TOPIC 2 PRODUCTION AND SALE OF GOODS AND SERVICES

Before goods can be sold in shops, they have to be manufactured. In order for goods to be
manufactured, raw materials have to be provided.
The three sectors of production are:
- primary production: the extraction of basic/raw materials provided by nature, farming,
fishing, mining
- secondary production: manufacturing and construction industries, changing raw
materials into some end product
- tertiary production: the service industry (commerce and direct services)
The chain of distribution refers to the passage of goods from producer to consumer. It
involves the activity of traders (wholesalers and retailers) and the use of services to trade.
manufacturer wholesaler retailer individual customers
Wholesalers are businessmen who handle goods in the intermediate position between the
producer and the retailer, buying in large quantities and selling in smaller, more convenient
lots to the retailer. Traditionally they have always dealt in large quantities. Their premises are
usually a large warehouse divided into sections. Retailers may visit the wholesaler to choose
their purchases, or orders may be telephoned in or passed to the wholesalers representative.
Sometimes the producers will by-pass the wholesaler and sell directly to the retailer, e.g.:
- if the retailer is part of a large multiple chain, it can buy in large quantities and deal
direct with the producer
- where after-sales service is particularly important: durable consumer goods
Services to trade are activities that help traders in their work of buying and selling goods and
services. They include the following:
- Banking: providing short-term finance, easy payment transfer
- Finance: long-term finance for industry, commerce and consumer credit
- Insurance: spreading the risks
- Transport: movement of commodities
- Communications: mail services, electronic devices, advertising

RETAIL TRADE
Retail trade refers to the supply of goods to the individual consumers, buying from the
wholesaler and selling to the public.
The functions of retail trade are:
- cutting up large quantities into small units
- providing the producer with an outlet for their products, holding stocks
- providing choice for the consumer, giving information and advice
- providing a feedback of consumer responses to wholesalers and producers

Production and sale of goods and services

Types of retailer:
- the simplest types: door to door, market traders, sole traders/ independent shops
- more complex: chain stores, supermarkets, hypermarkets, department stores, specialist
stores
- modern forms of retailing: vending machines, mail order, electronic commerce, TV
shopping, shopping centres, franchise forms
Advantages and disadvantages of sole traders
They are small shops owned by a sole trader or small partnership,
- personal attention to customers, no need to travel into town
- limited quantities, prices often higher, a limited range of goods, difficulties in running
the shop if the owner is sick.
Chain stores (Multiples)
- a number of shops in common ownership, under a single name of common ownership
- controlled from central headquarters
- often are sited in town centres and shopping precincts
- advertising is cheaper: a single national advertisement can cover all branches nationwide
- often by-pass wholesalers
- wide choice: deep-freeze counters, vegetables and fruit, groceries, cold cuts and
cheese, dairy products, detergents, cosmetics, bakery counter, meat counter, etc.
Self-service stores and supermarkets:
They are considered to be a supermarket when they have more than 2000 square feet of
shopping area and 3 or more check-out points.
Advantages:
- These shops deal particularly in pre-packed, price-labelled products.
- Loss-leaders are frequently used to attract customers
- Customers serve themselves, so they save in staff
- Shopping trolleys
- Impulse buying (unplanned purchase)
Disadvantages:
- large premises in prime areas are expensive
- pilferage (stealing) levels are high
- customers receive little personal contact
Hypermarkets
They area very large form of supermarket with a shopping area in excess of 50000 square
feet.
- on the outskirts of towns where sites are cheaper
- usually one of many in a chain
- big shopping area, self-service, a wide range of goods, long opening hours, often
night&day
- parts of the hypermarket complex may be rented out to other traders: independent
shops
- good parking facilities

Production and sale of goods and services

Department stores
They are divided into commodity departments
- separate departments, each responsible for their own profitability
- wide variety of goods under one roof, sited in town centres, car parks
- often rather expensive because the goods they market are of the highest quality
Specialist stores
- specialise in narrow kinds of commodities
- quality and personal service
- e.g. jewellery, mens wear, ladies wear, shoes, sports goods, books, drapery and
textiles, stationery, household utensils, electronic goods etc.
Shopping centres
- a collector of shops and service providers
- a number of specialist outlets, each with a different owner
- service providers: multiplex cinemas, restaurants and cafs, banks, post offices,
exchange offices, fitness rooms, child care, etc.
- parking sites, entertainment facilities
Vending machines
- food, drink, sweets, tickets, stamps etc.
- 24-hour opening, fast service, no need for staff
- Problems: lack of coins, out of order, vandalism
Direct sales:
- selling goods directly to consumers without the use of retail outlets: mail order, TV
sales, e-commerce, teleshopping (by telephone)
- also called home or remote shopping
- advantages and disadvantages:
o comfortable, customers dont need to leave their homes as they can order by
telephone or the Internet
o no need for shops
o customers save time
o easy to pay: cash on delivery or payment by credit/debit card
o home delivery often expensive (postal fees)
o difficult to assess quality, customers cannot try on or touch products
o delivery might take some time, unsuitable when goods are needed urgently
o impersonal way of shopping
o can be inconvenient to return unsuitable goods
Advantages and disadvantages of night & day shopping
- customers: no need to hurry after work, more time to do the shopping, less crowded
shops and no queues, but it can disturb family life and there is a danger of
overspending
- staff: more job opportunities, getting money for overtime, but unsocial working hours
- employers: greater profits, but higher costs (wages, overheads e.g. light, heating)
Production and sale of goods and services

