Commerce Teaching Notes

Term 1, 2016

Topics

1. Production
2. Trade
3. Wholesale Trade

1. PRODUCTION

What is production?
-it is the provision of goods and services to satisfy human needs and wants
Goods and services
-Goods are tangible items that is they can be touched e.g. cars, desks, meat; while services are
intangible items that is they cannot be touched e.g. education and entertainment
Needs and wants
-Needs are items that are necessary for human survival e.g. food, shelter, health, clothes; while
wants are items one can do without that is they are not basic necessities e.g. cars , television,
radio.

The classification of goods and services

1. The classification of goods

-goods can be classified as consumer/capital and producer goods as shown below

Goods

Producer Goods Consumer Goods

Durable goods Non-durable goods Durable goods Non-durable goods

Producer/capital goods
-these are goods that are used in the production of other goods.
-they include equipment and other facilities like factory machinery, tractors, ploughs, cranes,
bulldozers, lorries, airports and tools.
Consumer goods
-these are goods that are made for people to use in their lives.

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-they satisfy people’s needs and wants directly e.g. soap, clothing, household refrigerator and
beds.
Durable goods
-these are those goods that last for a long time, and can be used for prolonged periods.
-examples include cars, refrigerators, stoves, machines etc.
Non-durable goods
-these are those goods that do not last for a long time.
-examples include clothes, food, machine lubricants like grease.

2. The classification of services

-Services can be classified into direct and indirect service as shown below.

Services

Direct Services Indirect services

services
Direct services
-these are services that are directly provided to a person requiring them.
-they are consumed exactly the time they are produced and in the presence of both the consumer
-they are produced on a face to face basis.
-examples include a musician playing to an audience or teacher providing education to students.
Indirect services
-These are services provided in the absence of the beneficiary, e.g. transport, banking or
communication.
-there are also referred to as commercial services
-they assist production to take place smoothly/ function well
-these services are required at every stage of production
NB// both direct and indirect service are produced under tertiary production.
Types of production
-basically, there are two types of production, namely direct production, and indirect production a
shown below
Production

Direct Production Indirect Production

1. Direct production
-this involves the production of goods for one’s own consumption or consumption of one’s own
family, meaning it is production for subsistence purposes, E.g subsistence farming, building own
house, sewing own clothes e.t.c
-production is done at a low scale
-goods are produced according to own taste and preference
-there is no division/specialization of labour

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-Goods produced are of low quality
-production takes long time to complete
-there is use of family labour
Advantages
-no wastage of resources as people produce exactly what they want.
-simple tools like hoes are used
-no labour costs as people work as families
Disadvantages
-low volumes of production.
-low quality goods
-lack of variety in products due to lack of resources and expertise.

2. Indirect production
-this is where the producer make goods for others.
-goods and services are produced for commercial services
-individuals, firms, regions or countries concentrate in producing those things they can do best,
and meet the rest of their need through exchange.
- The producer is not the consumer of the goods
-goods are produced at a higher scale, i.e there is mass production of goods and services
-there is division and specialization of labour
-labour is hired and highly qualified
-there is production of quality goods and services
-there is use of machines
-production is done at higher scale.

Advantages
-low production costs result in lower prices as goods re produced in large quantities.
-high quality products.
-greater variety of goods.
-higher standards of living due to availability of quality goods.
Disadvantages
-high costs of operation, e.g. labour
-machines may result in job losses.
-creates dependency among workers and craftsmanship is lost as no worker will make a complete
product on his/ her own.
-production is not customized, that is goods are made irrespective of customer preferences.

The Stages/Chain of Production

-production takes place in a series of stages that are interlinked.

- These stages are primary, secondary and tertiary as described below.

a. Primary Production

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-it is the first stage of production.
-Primary production is obtaining (extraction and sourcing) raw materials from nature.
-it includes Extractive Industries for example mining, quarrying.
-it also includes Genetic/Agricultural Industries for example farming, forestry and fishing.
-products produced at this stage have low value.
- Products are in unusable state, so they are moved to secondary stage of production.

b. Secondary Production

-It is the second Stage of Production.

-Secondary production is making goods from raw materials.
-It includes Manufacturing and Processing e.g. in factories, mills or Construction e.g. of houses,
bridges and roads.
-products produced are of higher value due to processing that will have taken place to raw
materials.
-Products are ready to use, but are at the wrong place, so they are moved to the tertiary stage.

c. Tertiary Production

-it is the third (last) Stage of Production

-it is mainly concerned with the provision of direct and indirect services
-it deals with the exchange of goods and services
-It assists industry to function, by providing commercial services and direct personal
Services.
-commercial services enable the distribution of goods both to primary and secondary industries,
while personal services are those provided directly or indirectly for example by lawyers, teacher,
doctors etc.

NB. These stages/ chain of production are summarized in the diagram below.

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Interdependence of the stages
-interdependence can be defined as a situation in which one, entity or department, rely on
another
-and it is of interest to note that the stages of production are interdependent, meaning they rely on
each other, for example the secondary stage gets raw materials from primary stage and the
products and services from the secondary stage needs the tertiary stage to reach consumers.
Factors of production
-for products to be made, different resources namely land, labour, capital and
enterprise/organisation are combined.
-these economic resources are called factors of production, and they are not used for free, but are
paid for to those who own and control them.
-thee payments are called rewards or incomes for factors.
Factors of production and their rewards

Division of Labour and Specialization

Division of labour and Specialization

These two concepts arise from indirect production;

 Division of labour refers to the process of sharing production process among workers.
 Each worker is assigned a specific task that is different from that performed by another.
 Each task adds value to the product
 Each worker has his/her set of tools
 Each worker does his/her part and pass the product to the next stage until a full product is
produced

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 Example in sewing industry we have workers cutting, sewing, over locking and ironing
NB// division of labour leads to specialisation as worker tend to specialise in a task that he/she
would have been sign.

Specialization refers to a situation in which a worker, firm, country or region concentrates on

the production of a good or service that they can do best and have comparative advantage.

Forms of Specialization

Specialization at country level: occurs when a certain country devotes itself mainly to produce
certain products which it exports to other countries.

Specialization at region level: occurs when a particular region in a country devotes its self in
producing certain types of products, which is used by all the country.

Specialization at town level: occurs when a particular city in a country devotes its self in
producing certain types of products, which is used by all the country.

