Internal Trade Class 11 Important Extra Questions Business Studies Chapter 10

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Class 11 Business Studies Chapter 10 Important Extra Questions Internal Trade

Internal Trade Important Extra Questions Short Answer Type

Question 1.
Differentiate between wholesalers and retailers.
Answer:
Difference between Wholesaler and Retailer:

Basis	Wholesaler	Retailer
1. Scale of Operations	Deals in large quantities and on a large scale.	Deals in small quantities and on a small scale.
2. Number of items	Handles a small number of items.	Handles a large number of items.
3. Trade Channel	First outlet in the chain of distribution	The second outlet in the chain of distribution
4. Customers	Sells to retailers and industrial users.	Sells directly to customers for final consumption.
5. Supplies	Receives goods from manufacturers/producers.	Receives goods from wholesalers and sometimes, from the manufacturers.
6. Location	The location of a wholesaler’s shop is not very important. A wholesaler may have a godown at any place.	Location of retailer’s shop near the residential areas is very important. It located in the heart of the city.
7. Window Display	The window display is not very important.	The window display is a must to attract customers.
8. Specialisation	Specializes in the products he deals in	Specialization is not possible as he deals in a large number of products produced by different producers.
9. Margin of Profit	Sells at a very low margin of profit as turnover is very fast.	Sells at a higher margin of profit as he has to spend on window dressing and pay higher rent for the shop at a central place.
10. After-Sale Service	Does not provide after-sale service.	Provides aftersale service.
11. Free Home Delivery	Does not provide free home delivery of goods to customers.	Provides free home delivery of goods to Customers.
12. Display	No window dressing and shop decoration are important.	Window-dressing and shop decoration are much more important to attract customers.

Question 2.
Mention the services provided by wholesalers to retailers.
Answer:
Services to Retailers:
Wholesalers render the following services to retailers –
1. Wide Variety: A retailer has to stock a large variety of products to meet the individual tastes and needs of its customers. Since he can easily purchase the required goods of different varieties from a wholesaler, he is relieved of the botheration of collecting goods from several manufacturers.

2. Regular Supplies: A wholesaler is always well stocked with different types of goods. Therefore, the retailers are assured of a quick and regular supply of their requirements from time to time. They need not maintain a large stock of goods and have no fear of running out of stock. The wholesaler serves as their warehouse keeper from whom they can quickly replenish their stocks. The wholesaler saves the retailers from the trouble of searching out and assembling goods from several manufacturers.

3. Specialisation: The wholesalers generally specialize in one line of goods. They buy good quality goods at the minimum possible price from the manufacturers. Retailers receive the benefit of such specialization when they buy goods from wholesalers. Wholesalers advise retailers on matters like quality, price, and timing of purchase. They inform the retailers about the new products, their uses, quality, prices, etc. They may also advise on the decor of the retail outlet, allocation of shelf space, and demonstration of certain products.

4. Publicity: Wholesalers advertise their goods regularly. Such publicity helps retailers in increasing their sales. Some wholesalers also guide retailers’ in-store layout and selling techniques. The retailers are benefited as it helps them in increasing the demand for various new products.

5. Credit: Wholesalers grant liberal credit facilities to retailers. As a result, retailers can carry on a large volume of business even with a small amount of working capital. They would be placed in a difficult position if they were to buy goods on cash payment.

Question 3.
List the various types of retail trade organizations.
Answer:
Types of retail trade organization:
Retail traders may broadly be classified into two categories –

Question 4.
Explain the automatic vending machine as a source of retail trade.
Answer:
Automatic Vending Machines:
A vending machine is a new and complementary form of retailing. It is a slot machine operated by coins or tokens. The buyer inserts the coin or a token into the machine and receives a specified quantity of a product from the machine. Vending machines are used to sell prepacked and low-cost products of mass consumption, soft drinks, hot beverages, cigarettes, tickets, etc. In Delhi, Mother Dairy sells milk through vending machines.

The vending machines have become popular due to convenience in the handling of products and in the collection of payment. The customer gets a fresh supply of goods with uniform weight and quality. Moreover, vending machines can sell goods at places and at times when other types of retailing are not convenient or economical. There is a saving of labor costs. But initial investment in the machine is quite high. The machine requires regular repairs and maintenance.