Customer services
- customer services: all services connected with the commodity (dealing with
complaints, giving advice, repair services, home delivery, assembly services)
- companies want repeat business (customers to buy from them again)
- companies want to win customer loyalty
- many companies have a code of practice (a set of rules which explains what the
customers can expect of the company)
- customers can complain if they are not satisfied
- the warranty or guarantee service is a formal written document with the commodity
promising to repair or replace the product if it breaks down in a given period of time
- customer care: an important issue for all companies
A customer-friendly company will provide fast service, friendly sales staff, personal
treatment, helpful answers, easy payment terms, generous discounts, competitive prices,
consistent quality, long-lasting products, free delivery, clear instructions, up-to-date
information.
Hire-purchase buying
- provides facilities for credit buying: paying a cash deposit and then paying in
instalments over an agreed period of time
- used to purchase durable consumer goods
How do supermarkets/hypermarkets try to make customers buy things they may not
have planned to buy? (=impulse buying)
- attractive displays of inexpensive goods at he check-out,
- the arrangement of the goods on eye-level shelves
- comfort and convenience of shopping, long opening hours
- winter sales and summer sales (off-season sales),
- clearance sales to get rid of stocks that cannot find any market,
- bargain counters all the year round
Use of technology
- the increasing use of electronic equipment, for example:
- Electronic check-outs: Many items have bar codes on their label. At the check out
these labels can be passed through a laser beam, which reads the information and
transmits it to the electronic cash register. The register then produces for each
customer a detailed list of the items bought.
- Light pens: can be used to scan the bar codes of products on the shelves of a store.
This allows the firm to know precisely what goods are in stock. Bar codes convey
information about an item, e.g. the manufacturers name or the brand name of the
product.

Production and sale of goods and services

How can retailers convince customers to choose their shop for their purchases:
- offering a wide range of products of reliable quality,
- offering competitive prices,
- providing price reduction, discounts, special offers (Buy two for the price of one),
- offering free samples for new products,
- using effective advertising
- having the shop located centrally or close to customers homes,
- providing late-night and weekend opening,
- offering basic services within the shop: childcare, cafs, fast food restaurants,
- making sure more sales staff are available during peak hours to avoid queues,
- offering personal service,
- providing optional delivery service,
- offering home shopping facilities (companys webpage, catalogues),
- setting up order lines (customers order over the phone and collect goods from the
store),
- providing free parking,
- providing good customer care.
Branding
A brand is a name given by a producer to one or more of its products. The aim is to
differentiate the product from similar items of other producers and to make it distinctive to
consumers. An effective brand name should be short and easy to identify and remember.
There are different types of branding:
-

multiple branding this involves a business using a range of brand names for its
products, that is each product hast its own brand name. An example is Unilever which
produces Radio, Surf, Persil and other detergents. The advantage of this type of
branding is that failure by one brand will not have a negative effect on another.

Corporate branding this is when a business uses its corporate name as a principal
brand identity. Heinz, BMW and Sony are examples. The advantage is that new
products are more easily accepted by consumers if they already trust the existing
corporate brand.

corporate and individual branding this is a middle way between the two previous
branding strategies.

Retailers own brand products are branded with the name of the retailer selling
them rather than the manufacturer. Examples include Tesco, Cora, Marks & Spencer
own brand products. Own brands help retailers to gain customer loyalty.

There are a number of reasons why businesses use branding:

- to create brand loyalty,
- to differentiate the product,
- to gain flexibility when making pricing decisions,
- to help recognition of the product,
Production and sale of goods and services

to develop a brand image.

Pldk
Roleplay 1
A
You are a supermarket customer. When you returned home with your purchases, you
discovered that the ice cream you bought way beyond its sell-by date. You return to the
supermarket and ask to see the manager in order to complain and request a replacement.
B
You are the manager of a supermarket. A customer has returned with some ice cream which
they claim was purchased today, but which is over its sell-by date. You will need to see the
receipt of purchase before exchanging it. You may also need to reassure the customer
regarding the freshness of your other stock.
Roleplay 2
A
You are a regional sales representative of Perfect Shine which makes dishwashing liquid.
Your product is new to the market, fairly good quality, and environment friendly and
reasonably priced. You are touring Austria to promote sales of the dishwashing liquid. You
have a meeting with Mr/Ms Achermann who is the purchasing manager of Exter-Spat
supermarket chain. Discuss with him/her the possibility of a sale including prices, delivery
times, method of payment, etc. and try to convince him/her to place at least a trial order.
B
As the purchasing manager your negotiating strategy is to praise the products and services
provided by your traditional suppliers of dishwashing liquid. However, you realise that
Perfect Shine might find a ready market among environment-conscious, middle-income
customers if you can offer a competitive price to the major brands. Try to test the lowest
limits of the Perfect Shine offer and finally agree to an order on a sale or return basis.
Roleplay 3
A
You are an old customer of Baseline Ltd., a manufacturer of tennis equipment. You have come
to pay a social visit and to place a repeat order. To your surprise you find that their prices have
increased considerably (15%) since last time you placed an order. Obviously, you want an
explanation from their managing director.
B
You are the managing director of Baseline Ltd., a manufacturer of tennis equipment. With
great tact and politeness you explain the reasons why you were forced to raise prices. You
have had a sharp increase in the price of raw materials because a bigger rival who is now in a
position to control prices bought up your old supplier. You have had an industrial conflict
Production and sale of goods and services

inside the factory won by the labour union resulting in higher wage costs, and lots of lost
working hours. However, you do not want to lose on of your best customers and try to reach
some agreement with him.

Production and sale of goods and services