Specialization at firm level: occurs when a firm is divided into departments and within
departments individual workers have their own specialized duty. Accounts department,
marketing department etc

Specialisation at worker`s level: occurs when workers specialise in doing a certain task they are
best at in the production of a certain good or service. For example in teaching field teachers
specialise in different subjects and no one does the teaching of all levels and all subjects.

Advantages of Specialization

 Concentration on work increases.

 Increased output per worker i.e productivity increases
 It leads to mechanization, i.e use of machinery
 Economies of scale can be achieved (low average cost of product) due to mass production
 It is less time consuming as no wastage of time by workers moving from one task to another
 Better quality products are produced as workers do what they like most
 It leads to mass production which results in goods available in surplus and at low cost

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 It saves on tools and equipment and they will be no sharing
 It enables workers to be trained for a specific task and become expert in that area.
 It enables stuff development within a certain area
Disadvantages of Specialization

 Work becomes boring by repeating the same task again and again
 Interdependency increases, hence a problem in section affects the whole production process
 It leads to decline in craftsmanship as no single worker will make a complete product on
his/her own
 It leads to unemployment due to mechanisation, i.e machinery replaces labour.
 choice of customers decreases due to standardized output,
 It leads to demotivated staff thereby lowering productivity
 Workers become inflexible and they tend to find it difficult to change jobs
NB//. The advantages and disadvantages of division of labour are just the same as those of
specialisation

Mechanisation/Automation: this happens when industries make use of machines instead of

human labour, eg combine harvesters are used to harvest crops and computers to process data

Standardisation: it refers to production of goods that are similar in every aspect due to the fact
that they are being produced by a machine

 The goods can be interchangeably used because they are similar e.g the bolts of one Toyota
car can be used for another Toyota car without any problem.
Simplification: this refers to the production of goods that user friendly, uncomplicated and easy
to use.

 These goods are also called ` Do It yourself ` (DIY) as consumers can simply follow
instructions on packages to assemble them
Mass production: it is the production of goods in large quantities.

 The goods are usually similar, simple and cheap

 Mass production results in economies of scale
 In results in production of surplus goods for export to other countries with shortage

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 It results in improvement of standard of living
Interdependence: it is a situation in which one entity or department rely or depend on another
Individuals, firms, regions and countries depend on each other in many ways

Production and Commerce

Commerce

Question: what is commerce? [20]

-it can be defined as the distribution of goods and services to satisfy human need and wants.
-or simply as trade and aids to trade.
-the concept of commerce can be summarized by means of diagram as below

a. Trade
-Trade is the exchange/activity of buying and selling of goods and services.
- It is divided into home and foreign trade.
i. Home trade
-this is trade within the same country, and is subdivided into retail and wholesale trade.
-home trade can also be viewed as domestic trade.
-channel of distribution under home trade as the following agents: retailers and wholesalers
ii. Foreign/International trade
-it is the exchange of goods between different countries, and involves activities of exporting
(selling goods to other countries), importing (buying goods from other countries) and entreport
(where goods are imported for re-export)
-channel of distribution under foreign trade has brokers, factors, del credere agents, forwarding
agents and merchants.

b. Aids to Trade
-These are services which are required to facilitate trade.
-these services can also be known as commercial services or indirect services and there are six of
them which are as follows:
Aids to Trade and their Functions
1. Banking -Provides Finance and financial services.
2. Transport- provides the means of transportation of which without it is impossible to trade.
3. Communication- To transmit and receive information quickly.

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4. Insurance- Absorbs some of the risks in production and trade.
5. Warehousing- Provides storage facilities.
6. Advertisement- Inform customers about products and services.

2 Production and Commerce

QUESTION
Distinguish between commerce and industry [12]
 Commerce refers to the distribution of goods and services so as to satisfy human needs and
wants whereas industry refers to production which involves the provision of goods and
services so as to satisfy human needs and wants.
 Commerce is classified into trade and aids to trade whereas production/ industry is classified
into direct production and indirect production
 Trade is the exchange of goods and services and it is classified into home trade and
international trade while industry is in three stages that is primary industry, secondary
industry and tertiary industry
 Commerce is also concerned with the provision of commercial services that assist production
to function well. However industry manufactures direct services and commercial services/
indirect services.
 Commerce is born form production under tertiary production, whereas industry is born from
the nature which feeds it with raw materials for primary industry to start.
 Production comes up with goods or services and Commerce distributes these goods to final
consumers.
 In commerce there are aids to trade whereas in industry there are factors of production.

2. TRADE

Trade: Introduction
-Trade is the activity of buying and selling of goods and services.
-it can take place between individuals, regions of a country or countries e.g. Zimbabwe and
South Africa.
-the earliest form of trade was barter, where goods were exchanged for goods, but today people
use money.

The nature of trade and purpose of trade

Nature
-Trade takes place at every level in the production chain, that is from primary, secondary and
tertiary stages.
Purpose
-trade is important in the following ways:
a. it creates employment.
b. it improves the people’s standard of living/ quality of life.
b. it makes available goods and services consumers want to satisfy their needs and wants.
d. it makes producers sell goods and services at a profit.
e. it helps countries to earn foreign currency used to buy goods from other countries.
f. it enables producers to dispose of surplus goods, thereby reducing shortages.
g. it ensures people get a variety of goods and services.

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Divisions/ Types of Trade
-people who consume goods and services are both local and in foreign countries, therefore trade
is divided into home and foreign trade as illustrated below.

Trade

Home Trade Foreign Trade

Wholesale Retail Import Export Entreport

trade trade trade trade trade

1. Home Trade
–this is buying and selling of goods and services within international boundaries that is same
country, and is subdivided into
i. Retail, and
ii. Wholesale trade.
2. Foreign Trade
–this is buying and selling of goods and services across the globe, and involves activities of
i. Exporting -selling goods to other countries,
ii. Importing -buying goods from other countries, and
iii. Entreport -where goods are imported for re-export.

Comparing and contrasting Home Trade and Foreign Trade

1. Similarities between Home Trade and Foreign Trade

- Both involve the buying and selling of goods for making profit.
- Both involve the serving mankind by satisfying needs and wants.
- Both require aids to trade.
- Both require surplus to be created.
- Both involve work on the principle of specialization.