The merits of vending machines are as under –

1. It is convenient for the customers to buy the goods from the machine.
2. Machines provide quick service.
3. Machine develop the habit of self-service among the customers.
4. Special peeks are to be developed by manufacturers that suit the machine.
5. Care has to be taken about replenishing the stock of the machine regularly.
6. Machines are useful in selling only consumer goods that are usually edible in nature i.e. candies, chocolate, soft drinks, coffee, etc.

Question 5.
Write an essay on the organization of wholesale trade.
Answer:
Organization of Whole Trade Board of Directors

Wholesale trade is generally carried on a large scale and a large amount of capital investment is required for it. Therefore, a wholesale firm is generally organized in the form of a joint-stock company or a partnership. The company works under the overall supervision of the board of directors and the managing director. The organization is divided into sections. Every section is managed by a sectional head. All sectional heads are responsible to the managing director. Each section is divided into various departments. The head of each department is accountable to the sectional head concerned.

The organization of wholesale trade may be divided into the following sections –
1. Administrative Section:
This section looks after the overall planning and control of the wholesale trade. It is usually divided into several departments.
(a) Records and filing department: This department handles the firm’s records and files. Filing relates to having records of the business correspondence for future reference. Proper binding is also necessary for an easy and quick location of files, whenever required.

(b) Correspondence department: This department is responsible for the receipt, typing, and despatch of all letters. Timely and prompt reply of all incoming letters is essential for the success of a business. A copy of every letter sent by the firm is sent to the filing department for ready reference.

(c) Accounts and finance department: This department is concerned with the proper maintenance of the firm’s accounts. These accounts are related to the firm’s purchases, sales, receipts, payments, debtors, creditors, etc. This department is also responsible for preparing budgets and raising the necessary funds for a business. This department works under the supervision and control of the chief accountant and clerks working under him.

(d) Labour department: This department is responsible for the recruitment, selection, training, remuneration, promotion, etc. of employees.

2. Cash Section:
This section is concerned with the receipt and payment of cash. It is the responsibility of this section to ensure that all payments are made promptly and on the due dates so that the firm enjoys a good credit standing in the market. Similarly, this department takes steps for prompt collection of debts from the firm’s debtors in order to minimize bad debt losses. For handling small payments, there is a petty cashier who is provided a small amount of impress cash. When he has spent the entire amount, the head cashier advances him some more important cash.

In some wholesale firms, there is a separate credit and collection department which keeps a check on the credit sales.

3. Planning and Executive Section: This section consists of the various functional departments.
(a) Buying department: This department is concerned with buying goods in bulk from different producers. Before buying goods it invites Quotations from the producers. After comparing different quotations with regard to price, quality of goods, delivery period, etc. it places its orders.

When the goods are received, they are compared with the order. If there is any discrepancy or damage to goods, the matter is duly settled with the supplier. After receiving the goods, arrangements are made for their storage. The buying department is headed by an expert buyer who has complete knowledge of the various producers and the market conditions.

(b) Sales department: This department is responsible for selling the goods to retailers. It conducts market surveys to find out the tastes, fashions, etc. of the customers and other market conditions. This information is passed on to the buying department. The sales department also handles the complaints of retailers. The sales manager is the head of this department. Several salespersons work under him. Their recruitment, training, remuneration, etc. is also the responsibility of the sales manager.

(c) Publicity department: This department is concerned with advertising goods in order to create demand. It also arranges fairs and exhibitions of products.

(d) Despatch department: The function of this department is to despatch goods to various retailers according to the instructions it has been given. It handles packing, marking, and labeling of goods and arranges for the delivery of goods to the retailers. Many wholesale firms have a separate warehousing department also.

Question 6.
What are multiple shops or chain stores? Explain its features, merits, and limitations.
Answer:
Chain-Stores (Meaning): Chain stores or multiple shops are a group of branch shops dealing in the same line of goods under single ownership and centralized management. A chain store is a chain of identical retail stores situated in different localities. Such a chain may be established by a manufacturer or by a merchant. It is known as chain stores in the United States and multiple shops in Europe. Bata Stores and DCM Stores are examples of chain stores in India. These normally deal in standardized and branded consumer products that have rapid sales turnover.

