Middlemen in Internal Trade Part 2

Download PDF of This Page (Size: 187K)

Both wholesalers and retailers act as a link between producers and consumers in the chain of distribution of products. They are called middlemen as they come in the middle, i.e., between the producers and the consumers in the chain of distribution.

Chain of Distribution

The middlemen provide useful services to both producers and consumers. For the producer, they free him of the complexities of arranging for transport, warehousing, financing and marketing of his produce to a large extent. The responsibility of the producer gets limited to producing the product. Largely all efforts to sell and distribute the same is taken up by these middlemen. For the consumers too, these middlemen are beneficial as they make the products available at the place and time of convenience to them.

Now let us learn in detail the role of wholesalers and retailers in the chain of distribution.

Role of Middlemen in the Distribution of Goods

Role of Wholesalers

The wholesalers through their services offer a number of benefits to the producers and retailers. They save the time and effort of the producers and allow them to concentrate on production of the goods while distribution is taken care of by the wholesalers. They deal with goods in bulk and reap the benefit of economies of scale. They provide goods in relatively small quantities to retailers and provide them with facility of credit purchase. They provide information to the producers about the consumers’ preferences, changing taste and fashion, market demand etc. Wholesalers also bear the risk involved in holding of stock of goods and its transportation.

Role of Retailers

Retailers are engaged in selling the product to the end-users or the consumers. They cater to the demand of the customers by providing a variety of products collected from different locations. The retailers may offer credit facility to customers. They also offer pre and after sales services and communicate to consumers the technique of usage of the products. They act as salesmen of the product and persuade buyers to purchase goods and services. They provide information to the manufacturers or wholesalers about the feedback on consumers’ response to the product.

Evaluation of the Role of Middlemen in the Chain of Distribution

As seen above, the middlemen provide a number of services in the process of distribution. Do they charge any money for their services? Yes, these services of middlemen do not come free of cost. They do charge their share of profit margin for the product, in return for the services they provide. This increases the sale price of the product considerably, as compared to the cost incurred in producing it. For example, a pen that costs Rs. 5/- to

Produce, may be sold by the producers to the wholesalers for Rs. 6/-. In turn the wholesaler may sell it to the retailer for Rs. 7, who in turn may sell it to the ultimate consumer for Rs. 8.50. The middlemen’s share of profit here is Rs. 2.50 (Re. 1 + Rs. 1.50) that has added considerably to the price of the product.

It is often debated that the middlemen do not serve any useful purpose, but only escalate the price of a product unnecessarily. To that extent, they are justified to get their share of profit in the sale of the product. But it should be a reasonable and not too high to become a burden on the consumers. We must also give a thought to some of the problems that stem from the presence of middlemen in the chain of distribution. If there are too many middlemen between manufacturers and consumers, each charging his share of profit or commission, the ultimate consumer ends up paying a very high price for the goods. Some middlemen indulge in unfair trade practices like hoarding and adulteration to increase their gains from the business. They, at times, promote the sale of inferior quality goods and exploit the consumers to get a high profit margin for themselves. The middlemen do not bear risk such as loss due to strikes, lockouts, changes in fashion and consumption habits. These have to be primarily borne by the producer. Sometimes the transfer of goods from one middleman to another causes delay in the smooth flow of goods, instead of facilitating it. Nonetheless, when we compare the benefits of middlemen with the problems they pose, their benefits definitely outweigh the problems. In conclusion, one can clearly say that the middlemen play the role of a vital link between producers and consumers in the chain of distribution.

Now, let us compare the wholesale trade with retail trade.

Types of Retail Trade

You have learnt about Retail trade in the previous section. In your village or town, you buy products from the nearby shops in small quantities. In cities you can buy a product from a large shop or a variety of products from a large number of counters in one big shop. They are all engaged in retailing business.

We can classify the retailing business on the basis of size as small scale, medium scale and large scales. On the basis of forms of ownership, it may be sole proprietorship, partnership, cooperative society or joint stock company. But the most common way of classifying retailing business is whether they have any fixed place of business or not. On this basis, one can have two categories of retailing business:

  • Itinerant Retailing

  • Fixed shop Retailing

    Image of Retails Trade types

    Image of Retails Trade Types

    Image of Retails Trade types

Itinerant Retailing

Itinerant retailing is a type of small-scale retail trade in which retailers move around and sell a variety of items directly to the consumers. They do not have a fixed shop where they can sell. You must have seen them distributing newspapers early in the morning; selling peanuts, bangles, toys etc. in buses and trains; selling fruits and vegetables in your locality using a cart, selling ice-cream, namkeens etc. on a cycle; selling rice, earthen pots or even carpets by using a cart, etc. You can also see them on pavements in your locality.

In towns and cities, we come across different type of itinerant retailers. There are traders who sell their articles on fixed days at different market places. In villages these market places are called “Haat” and in towns or cities they are called “weekly bazars”. The itinerant retailing also includes persons selling products from door to door. In most cases, the price of items is not fixed and mostly settled through bargaining. Moreover, in most cases the items sold are not branded products.

Fixed Shop Retailing

Here, the retailers sell goods and services from a fixed place known as ‘shop’. They do not have to move from place to place to serve their customers. These shops are usually located at market places or commercial areas or near residential localities. These shops normally deal with a limited variety of goods. On the basis of the volume of transaction or size of their operation, fixed shop retailing can be classified as

  • Small scale fixed shop retailing,

  • Large scale fixed shop retailing.