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2. Differences between Home Trade and Foreign Trade

Home Trade Foreign Trade

1. Done within national boundaries (locally).
2. Same/local currency is involved or used.
3. Same units of measurements.
4. Same government policies.
5. No tariffs are involved.
6. Simple Documents.
7. Same culture and language
8. Mode of Payment is cash, cheque etc.
1. Done across the globe (internationally).
2. Different currencies are involved/used.
3. Different units of measurement.
4. Different government policies.
5. Import/Export tariffs are involved.
6. Complex Documents.
7. Different culture and languages.
8. Mode of payment is online transfer, etc

Channels of Distribution
-This is the way/path/route in which goods or services are delivered from the producer to the
customer.
-The channel of distribution ends when goods are delivered to the point of consumption.
-it ends when the form of the good is changed.

1 Factors affecting choice of Channel of Distributions

a. Producer capabilities
Can producer open his own retail outlets?
b. Producer philosophy
-some producers prefer Exclusive distribution (distribution at certain shops), and other prefer
Extensive distribution (distribution at every shop)
c. Type of customer
Customers seeking goods for own use order from retailers, but for business use order from
producers.
d. Size of order
-Small orders need a retailer, and large orders require a producer producer
e. Nature of product
Perishable goods e.g. fish, fruit, vegetables require a short channel, and goods with a long shelf
life need a long channel.
f. Value of product
-Expensive goods require a short channel, and cheap goods need a long channel.
g. Size of market
-markets can be small needing a short channel, and large market need a long channel
h. Nature of market

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-The market may be Home or International/Foreign

Types of Channels of Distribution

-channels of distribution are grouped into direct and indirect channels

1. Direct channels of distribution

-this is where the producer sells directly/straight to the consumer, hence no middlemen.
-the method is used when:
a. there is need to cut costs and increase the producer’s profit.
b. there is urgency of delivery.
c. goods are highly perishable. e.g. vegetables, fruit, meat.
d. goods are large or complicated hence requiring the manufacturer’s installation, training,
maintenance and servicing.

2. Indirect channels of distribution

-this is where producers do not sell their goods direct to consumers.
-the middlemen add value to the products or services e.g through
a. further processing the goods.
b. the producer concentrates on production and the middlemen on storage and transportation.
c. produces save on capital
***The possible direct and indirect channels of distribution are summarised by the diagram
below

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 Manufacturer

Primary Consumer
producer

Retailer

Wholesaler

1. Primary Producer to the Consumer

-Expensive, technical, perishable, exclusively made for one customer.
2. Primary Producer to Retailer to Consumer
-Large scale retailer, producer’s own outlet, suitable for perishable items for example bakery.
3. Primary Producer to Wholesaler to Retailer to Consumer
-Standardized, consumer items, low value and high shelf life, suitable when demand of products
are seasonal or the production is seasonal.
4. Primary Producer to Manufacturer to wholesaler to retailer to consumer
-Only in case of international trade. Overseas producer appoints an agent in home market, for
example imported cars and cosmetics
5. Primary Producer to Manufacturer to Consumer
6. Primary Producer to Wholesaler to Retailer to Consumer
7. Primary Producer to Wholesaler to Consumer
8. Primary Producer to Retailer to Consumer

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3. THE WHOLESALE TRADE

Introduction
-Wholesale trade deals with the bulk buying of goods from various manufacturers and the
breaking down of this bulk into smaller quantities which is then sold to the retailer.
-the Wholesaler is an intermediary distributer.

Functions
-Buys in bulk from different producers.
-Looking for a good source of supply.
-Clears lines of production so that production takes place continuously.
- Bears the risk, if products are damaged, spoilt or stolen.
- Warehousing.
-Transportation from the producer to warehouse and from warehouse to the retailer.
-Bulk breaking.
-Purchasing in cash from producer.
-Selling on credit to the customer.
-Providing technical help to small scale retailers.
-Maintaining stability in price.

Functions/Importance of Wholesalers

1. To Producer/Manufacturers
-Producers are relieved of risks e.g. damage, deteriorating quality, theft.
-Producers are relieved of the problem of storage of products.
-By providing prompt cash (financing), cash flow problems are reduced.
- Due to purchase in bulk, production lines are cleared.
-Transportation is provided by wholesalers hence reduced costs to producers.
- Feedback from the market e.g. on customer complains, likes and dislikes.
- Help producers in forecasting market trends, establish new markets or expand existing ones
-sometimes prepare goods for sale e.g. through packing, grading, branding and advertising.

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2. To Retailers
- Variety is provided from different producers e.g. different types of rice, tea, etc.
- Wholesaler provide credit to retailers.
- Wholesaler provide transportation.
- Educate retailer on new products, shop layout and advertising.
-Pack and grade before selling to retailer.
-Sell in small quantities (breaking bulk).
-Warehousing is done by wholesaler hence reduced risks of theft, deterioration etc.
-give useful advice and information on a wide range of products and issues e.g. new products,
fast selling products, installation, use or repair of products.
-sometimes prepare goods for sale e.g. through packing, grading, branding and advertising.
-may provide advertising material which covers a wide range of goods.

3. To Consumers /End Customer

-provide variety e.g. groceries, hardware, electrical, clothing, cosmetics etc..
-Convenience (products are available to retailer through wholesaler).
-Competitive rates/ prizes.
-Continuous availability of products.
- Price fluctuations are minimized.
-Customer demand is met.

Types of wholesalers

a. General line wholesalers

-these carry a wide range of goods such as groceries, hardware, electrical, furniture, clothing,
cosmetics etc. e.g. Mohammed Mussa.
-they sell retail outlets which sell a wide variety of products or those which specialize in a
narrow range of products.
-it is the most common type of wholesaler in Zimbabwe.

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b. Specialist/Specialty wholesalers
-these carry a very narrow range of products e.g. health foods not the full range of groceries.
-they offer expert advice and information on the products they sell.

c. Mail order wholesalers

-these use catalogues distributed to retailers, which they fill and retain through post to wholesaler
after selecting items they need.
-the wholesaler sends the goods by post and payment is done on delivery (Cash on Delivery-
COD)

d. a. Cash-and-carry wholesalers
- It is a wholesaler which sells on cash basis, where retailers can buy goods in bulk at low prices.
- No credit nor delivery or storage of goods are provided.
- They are generally located in commercial areas.

e. Co-operative wholesale societies

-these are formed by retailers to have an advantage of bulk buying.
-the retailers are also its customers.
--examples in Zimbabwe are Mashco, and Farmers’ Co-op.