Distinctive Features:

1. Large Size: Chain stores are an example of large-scale retail establishments. These are located popularly in the area where a sufficient number of customers can be approached.
2. Company Form: These stores are organized as a joint-stock company. All stores are owned and controlled by the same company. There are centralized management and control.
3. Specialization: All stores in a chain deal in the same line of products, usually necessities.
4. Centralized Purchasing: Goods for all chain stores are purchased by the head office. Through centralized purchasing. These shops enjoy economies of scale.
5. Decentralized Selling: Chain stores are situated in different parts of the city and country. These shops are run by the same organization and have identical merchandising strategies.
6. Elimination of Middlemen: A chain store is a form of direct selling in which middlemen are eliminated.
7. Uniform Price: Goods are sold in all the stores at a fixed price.
8. Standardization: Decoration of stores and window displays follow a uniform style or pattern.
9. Cash Sales: Goods are sold on a cash and carry basis. There is no loss on account of bad debts.

Merits:
1. Economics of Scale: Goods for all chain stores are purchased by the head office. Such bulk buying results hr several economies like heavy discounts, saving in transport costs, etc. Benefits of specialization and centralized management are also available. Large capital permits expansion and growth.

2. Convenient Location: Chain stores are located to suit the conveniencFoftheeustometa. This helps in increasing sales turnover and in retaining contact with customers. These shops me located in fairly populous localities where a sufficient number of customers can be approached.

3. Low Operating Costs: Chain stores sell goods on a cash basis H so that there is no loss due to bad debts. There is an economy in advertising because one advertisement is enough for all the stores. Large and rapid turnover and common advertising are possible.

4. Low Price: Due to low operating costs and the elimination of middlemen, goods are sold at relatively cheaper rates. A manufacturer can establish direct contact with customers through chain stores.

5. Flexibility: If one store out of stock, supplies can be easily transferred from a nearby store belonging to the same chain. Such inter-branch transfers help to avoid loss due to shortage or surplus of stock. If a branch is not doing well it can easily be closed down and a new one can be opened in another place without really affecting the profitability of the organization as a whole.

6. Public Confidence: Fixed prices arid standard quality help to increase confidence among consumers. Customers can easily identify the chain stores on account of uniform decoration and design.

7. Diffusion of Risk: Lack of demand in one area 4oes affect the
sales in other stores. But the loss incurred by one store can easily be absorbed by profits made in other stores reducing the risk of an organization.

8. Simplicity of Control: Goods are sent to the different stores by the head, office and cash receipts are sent by each branch to the head office. Price and the other policies are uniformly laid down for all the stores. In this way, the office can exercise effective supervision and control over all the branches.

Limitations:
1. Limited Choice f Ghain deal in a limited range of products and do not offer a wide variety of choice to customers,

2. Lack of Personal Touch: The paid employees of chain stores do not take a personal interest in each and every customer Tltey adopt a ‘take it or leave it’ attitude towards the customers. The owner loses all personal contracts with the customer Lack of initiative in the employees some times leads to indifference and lack of personal touch in them

3. Lack of initiative: The employees of chain stores have no freedom to make decisions. Rigid control and uniform policies discourage initiative on their part. They cannot exhibit business opportunities or adapt to local needs. This makes them habitual of looking up to the head office for guidance on all matters and takes away creative skills of their own.

4. Heavy Overheads: The head office has to incur heavy expenditure on rent, wages, salaries, furniture, fixtures, etc.

5. No Facilities: Customers do not get credit, home delivery, or other facilities. Therefore, chain stores do not attract rich customers. This discourages certain types of people to visit multiple shops.

6. Local Competition: Chain stores are considered a threat to small independent retail stores. Therefore, local retailers are hostile towards these stores and offer tough competition.

7. Remote Control: The head office is usually far removed from the stores. Therefore, there is a lack of close contact between them.

Question 7.
Super Market is the most famous retail trade-in city. Mention its merits and demerits.
Answer:
Super Market (Self-Service Store):
Meaning:
A supermarket of Bazar is a large retailing business unit selling a wide variety of consumer goods such as food and grocery items on the basis of the low-margin appeal, wide variety, and assortments, self-service, and heavy emphasis on merchandising appeal.

