against the goods
boarded on the vehicle giving the details of
goods loaded such as no of packets,
condition of package etc.

TERMS OF TRADE
1.Cash on delivery. In this the payment of the goods is
to be made on delivery of the goods to the customer.
2. Free on board. In this quotation the seller has the
responsibility to deliver the goods on board of a
vessel.
3. Cost , insurance and Freight . This quotation
includes the cost of the goods, insurance charges
and transportation cost of the product.
4. Errors and omissions excepted . This is a term used
to reduce the legal liability for any incorrect
information supplied in contractually related
documents

INTERNAL TRADE AND ITS TYPES AND APPLICATIONS

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