Recent trends in wholesale trade

1. Reasons to why the role of wholesaler is on decline

-the growth of large scale retailers e.g. hypermarkets, department stores like TM hypermarket in
Bulawayo.
-Branded items advertised and pre -packed by producers.
-Banks provide easy loans and thus large scale retailers can do their own warehousing
-Need of one stop shopping by customers.
-Transportation and inventory management has become easy due to advances in technology.
-manufacturers opening their own retail shops, e.g. Bata shoe company
-door to door selling by some manufacturers.

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-mail order selling by some manufacturers.
-perishable goods e.g. milk and bread may lead to wholesaler being eliminated as they require
minimum handling.
-some goods are expensive and sell slowly which ties up capital.

2 Instances where wholesalers are eliminated

- High value items (producers directly to customers).
-Branded items.
- Products are highly technical (training secrets).
- Producers are resourcefully strong (Producers own retail outlets).
- Products are very perishable (for example bakery).
- Customized items.
-Small market.

3. Instances where wholesalers are still involved

-Standardized items.
-Seasonal production (farm products).
-Unbranded items (farm products).
-Large markets.
-Producers do not have resources.
-Imports and exports.

4. Measures taken by wholesalers to survive

a. Cash-and-carry wholesalers
- It is a wholesale which sells on cash basis where retailers can buy goods in bulk at low prices.
- No credit nor delivery of goods are provided.
- Generally located in commercial areas.
Advantages:
-Cheap goods due to self-service.
- No restriction on purchase of a minimum quantity.

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b. Voluntary chain wholesalers
-Wholesalers and retailers enter into an agreement for purposes of mutual commercial benefits.
-Under this agreement all parties agree to work under a common name and symbol.
- Retailers agree to buy exclusively from specific wholesaler.
- All are responsible for their own profit and loss.
Advantages to retailer:
-Confirmed source of supply.
- Cheap source of supply.
-Full technical support from wholesaler.
Advantages to wholesaler:
-Assured amount of turnover.
-Consolidated order.
-Administrative cost becomes low.
c. Co-operative wholesale societies
-these are formed by retailers to have an advantage of bulk buying.
-the retailers are also its customers.
-examples in Zimbabwe are Mashco, and Farmers’ Co-op.

Organised wholesale markets

-these markets exist to buy and sell fresh farm produce most of which is highly perishable e.g.
vegetables, fruits and poultry products.
-they must re-stock daily from growers surrounding the city e.g. Mbare in Harare, Wilsgrove in
Bulawayo.
-local retailers and members of the public are free to buy from these markets.
-produce wholesalers must be on their market stalls very early daily to receive new supplies and
begin local deliveries early in the morning.

The role of agents/intermediaries

-these are middlemen working on behalf of a manufacturer, producer or wholesaler.

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-they help to bring sellers and buyers together.
-the person they work for is the principal and the payment they get is called commission which is
the percentage of the value of each transaction completed.
-there are four types namely Brokers, Factors, Del credere agents and Forwarding agents.

a. Brokers
-negotiates contracts of sale between buyers and sellers.
-do not have personal custody of goods, but simply match buyers and sellers.
-goods are then sent from the principal to the buyer/customer.

b. Factors
-these possess the principal’s goods.
-sells the goods in his/her own name, receives payment and sent it to the principal, less the
commission.
-they also give advice to the principal concerning market conditions.

c. Del credere agent

-these guarantee the principal that the goods will definitely be sold.
-they receive a higher percentage than a factor as they take more risks as the principal expects
payment in full whether the goods sell or not.

d. Forwarding agents
-these manage the principal’s warehousing and distribution of goods to the customers, whether
home or foreign trade.

Marketing Boards

Marketing Board
- a marketing board is an organisation usually set up by the government to regulate the
production and supply; buying and selling of a specified product or range of products. Examples
include GMB,MMCZ,COTTCO,TIMB and CSC.

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The role/reasons for setting up marketing boards.

-marketing boards:
a. buy and sell primary produce, giving producers a ready market for their products.
b. provide storage facilities for produce, thereby helping control prices or safe storage to ensure
food security.
c. fix producer prices for the products they handle.
d. control the production of certain products to ensure self-sufficiency in essential products, and
supply all year round.
e. collect and move products from farmers to their depots, therefore farmers save on transport
costs.
f. pay farmers for their produce, helping them meet financial obligations e.g. inputs for next
season.
g. they may have a research department which conducts experiments to help farmers boost
production, improve marketing methods or improve seed varieties, or deal with crop and animal
diseases and pests.

The role/ functions of individual marketing boards.

1. The Grain Marketing Board (GMB)

-handles the buying and selling of grain, including maize, wheat, sugar beans, rapoko,
sorghum, soya beans, cowpeas, sunflower, roundnuts and groundnuts,
-it provides storage at its grain silos.
-it also processes, packages and sells a variety of products under its Silo brand e.g. mealie
meal, rice, mealie rice (samp), popcorn and stock feeds.
-operates an input supply credit scheme (seeds, fertilisers, agro-chemicals, grain bags,
farm implements) aimed at encouraging farmers to grow cash crops and small grains.
-provides training to farmers e.g. on grain handling to avoid or minimize post-harvest losses.
2. Dairiboard Zimbabwe Limited (DZL)
-it buys and collects milk from dairy farmers.

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-it processes the milk into a variety of milk products like fresh milk, UHT
milk (Chimombe),sterilized milk, lacto, powdered milk, cheese, butter, yoghurt and ice cream.
-it conducts research and development in milk production, and promotes small-scale
milk production in communal areas.
3. Cold Storage Company (CSC)
-procures/buys, process and market beef and beef products.
-the cattle come from it own cattle ranches and feed lots as well as farmers.
-it also buys sheep and goats for slaughter.
-the meat and meat products are sold locally and exported.
-it also offers advice and information to farmers e.g. on prevention of cattle diseases.
4.The Cotton Company of Zimbabwe (COTTCO)
- runs an input credit scheme for communal cotton farmers.
-it buys the cotton, does ginning, and sells cotton lint locally and abroad.
-buys cotton seed from farmers and provide quality farming seed to farmers.
-it offers storage facilities for cotton.
5. The Minerals Marketing Corporation of Zimbabwe (MMCZ)
-it is the sole buyer and seller of the majority of minerals and mineral products in
Zimbabwe, except for gold and silver which are marketed through the Reserve Bank
of Zimbabwe.
-it promotes the efficient marketing and exporting of all minerals in Zimbabwe.
-it gives expert and informed advice on potential markets to mineral producers