A supermarket deals mostly in food and grocery items and convenience goods like household goods, hosiery items, cosmetics, medicines and drugs, electronic appliances, etc. It is generally situated at the main shopping center. Goods are kept in open racks, and the price and quality are clearly labeled on the goods.

A consumer can make a selection of goods moving from counter to counter and pick up the selected goods and place them in a trolly. After he has completed his selection, the trolly will be carried to the exit where a person computes the total charge and the buyer makes payment to the cashier and then takes delivery of goods. Thus, supermarket follows the policy of self-help’ by the customers. The customers are not pressurized by the salesmen. That is why many people are attracted to the supermarket.

The supermarket is organized on a departmental basis and a customer can buy various types of goods under one roof. A supermarket can be differentiated from the departmental store on the main ground that there are no salesmen at the super Bazar to deal with the customers. The customers are free to choose the commodities of their choice. Moreover, a supermarket does not offer certain services which are usually provided by a departmental store. For instance, a supermarket does not allow credit sales and does not provide free home delivery service.

Features:
The main features that distinguish a supermarket from other retail institutions are discussed below –

1. A supermarket generally carries a complete line of food items and groceries in addition to non-food convenience goods including drugs, cosmetics, household goods, etc.
2. Its organization resembles a departmental store. A customer can buy his requirements under one roof.
3. A supermarket operates on the principle of self-service. There are no salesmen or shop assistants to help or pressurise the customers in a supermarket. That is why it is known as a self-service store. The distribution cost is, therefore, lower.
4. A supermarket is a low-cost retail institution in comparison with Other types of retail stores. The prices of the products are generally lower than other types because of bulk purchasing, lower operational cost, and low-profit margins.

Merits:
The following are the merits of a supermarket –
1. A supermarket is a large-scale retailing store. It enjoys all the benefits of large-scale buying and selling. Because of this reason and because of large turnover, its operating costs are lower and it can sell goods at cheaper rates. These outlets are not only convenient but also economical to buyers for making their purchases.

2. Considerable attention is paid to the package of the products since there are no salesmen to convince and pressurize the customers. Many people like this distinct feature of self-service. They enjoy the freedom to ccunpar£-iii£fereat4minda of Q.product- and making a selection of goods without pressure from anybody.

3. The customers can make all their purchases under one roof. A supermarket provides goods to customers at cheaper rates because of large turnover and absence of salesforce. The administrative and distribution overheads per unit of a product are also lower.

4. Since supermarket sells only on a cash basis, there is no chance of bad debts.

Demerits:
A supermarket suffers from the following drawbacks –
1. There are certain people who give greater weightage to personal attention. Such people do not like shopping through the supermarket as there are no salesmen.

2. Supermarkets cannot handle commodities that require personal explanation by the salesmen. It works on the self-service principle.

3. Some customers handle the goods carelessly and misuse the ‘ opportunity of self-service and selection. This may cause loss to the supermarket.

4. In practice, supermarkets have not been able to create low price appeal among the customers because of higher overhead expenses.

5. Establishment and, running off a supermarket requires huge; investment, and its turnover should be higher to keep the overhead expenses under reasonable limits. Thus, a supermarket cannot be established if the necessary capital is not available and a Jarge turnover is not expected. In other words, supermarkets are not suitable for smaller towns.

Question 8.
Write in brief about Telemarketing or Teleshops in the modern world.
Answer:
Telemarketing (Teleshops): Telemarketing means a form of non-store retailing in which the seller initiates contact with a shopper ‘ and closes the sale over the phone. A telemarketer may procure the names and telephone numbers of his prospective customers from the telephone directory and other sources.

Popular products such as electrical appliances, health products, and educational aids and services such as magazine subscriptions, credit-card membership, etc. can be promoted through telemarketing. ICICI and Citibank follow this technique to popularise their credit cards among people.

A telemarketer can advertise the product, its features, uses, and price through a TV network, say Doordarshan, Metro, Zee TV, or Sony TV channel. The interested customer can place an order directly over telephone, fax, e-mail, or by post to the advertiser, say, Asian Sky Shop. The delivery may be effected through courier, or post office, or the manufacturer’s distribution van. Payment is to be made at the time of delivery. Telemarketing is a very convenient method of shopping. It is becoming popular in India.

From the point of view of the customer, buying or ‘dial-n-order’ is a very convenient method of shopping. One need not visit the store for shopping. One can place an order over the phone and make payment through a credit card. Teleshopping and getting free home delivery at residence is not only convenient but also cheaper as no middlemen are involved. The popularity of telemarketing would be attributed to the growing focus on customers.

From the point of view of the seller, telemarketing is a cheaper method of retailing. It saves expenditure on retail showrooms and salesforce. Even a firm with retail outlets or stores in major cities can reach customers at far off places through telemarketing. The growing satellite networks have created brand awareness and facilitated Telebuying and selling. The industry grew rapidly over 5 years to reach a size of2000crores with over one million consultants.

Telemarketing is a major tool of direct marketing in the USA and is gradually gaining acceptance in India. But telemarketing has the disadvantage of lack of personal touch with the buyers. Moreover, the buyer can’t inspect the goods personally before placing an order. Some people don’t like teleshopping. They get irritated when they receive unsolicited calls from the call centers, say, for the marketing of credit cards or personal loans.

Question 9.
What are Internet or Online marketing, its benefits, and the difference between traditional marketing and online marketing?
Answer:
Internet Marketing:
Internet marketing is emerging as an important form of e-commerce, In this form of marketing, orders are received and processed on the internet. The internet is the world’s largest computer network. In fact, it is a ‘network of networks’ of computers throughout the world. A computer network is basically a bunch of computers hooked together for receiving and transferring information.

The facility of linking millions of computers is provided through the internet. The use of the internet by marketers or producers for the purpose of selling their products is known as internet marketing. Internet marketing can take several forms e.g. Online services, worldwide webs (www), and CD ROMs.

Internet:
The internet is a global web or computer network that makes instantaneous global communication possible. Internet usage has surged with the development of the user-friendly World Wide Web (www) and Web browser software such as Microsoft Internet Explorer or Netscape Navigator. Users can surf the internet and send e-mails, shop for products, and can get news and other information.

The internet itself is free though the user has to pay some fee to the Internet Service Provider to be hooked up to it. Thus, the internet is changing the way marketing is done. Internet technology provides marketers with faster ‘ more efficient and much more powerful methods of designing, promoting, and distributing products, conducting research, and gathering market information.

Online Marketing:
The users of the internet are younger, educated, and more affluent. Business firms can use the internet to reach such users by sending catalogs, price lists, etc. through e-mail. Besides advertisement, the sellers can attend to the queries of the buyers and clinch the deal on-line. The buyers can on their own also log on the t computer to know about the products of different manufacturers and decide to buy the products that suit them.

The use of electronic channels for the direct marketing is on the rise these days. The term e-commerce describes a wide variety of electronic platforms such as the sending of purchase orders to suppliers via electronic data interchange (EDI), the use of fax and e-mail to conduct transactions, the use of ATMs (automated teller machines) and smart cards to facilitate payments and obtain digital cash and the use of internet an online > services.

Thousands of business firms have established their presence on the internet. A new firm, big or small, can do so in two ways:
(a) It can buy space on a commercial on-line service; or (b) It can open its own website. In the case of online service, the firm has to pay an annual fee and also a small commission as a percentage of sales.

But these days, companies prefer to set up their own websites. Such a website offers information * about the company’s history, products, and services. The company can interact with anyone visiting the website and explore the possibility of concluding sales.

Benefits of Online Marketing:
The marketers can enjoy the following benefits of internet marketing –

1. The cost of digital catalogs is much less than the cost of printing and mailing paper catalogs;
2. Digital catalogs can be revised quickly and without much difficulty.
3. The marketers achieve economy in operations. They have to maintain low inventories and incur low costs on storage and insurance.
4. Internet marketing helps in relationship building with the customers. Online marketers can interact with customers and learn from them and improve their products.
5. Marketers can contact the people who have visited their website and make them attractive offers to affect sales.
6. Orders can be received quickly.
7. The marketers can approach customers living anywhere in the world. Thus, there is no distance gap between the sellers and the buyers.
8. Marketers can size up the audience, know how many people visited their online site. This information helps in improving sales offers and advertisements.
9. Online marketers can build relationships with customers by interacting with them.