***The major marketing boards and their functions are summarised below

Name of Marketing Board Commodities handled

The Grain Marketing Board (GMB) All grains
Dairiboard Zimbabwe Limited (DZL) Milk and milk products
Cold Storage Company (CSC) Meat and meat products
The Cotton Company of Zimbabwe Cotton and cotton products
(COTTCO)
The Minerals Marketing Corporation All minerals (except gold and silver)

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of Zimbabwe (MMCZ)
Tobacco Industry Marketing Board (TIMB) Tobacco
.
Problems faced by Marketing Boards

1. Poor state of roads in communal areas, small-scale farming area and mining areas
make collecting of produce and distribution of inputs difficult.
2. Producer price fixing makes many producers unhappy.
3. Political interference, which affect their operation, especially price fixing and timely payment
of producers.
RETAILING

 The word retailer means to cut things into small pieces.

 Retailer is an intermediary between the producers of goods and the users of the goods i.e the
consumers and more often between the wholesalers and the consumers.
 Retailer buys goods in large/ bulk quantities and sells them to end user (consumer) in smaller
quantities.
Functions of Retailer

1. Always looking for good source of supply: retailer looks for the best manufacturer with
quality goods and at affordable price.

2. Further bulk breaking, and selling in smaller quantities: retailer further breaks bulk from
wholesaler so that consumers get goods in small quantities that they want.

3. Offers variety of goods from different producers: retailer sell a variety of goods that would
have been sourced from different manufactures

4. They sell to the end customer: retailers’ plays part in the chain of distribution by passing the
goods to the end user through trade.

5. Might be involved in branding and packing: large retailers such as TM, OK and SPAR are
now involved in branding and packaging of goods in their own names so as to advertise
themselves and market their goods

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6. Might provide home delivery especially when a consumer buys large goods such as furniture
some retailers might provide transport in those cases for example OK supermarket if a retailer
buys big electrical gadgets such as fridge they provide transport

7. Might provide informal credit to trustworthy customers (small scale retailers), that is allowing
the consumer to make use of the goods and pay later.

8. Provides after sale services to the customers. Some retailers does not end at selling the goods
only but they provide after sale services such as delivery, repair and maintenance and sometimes
replacement of faulty goods especially electrical goods

9. Provides information to the customers about the new products and schemes. Retailers educate
and inform consumers about new products on the market.

10. Inform the wholesaler or producer about the reaction of market towards a certain product and
also the taste and preference of consumers

11. Deals with complaints from customers. Retailers receives consumer complains on products
and solve them and as well pass them to the manufactures so that they rectify whatever problems
that might be related to the product

12. Warehousing, large retail outlets are now involved in warehousing of goods and supply them
whenever there is demand for those goods hence retailers are evening out supply of goods and as
well stabilize price of products on the market.

13. Display products to the customers, goods are well displayed in retail outlets so that
consumers can easily do their shopping without any difficult.

14. Retailers provide finance especially large scale retailers buy their goods and pay them
promptly. This serves as finance to producers and wholesalers.

TYPES OF RETAILERS

Retailers are divided into small scale retailers and large scale retailers. Both these retailers have
their own characteristics which distinguish them.

Large Scale Retailers

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Large scale retailers refers to big organisations that operate at age scale and have the following
characteristics

1. Purchase from the producer in bulk.

2. Normally work on the basis of public or private limited companies.

3. Involve a lot of capital.

4. Invest heavily in the fixed assets.

5. Employ specialist staff.

6. Arrange transportation from the producer.

7. Pay cash to the producer at the time of purchase.

8. Sell on cash to end customers (i.e. no credit is offered).

9. Provide impersonalized services to the customers.

Types of Large Scale Retailers

The following are types of large scale retailers

Multiple/chain store, variety chain stores, department stores, retail co-operative societies,
voluntary chain stores, supermarkets, hypermarkets and mail order firms

Advantages of large scale retail outlets

 They offer their products at cheap prices as they do enjoy economies of scale. Due to bulk
buying large retailer get quantity discounts which lowers cost and passed to consumers
through low prices.
 They employ qualified management and skilled workers which gives in good service to
consumers through sourcing good suppliers and offering good technical advice.
 They have huge capital which enables them to provide a variety of goods in abundance.
 They have easy access to bank loans and this enables them to access finance to expand their
business and offer quality service to their customers.

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 They are well organized and professionally managed and by so services offered are of high
quality.
 They offer services such as self-service and use of modern technology in making payments
such as use of Zim-switch
Disadvantages of large-scale retailers

 The location of these large retail outlets its not that convenient as they are mostly located in
busy shopping areas. This means customers have to travel some distance to access the goods.
 If unchecked they grow much big and become monopolies which end up exploiting
consumers.
 Management becomes difficult as they grow large and if they grow to extreme cases they end
up experiencing diseconomies of scale.
 There is no close contact/ or personal touch with customers hence customers cannot place
personal orders
 Most of these large retail outlets do not offer credits and this makes it difficult to customers
when there are in crisis but they are in need of goods for survival.
 Some of these large retail outlets are closed early and also during the public holidays. This
tends to be inconvenient to others customers who only get free time to purchase late and also
during public holidays.
Multiple Shops

 These are many similar looking outlets distributed all over the country under the same head.
 Multiple/chain stores sells one product line throughout all the shops, for example shoes, or
clothes or they specialise in a narrow range of goods. Goods examples of Chain stores
include BATA, Edgars which deals in clothing, SPAR and lucky 7
 Stock is bought centrally i.e the stock of all the shops is bought by the head office and then
distributes it to all other branches.
 Stock can be moved between branches. For example stock in branch at Kwekwe can be
moved from Kwekwe branch to another branch in Gweru.
 Losses in one store may be offset by profits in another. So a branch may continue to operate
despite making losses
 Each and every branch has its own manager who administers it and supervises the shop staff.