Comparison of Online and Traditional System of Marketing

	Online Shopping	Traditional Shopping
Advantages	Convenience Saves time Reduces impulse buying	Five senses influence buying Memory trigger Product sampling Exposure to new items Social interaction
Disadvantages	Less price and selection control Forget items Reliance on computer Delivery fee	Time-consuming Waiting for lines and parking Carrying groceries home Impulse buying Safety

Question 10.
A franchise is a buzzard in the modern marketing world. What are its merits and limitations?
Answer:
Franchise: Franchise is a commercial concession by which a company or person grants a retailer the right of selling its products or services in a specified area. The owner of a product (known as a franchiser) permits another business firm (called franchisee) to sell the product in exchange for royalty payments.

The franchise is the right or privilege to use an established business system is “a continuing relationship in which franchisee provides licensed privilege to do business plus assistance in organizing, training, merchandising and management in return for a consideration from the franchise.” A franchising operation is a contractual relationship between a franchiser and franchisee.

Thus, the franchise is a system under which the owner of a product or service grants the franchisee the exclusive right to distribute the product or service in a specific geographical area on specified terms and conditions. The owner of the product or service who grants the right to distribute is known as the franchiser. The person or firm who acquires the right or franchise is called the franchisee.

A franchise system is one in which a manufacturer grants selected retailers the exclusive right to sell their products or services in specified areas. Such retailers are required to promote and sell the product in a specific manner. There is a written agreement between the franchiser (supplier) and the independent franchisee (retailers) on the terms and conditions of the franchisee.

The franchise is found in several types of businesses. Consumer items such as cosmetics, readymade garments, television sets, V.C.R., music system, computers, machinery and equipment, automobiles, servicing of consumer durables, computer training, real estate are some of the examples where the franchise is popular. Wimpy, Nirulas, Essex farms, Snowhite Drycleaners, etc. are notable examples of franchises in India.

The franchiser receives either a fixed sum or periodical royalties for allowing the use of trademark and providing training. The franchisee pays for a reliable and proven business. He gets professional advice and national sales promotion support from the franchiser. Generally, all franchised outlets of a product or service have an identical trademark, standard symbols, standardized products, and uniform business policies. The franchisee has to raise his own finances.

Franchise arrangements may be of the following types –
1. Product and Trade Name Franchise: In this arrangement, the franchisee acquires the right to use the product and trade name of the franchiser. The franchisee can also use window-display, standardized operating procedures,s and a prescribed territory to the franchisee.

2. Exclusive Dealership: Under this system, a manufacturer signs an exclusive agency contract, with a distributor. The distributor gets the exclusive right to sell the product within a specified geographical area. The distributor agrees to certain conditions of the manufacturer, e.g. adequate stock, prices to be charged, the services to be provided, etc. The exclusive dealership is popular in automobiles.

3. Conversion Franchising: Herein an established businessman gets affiliated with a franchiser. The two share the benefits of a franchising relationship.

4. Combination Franchising: In this arrangement, two franchises share a location and management, site selection, training of the staff, financing, and marketing, record keeping, and production business also arranged.

5. This is a fully integrated and continuous relationship between a franchiser and franchisee. The relationship covers total operations of the franchise including product or service, trademark quality control, strategy, etc. Fast food restaurants such as McDonald’s are an example of such a franchise.

Merits:
The main advantages of the franchise are as follows –
1. Availability of Established Brands: The franchisee acquires the right to use the popular brand name or trademark of the franchiser. Association with an established name provides a ready market. A franchise gives a quick and easy start in business. There are greater chances of success of the franchisee because the products are well known.

2. Standardised Goods and Services: The reputation of the franchiser depends largely on the quality of products and services supplied by the franchisee. The franchiser takes steps to ensure that products and services in all the franchised outlets are uniforms. He provides the raw materials and keeps close control of the quality of goods. The quality of products helps the franchisee to satisfy his customers by offering quality products.

3. Advertising Support: The franchiser carries on advertising. The franchisee gets the benefit of such advertising and the reputation or goodwill of the franchiser. The products are well advertised in various media and are known to the people. It is easier for the franchisee to promote the sale of products.

4. Financial Assistance: Franchiser offers a wide range of financial assistance to the franchisee in the form of short-term credit, lower down payment, flexible repayment terms, etc. Financial assistance is available for plant and equipment, accounts receivable, etc.

5. Managerial Training: Franchisers provide technical and managerial training to franchisees and their staff. Prior to opening a franchise, counseling and training are provided in the professional and profitable operation of the business and in the fields of inventory management, accounting, sales promotion, advertising, etc. Assistance is also available in site selection, marketing research, in addition to ongoing business assistance.

6. Established Business Methods: The franchisee can capitalize on the accumulated knowledge, experience, and skill of the franchiser. He does not have to build a business from scratch. The franchisee buys a business that has proved its success and can, therefore, avoid many of the pitfalls faced by small business owners. The franchiser makes huge investments in the innovation of products and research and development.

7. Economies of Scale: Due to the group or cooperative purchasing,
costs of products are reduced. Mass buying provides economies of scale. The distribution system between franchisor and franchisee in the shortest possible time. Marketing costs are lowered.

8. Uniform Control System: All franchising outlets are subject to the uniform control system. Standardized inventory control enables the franchiser to have more accurate information about the merchandise available and needed. Standardized reporting procedures are also helpful. It enables the franchiser to increases his goodwill and reputation.

9. Higher Success Rate: On average, franchises survive better than other business start-ups. The success rate, of franchises, is higher than that of independently owned businesses, Therefore, franchises are more attractive to middle-aged people who are less willing to take full risk of starting their own business. Potential income can be higher than independent small businesses.

10. Benefits to Franchiser: Franchise enables the franchiser to enter a new business territory at a low cost. It is a relatively quick way to raise cash and expand business operations. Owner-operators (franchises) are highly motivated. Franchises can be used as outlets for goods and services manufactured or supplied by the franchiser. This provides economies of scale in manufacturing and purchases. The franchiser can exercise control over products, services, and processes. The franchiser gets feedback about the product’s popularity from the franchisee.

Limitations:
The franchise system suffers from the following disadvantages –
1. Fees and Royalties: Costs of a franchise include license fees and fees for the initial processing of the application. It is payable when the franchise agreement is signed and is not refundable. Other costs include down payment on equipment, decoration of the outlet, office furniture, publicity on opening, etc. The franchise has to bear travel and living expenses while undergoing training. In addition, He has to pay a royalty on a continuing basis.

2. Lack of Freedom: The franchisee does not have the freedom to run a business like an independent owner. He has to conform to the controls exercised by the franchiser to ensure quality and uniformity of standards of product or service. Quality standards and specifications for all items used in the franchise are established. The freedom of purchasing is also restricted.

3. Limited Product Line: The franchiser controls the products or services sold at the franchisee’s outlet. The franchisee cannot introduce other products except those permitted by the franchiser.

4. Restriction on Sale of Franchise: Sale, transfer, or assignment of ownership interest requires the franchiser’s approval. Even when the sale is approved, the new franchisee is required to conform to the terms and conditions of the franchise.

5. Disadvantages to the Franchiser: The franchiser cannot treat or control the franchisees like his employees. Franchisees tend to become quite vocal and demanding if they feel they are not getting fair treatment or do not see benefits in the franchise network. Extensive communications are necessary and the costs of visiting the franchisees at distant places can be high. The franchiser has to bear the expenses of administration, training, advertising, legal services, supervision, etc.

Question 11.
Wholesalers are parasites for society and should be eliminated as soon as possible. Give arguments in favor and against of elimination of wholesalers.
Answer:
Elimination of Wholesalers: Wholesalers perform several useful functions and render many vital services. They provide a ready sales outlet to manufacturers and serve as a source of a steady supply of goods for retailers. Therefore, they provide a valuable link between producers and retailers. But in recent years there has been a trend towards the elimination of wholesalers.

Growth of large-scale retailing institutions, development of quick means of transport and communication, growth of cooperative movement among consumers, the rise of specialized advertising agencies, etc. have made it possible, in certain cases, to establish a direct link between producers and retailers.