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 Most multiple/chain stores operate as public limited companies. Hence they exist as separate
legal entity
 The shop fronts are the same and they use one name on all the shops.
 They use the same layout pattern for display of their goods and the prices and the same
throughout all the branches and are clearly marked.
Advantages of multiple/chain stores

 They gains economies of scale due to the fact that their administration is centralised, so their
goods are bought in bulk at head office.
 The shops are very easy to identify as they make use of similar shop fronts and use the same
name throughout the chain
 Advertising is done centrally and thereby reducing cost of advertising if each has to advertise
on its own
 Goods can be returned to any branch and as well as accounts can be paid at any branch as
long customer produce the required documents.
 They do not need to employ highly skilled stuff as they deal in a narrow range or one line of
product
 Loss in one branch can be covered by profits from other branch hence this avoids shutting
down of other branches
 Most multiple chains store use simple designs that are not expensive to put up and maintain
Disadvantages of multiple chain stores

 They require large amounts capital to start up and run and cash flow problems are mostly
likely to arise in these organisations.
 There are associated with high cost of distribution of stock since branches are scattered
throughout the country.
 There is no diversity in there portfolio of traded goods since they deal in a narrow or one line
of product so if taste and preference of consumers change negatively towards those goods the
business will fall down.
 It needs high skilled managers to manage the business efficiently and these highly qualified
managers are quite expensive to hire.
Variety chain stores

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 These retail outlets are more similar to multiple chain stores. However they tend to differ in
that variety chain stores sell a wide variety of goods and many of these stores are found in
fast moving consumer goods (FMCG).
 Sells by self-service, goods openly displayed and prices clearly marked.
 Examples include OK, TM and World Food Express.
Department Store

 Refers to many departments or specialist shops in one building i.e a multi storey building,
located in the centre of the city. Examples include H.M.Barbous, Greatermans and Meikles.
 Each department specializes in particular line of goods for example the other department
might specialise in grocery, the other department specialise in electrical goods, the other
department in clothing e.t.c
 Main aim is to provide complete range of goods under one roof as shown by having different
departments offering different products
 Therefore each department is separate from the others and sell goods that are related, e.g
furniture, hardware, clothes and grocery.
 Each department has a specialist buyer who does ordering of goods for the department and
there is also trained stuff for each and every department who offer specialist services and
advice
 They do offer other convenient services such tearooms/coffee shops, restaurants and as well
as escalators.
 Each department has several pay points located at different places within the department
 Department stores operate as limited companies.
Advantages of department stores

 they do enjoy economies of scale as they are very large in size so they order their goods in
bulk which enables them to get quantity discounts which will in turn enables the retail outlet
offer other services and luxurious facilities for the convenience of the customer
 Advertising can be done once covering all departments thus cost saving.
 Use of multi-storeyed structures save on rent and it’s an efficient use of land which so limited
in its supply.

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 Customers do their shopping under one roof hence they are saved from moving from one
place to another and this reduce the risk of customer getting robbed by thieves
 Loss in one department can be covered by profits in another department.
Disadvantages of department stores

 Department stores are located at the CBD where land is very expensive to rent.
 Their goods are quite expensive due to location and other extra services they do offer.
 Might experience cash flow problems due to the fact that they need high initial capital and
also to operate while there services are quite expensive.
 There is problem of parking due to position in which they are located and this will end up
inconveniencing customers due to traffic gem/congestion.
Super market
 It is a large retail outlet shop of at least 186m2 and other supermarkets are bigger than 800m2.
Most supermarkets are specialized in selling kitchen related and daily household goods.
 Supermarkets Offers self-service in which customers choose and pick goods they want on
their own and place them in baskets and take them to the cash point.
 The bulk of the goods in a supermarket are pre-packed and branded.
 There are wide aisles in a supermarket which means that shelves are far apart from each other
which enables customers to move freely during shopping.
 Goods in a supermarket are displayed on shelves and prices clearly marked which enables
customers to do their shopping easily without any difficult.
 Goods are stocked according to their use for example detergents which include soap, surf,
toilet cleaner and dish washers are stocked in their own section and fruits and vegetables in
their own section as well.
 Small items such as pens, chocolates, sweets and matches are located near the cash points for
security reasons.
 There are closed-circuit televisions (CCTV) and overhead angled mirrors to monitor
customer’s movements and to prevent shoplifting.
 There is high Rate of turnover as most of the goods sold are mostly used on a daily basis by
consumers
Advantages of supermarkets

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 There prices are competitive and are normally low
 The products they sell are well branded for easy identification and also well pre-packed for
easy handling
 Prices of all goods are well indicated which makes self-service easier
 Many supermarkets are conveniently located i.e. their location is mostly accessible by most
customers
 They do offer packing space for those customers with their own pvt car
 They open for long hours and also during public holidays.
Disadvantages of supermarkets

 They experience high rate of pilferage form both workers and customers
 They is no personal contact with customers as thy mainly rely on self-service hence customer
has to do shopping without or with just little assistance
 They do not provide credit facility to customers and as well as delivery service to customers
 They lead to impulse buying due to the use of trolleys as customers may end up filling the
basket/ trolley with unbudgeted things.
Hyper Market

 Is very large supermarket with shopping area in excess of 5 500 m2 and are mainly located in
outskirts of the town where land is cheap. Good examples of hypermarket is the one of T.M
in Bulawayo
 Suitable for those who want to buy in bulk and have own transport.
 Offers low prices, as they buy in bulk.
 They offer wide range of goods and this makes them one-stop shopping centre.
 They do offer playing grounds for children and adequate parking space.
 They also offer ancillary services such as banks and restaurants so as to make shopping
convenience.
NB// hypermarkets offer all other services that are offered by supermarket.

Mail order business

 Run by manufacturers or the owners of departmental stores.

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 Only one office and a large warehouse is required.
 Business will advertise extensively in newspapers and catalogues
 They have printed catalogue and price lists.
 Catalogue contains diagram, specifications and reference number of goods available and
telephone, fax number, email address and postal address of the company. Price lists contain
the prices of goods mentioned in catalogue against its reference number.
 Goods are ordered by mail, e-mail or telephone.
 Goods are delivered via mail.
 Orders accepted either by C.O.D.(cash on delivery) or C.W.O. (Cash with order) by
credit card.
 Mail order business sells under money back guarantee.
 It can make use of inexpensive premises e.g. warehouse rather than use shop premises in a
busy street.
 It saves on other retail costs e.g. shop fittings, window displays, extra services for customers.
 It can serve customers all over the country and probably in many parts of the world. It can
target those who are unable to visit shops e.g. working women, the housebound.
Speciality stores

 These are retail outlets that sell a narrow product line with a wide assortment of items within
that line.
 Good examples include sport shops which sells sports regalia only, gown shop which sell
wedding gowns only.
 They provide technical expertise and services
 Speciality shops targets a specific market for its business
 Speciality shops are able to respond to market and technological changes quickly.
 They sell goods of high quality
 It also offers self-service facilities to customers
 However the major drawbacks of speciality are that they rely on one product line and the
goods tend to be expensive.