Arguments in Favour of Elimination: Some people insist that wholesalers exploit producers and retailers. Therefore, they should be eliminated and their functions should be taken over by producers and retailers.

The following arguments are given in favor of the elimination of wholesalers –
1. Reduction in Prices: Wholesalers charge a substantial margin of profit and add to the cost of distribution. This results in higher prices payable by the ultimate consumers. Prices payable by consumers can be reduced by eliminating the wholesalers.

This would increase the sales volume which would benefit the producers. Many producers want to reduce prices to maximize sales in conditions of cut-throat competition but wholesalers discourage reduction in prices. Wholesalers are the parasites of society. The customers have to bear the cost of wholesalers.

2. Faster Distribution: Wholesalers are mere transfer agents who set up unnecessary road-blocks in the process of distribution. Their, interference in the distribution channel obstructs the smooth and quick flow of goods from manufacturers to consumers. By eliminating the wholesaler’s goods can be supplied to consumers more quickly. Modem means of transportation and communication do not favor unnecessary middlemen in the channels of distribution.

3. Manipulations: Many wholesalers indulge in malpractices such as hoarding and adulteration. They push up prices by creating an artificial scarcity of goods. Such malpractices can be avoided by eliminating the wholesalers. Wholesalers do not render services correspondingly for the profits they earn while handling goods.

4. No Risk-bearing: Wholesalers assume the little risk and make no improvement in the distribution techniques. Therefore, there is little justification for the existence of wholesalers. Sometimes, even the existence of wholesalers hinders the smooth flow of goods and services.

5. Unreliable: A manufacturer faces a sudden decline in sales when wholesalers discontinue their line of goods and switch over to a different competitive line. Many wholesalers sell so many products that they are unable to give equal attention to pushing the sale of all the products.

6. Better Alternatives: Large-scale retailers such as departmental stores, chain stores, and supermarkets have adequate funds and space to buy goods in bulk directly from manufacturers. They can bear risks and promote sales on a large scale. Therefore, they do not need the services of wholesalers.

Arguments against Elimination:
Those who believe that wholesale trade is essential, give the following arguments –
1. Undivided Attention: If wholesalers are eliminated, the producer will also have to undertake the distribution of his goods in small lots to a large number of widely scattered retailers. As a result, he will not be able to concentrate fully on production. The economies of large-scale production will have to be sacrificed. Wholesalers perform many marketing functions like buying and assembling, selling, market research, advertisement, transport, etc.

2. Necessary for Small Producers: Small manufacturers are not in a position to distribute their goods. Due to a large number of small producers and retailers, wholesalers still dominate the field of distribution of goods. Wholesalers bear the risk of fluctuations in prices, purchase of raw material, etc. Above all, they will have to find out means of financing which small producers are unable to do.

3. Storage of Goods: If wholesalers are eliminated, retailers will have to maintain large stocks and bear the risk of price fluctuations. Which they are generally unable to bear due to limited capital and lack of enough space.

4. Savings in Costs: Wholesalers are experts in the task of distribution. Therefore, they save expenses through more efficient marketing of goods. They maintain a sales force that calls upon retailers regularly. Their expenses are lower than those of manufacturers’ who sell directly to retailers. By eliminating the wholesaler, costs of distribution may increase. The manufacturers are often solely dependent upon distribution by the wholesalers as they can’t handle distribution themselves.

5. Seasonal Products: Some products are produced throughout the year but their demand arises only during a particular season. If wholesalers are eliminated, producers will have to keep huge stocks of such products. They will require a large amount of capital during the off-season.

6. Financing: In case wholesalers are eliminated, the manufacturers and retailers will have to invest more capital in the business.

Conclusion: By eliminating the wholesaler, his functions cannot be eliminated. These functions will have to be performed by either producers or retailers. Therefore, the elimination of the wholesaler is desirable only in those cases where manufacturers or retailers can perform these functions more efficiently than the wholesaler. Only large and well-established producers or retailers may be in a position to do so. Therefore, a wholesaler is an essential link in the distribution of all such commodities wherein producers and retailers are small and unable to assume the burden of wholesale trade.

In brief, wholesalers neither can be nor should be eliminated because of their services to the manufacturers, retailers, consumers, and society as a whole.