SMALL SCALE RETAILERS/INDEPENDENT RETAILER

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 Dependant on wholesaler for their supply.
 Limited capital is involved.
 Capital can be raised from personal sources (savings and loans).
 Normally do not employ specialist staff.
 Normally do not employ latest equipment.

Why Small Scale Retailers are dependent on wholesalers

 Small scale retailers purchase in smaller quantities.

 They need variety (different brands).
 Needs credit.
 Transport to the shop is provided by the wholesaler.
 Wholesaler advices small scale retailers on different selling issues.
 Wholesaler advices small scale retailers on shop layouts.
Why Small Sale Retailers are still surviving

1. Nearness to the customers (saves travel costs and time).

2. They offer personal services to customers such as assisting customers to choose products
which suit them by providing adequate information on the product.
3. They offer credit facility to their well-known customers and this helps them to increase their
sales
4. They open for long hours (open early in morning and closed late at night).
5. Some shoppers do not like change so they go to the small shop because they have always
done.
6. Free home delivery.
7. They are quick to adopt to changes on the market hence thy always meet the current taste and
preference of consumers
8. Joining retailer`s cooperative societies and form voluntary chain stores which enables them
to operate as large scale retailers.
9. By engaging in intense advertising their goods to local customers
How Retailers can improve their Profits.

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1. By improving the quality of products.
2. By offering variety.
3. By offering competitive prices.
4. By properly advertising and giving incentives, this encourages customers to buy more goods
5. By improving shop layout.
6. By changing location and locate where there is high market for their products
7. By controlling costs of routine operation.
Types of small scale retailers

Peddlers

 These are small scale retailers who carry goods from door to door on foot.
 They are sometimes called door to door trades
 They mainly sell brushes, brooms, books, vegetables, clothes etc
Hawkers
 These use some form of transport e,g bicycle or car to sell their wares
 They sell the same goods as sold with peddlers
Mobile shops

 These are vehicles which have been converted into moving shops. E.g soft drink vendor, ice
cream vendor or vegetable vendor
NB//Peddlers, Hawkers and Mobile shops are all classified as door to door traders

Advantages

 There is convenience and personal attention to customers

 Customers can discuss their requirements and preferences with those traders
 Customers can negotiate prices to their advantage
Disadvantages

 The goods are normally expensive because of travelling cost that the vendor wants to cover
up.
 They is limited choice of goods since they sell a limited number of goods
 There is likelihood of not finding anybody at home

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Independent retailers

 These are also referred to as sole traders, corner shops or convenience shops.
 These shops are owned by one person or a small partnership.
 Examples of independent shops include general stores, bakery owners, butchers, tailors, hair
saloons etc
 These business are mainly family owned
 They require small initial capital outlay
 Have lower overhead expenses
 They operate for long hours
 They have personal attention to customers
 Can easily adopt to changes in demand
 They sell a limited range of products
 They offer credit facility to well-known customers
Voluntary chain stores

 It refers to small independent retail outlet that cannot compete with large retail outlet, who
come together to form what is called voluntary chain store that are more similar to multiple/
variety chain stores.
 Examples of voluntary chain stores include Spar and food chain stores
 These small independent retail outlet join each so as to take advantage of bulk buying
 They place orders together and then distribute goods to individual shops.
 They arrange training for individual retailers so as to improve managerial skills.
 They share advice on the best business practises, i.e on pricing, stock control and customer
care.
 Some voluntary chain may carry out advertising on behalf of the chain.
TRENDS IN RETAILING

Branding and Pre-Packing

Typical exam questions

I. Explain the following terms:

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 a) Branding
b) Brand name or mark
 Branding means giving a product a name, term, sign, symbol or design.
 It is a way of identifying the product or service from similar products of competitors.
 Branding is done to differentiate products from competition.
 Brand Name the one people calls out for example Geisha, Sona, Jade, Protex etc.
 Brand Mark= Symbol, design distinguish one product from other products
 Trade mark provide legal protection to the manufacturer that no one should use the same
brand mark or name
Retailer`s brand

This is when retailers ask manufactures to put retailers brand on the products before they are
delivered to the retailers shop for example OK Supermarket make use of Pot `O` Gold as its
brand and TM makes use of Super Savers

Typical exam questions

I. In what ways does branding help a retail shop and a consumer?

II. How does branding benefit a supermarket?
 A seller is able to advertise the product and give it adequate support information about the
product
 Branding facilitates self service
 Goods can be arranged on shelves according to brands
 Branding encourages product loyalty to customers and they will insist on buying the product
 Enables retailer to handle orders as the customer is able to state the exactly product or service
he/she wants
 It enable the goods to be distinguished from those of competitors
 Leads to development of unique features to the product that makes it more competitive
 Customers are able to choose the best brand they prefer
 Customers are able to shop wisely by referring to the name of the product they require
 Customers can easily identify new products on the market.
 Brand assures uniform quality

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Disadvantages of branding

 It leads to high prices of goods due to heavy advertising and attractive packaging
 Some branded goods give false picture of the good
 It leads to impulse buying
 Some customers just buy the brand without getting much benefit from the good
PACKAGING

Packing refers to the wrapper or containers for product done to provide convenience to
customers.

Typical exam questions

a) How does packaging of goods help a retail shop and a consumer?

b) Why is packaging of goods important to both retailers and consumers?
 Branding is only possible if packing is done.
 Packaging provides a hygienic way of protecting products from dirty and diseases especially
food items.
 It facilitates arrangement or display of goods on the shelves.
 It improves the image of the manufacturer and retailer
 It attract customer as they shop around hence lead to increased sales
 It helps customers to identify favourite brands quickly
 Helps customers in shopping and carrying of goods going home
 Helps customers acquire adequate information written on packages e.g expiry date and
instruction on how to use the product.
 It prevents soiling of products to customer when carrying them.
 With packing awareness is created.
 Customer is well informed about the product by advertisement.
 Some wrappers can be reused.
After Sale Service

 It refers to all the services provided by the retailer, manufacturer, or the agent to
support customers after the sale has been made.

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 After sale services include: Installation, training, repairing and warranty.
 Warranty is provided by the produced as a guarantee of quality of a product.
 Warranty is valid within a specific period of usage or specific period after purchase.
 In warranty items with faulty performance will be repaired or replaced free of charge
within warranty period.
Advantages of after sales service

1. It creates better image of the business

2. It leads to more revenue with more sales.
3. Spare parts are available due to after sales service such as repairing
4. Warranty gives customers a guarantee that the product is of high quality
Qns: explain what you understand by the term after sales-service and its role in retail

Self-service

 It involves customers carrying out their shopping without any assistance.

 Customers locate the type of goods they want in the retail.
 They compare these product with similar products and make a final selection
 They select the products on the basis of price, quality, and packaging and also according to
personal taste and preference.
 They then take these product to the purchasing point
 They also make the calculation of the total cost of the goods on their own.
Self –selection

 It involves customers being assisted by sales people who provide information about the
product.
 Sales person collects money from the customer and pay it to the cashier on behalf of the
customer
 Customer will select the product he/she wants after getting information about the products
from the sales person.
Automatic Vending Machines (AUMs)

 These machines can sell cold bottled drinks, hot drinks, cigarettes and sweets.

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 Often placed at cinemas, parks and supermarkets.
 Customers enter the money into the machine, presses a button and desired item comes
out.
Advantages

 Requires minimum space so rental cost is low.

 The machine operates at 24 hour basis so selling has no restriction on time
 No sale staff required as the machine can operate on its self
 Adds convenience to customers as shopping is on 24 hour basis
 It facilitates self- service hence less time required.
Disadvantages

 Available only for the sale of limited range of products.

 High capital cost.
 Requires maintenance.
 Total loss of sales when out of order or out of stock.
 Machine can easily be broken and money inside can be stolen.
 Inconvenience if machine out or order.
Typical exam qns
Why are automatic vending machines an expensive method of retailing?
Barcodes

Advantages

 It enables accurate billing of products

 Quick billing.
 It results in better business control.
 Integrated software can be used.
 Labour cost is saved through automatic billing.
 It act as a security against shop lifting.
Disadvantages

 High capital cost in installing the technology

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 Skilled labour required to use the technic
 Computer software can malfunction which lead to halt in business
E-commerce

 It can also known as Electronic Commerce, Internet Commerce and Web commerce.
 It is a branch of commerce in which commercial activities are carried out electronically.
 Retailers advertise their products on the internet and in turn receive orders from customers
who browse around the internet for products they want to buy
Advantages

 It widens the market of retailers as retailers are able to advertise both nationally and
internationally
 No requirement of retail outlet hence this reduces cost of rentals
 More chances of involving potential customers into sales.
 Products can be displayed and specified on web.
 Low labour cost as this facilitates self-service
 Shopping can be done at any time hence there is more convenience
 It enables the use of credit cards and electronic transfers in making of payment.
 There is benefit of arm chair shopping for customers
Disadvantages

 Capital cost increases.

 Expenses of developing and operating websites.
 Dependence on skilled labour.
 Market is limited. (only computer literate people can use the service)
 Fraud might result as customer`s personal secret number of credit card might end being
known
 Customers can check product only after it is delivered to them.
 Some products might not be in stock and might be different with actual product to be
delivered
1. How has internet promoted retailing?
2. How has e-commerce promoted the retail trade?

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Franchising

 A successful business (franchiser) lets another business (franchisee) use its name under
an agreement.
 All franchises are decorated in the same style.
Advantages

To Franchisor

1. Name is spread without much investment.

2. Gets franchising fee from the franchisee which increases profits

3. Has right to control certain activities of franchisee.

To Franchisee

1. Training by the franchisor which leads to success of the business

2. Less advertisement is required.

To Customers

1. Convenience, easily located.

2. Guarantee of quality.

Disadvantages

To Franchisor

1. Any bad business practice of franchisee can damage franchisor’s image.

2. Responsibilities of training and educating franchisee.

To Franchisee

1. Heavy amount is to be paid to franchisors as franchising fee.

2. Loss of some business controls.

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3. Agreement is valid up to certain period.

4. No separate identification of franchisee.

5. Franchising is not determinant of success.

Typical exam questions

1. What is franchising?
2. How have retailers benefited from franchising?
Shopping Complex

 One multi-storey building, with many different shops, each belonging to different
owners for example Joina City
 Wide range of goods and services are available.
Advantages

 Common platform for achieving common goal.

 Minimum expense on advertising.
 They offer a variety of good at the same place
 Other services like, ATM and post office are there.
 It is more convenient as it tend to become a one stop shopping.
 Located in main commercial area.
Disadvantages

 High rents since many of them are located in the CBD where rents are too expensive
 High competition since there are many shops
 Low profit margin.
 Traffic, inconvenience.
 Not located close to homes.
Electronic Point of Sale (EPOS) and Electronic Funds Transfer System (EFTS)

 EPOS or EFTS refers to the computer-based systems used to perform financial transactions
electronically.

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 This service is used by customers with ATM cards to buy goods and services without
tendering cash
 This service authorise the transaction of the customer to be deducted from his/her bank
account.
Advantage

 This service leads to accuracy in billing.

 Minimum cash handling in case of EFTS reduces the risk of one`s money stolen or lost
 Increased sales in case of EFTS as there is no need for customer to look for cash first
 Purchasing power of customers increases.
 Customers do not have to use cheque books
Disadvantages

 In case of EFTS, retailer has to pay bank charges.

 It leads to irrational buying.
Typical exam questions

1. What are point of sale (POS) transactions?

2. What are the advantages and disadvantages of point-of-sale transactions to:
I. The retailer
II. The consumer
Do-it-yourself (DIY) products

 It refers to the selling of products that are semi- finished.

 The products are sold in kits that contain pieces of semi-assembled items.
 The customer will assemble these pieces on his/her own to make a finished good and little
skill is needed in assembling the good
 The products contain detailed step-by-step instructions on how to assemble the good.
 In some circumstance pictures and diagrams might be included so as to illustrate on how to
assemble the good
 Goods example of these goods include painting kits, some car repair kits, dress patterns
camping equipment and also solar kits
 These products are mainly sold in self-service shop

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 Their main advantage is that these products are cheap so they increase consumer`s surplus.
 Customers also gain self- satisfaction by assembling the product on their own.
 If well assembled the product is more user friendly with any fully manufactured products.

The end, wish you the best

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