2. Presentation on
Retailing vs. Wholesaling
Retailing
What is retailing?
Retailing is all the activities involved in selling goods and services directly to finals consumers
for their personal, non business use.
Retailer is a business whose sales come primarily from retailing.
Retailing consists of the sale of goods or merchandise from a fixed location, such as a
department store, or by post, in small or individual lots for direct consumption by the purchaser.
Retailing may include subordinated services, such as delivery. Purchasers may be individuals or
businesses. In commerce, a retailer buys goods or products in large quantities from
manufacturers or importers, either directly or through a wholesaler, and then they sells smaller
quantities to the end-user. Retail establishments are often called shops or stores. Retailers are
at the end of the supply chain. Manufacturing marketers see the process of retailing as a
necessary part of their overall distribution strategy.
Many institutions manufacturers, wholesalers, and retailers do retailing, but most retailing is
done by businesses whose sales come primarily from retailing, for example Wal-Mart, Sears,
and Kmart are retailers.
Although most retailing is done in retail stores, in recent year’s non-store retailing -- selling by
mail, telephone (telemarketing), door-to-door contact, vending machines, and numerous
electronic means has grown tremendously.
Types of retailers
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3. There are mainly two types of retailers, Store retailers and Non-Store Retailers. Both types are
classified as per the table below:
Table 1: Types of Store and Non-Store Retailers (created by Author, SEU)
Store Retailing
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4. This type of retail store that come in a variety of shapes and sizes, and new retail types
keep emerging. They can be classified by one or more of several characteristics:
Amount of service: Different products require different amounts of service, and customer
service preferences vary:
Self-service retailers increased rapidly in the US during the Great Depression in the
1930's. Customers were willing to perform their own "locate-compare-select" process to
save money. Today, self-service is the basis of all discount operations, and typically is
used by sellers of convenience goods (such as supermarkets) and nationally-branded,
fast-moving shopping goods (such as catalog showrooms).
Limited service retailers, such as Sears and JC Penney, provide more sales
assistance because they carry more shopping goods about which consumers need
information. Their increased operating costs result in higher prices.
Full service retailers, such as specialty stores and first-class department stores, have
salespeople to assist customers in every phase of the shopping process. Full service
stores usually carry more specialty goods for which customers like to be waited on.
They provide more liberal return policies, various credit plans, free delivery, home
servicing, and extras such as lounges and restaurants.
Product line: retailers can also be classified by the depth and breadth of their product
assortments:
Specialty stores carry a narrow product line with a deep assortment within that line.
Examples include stores selling sporting goods, books, furniture, electronics, flowers, or
toys. Today, specialty stores are flourishing, due to the increasing use of market
segmentation, market targeting, and product specialization.
A department store carries a wide variety of product lines. Each line is operated as a
separate department managed by specialist buyers and merchandisers.
Supermarkets are large, low-cost, low-margin, high-volume, self-service stores that
carry a wide variety of food, laundry, and household products. Most US supermarket
stores are owned by large chains such as Safeway, Kroger, Publix, Winn-Dixie, Jewel,
and Tops. Chains account for almost 70% of all supermarket sales.
Convenience stores are small stores that carry a limited line of high-turnover
convenience goods. Examples include 7-Eleven, Circle K, Wilson's Farms, and Starvin'
Marvin. These stores located near residential areas and remain open long hours, seven
days a week. Convenience stores must charge high prices to make up for higher
operating costs and lower sales volume, but they satisfy an important consumer need.
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5. Superstores, combination stores, and hypermarkets are all larger than the
conventional supermarket. Many leading chains are moving toward superstores
because their wider assortment allows prices to be 5-6% higher than conventional
supermarkets'. Combination stores are combined food and drug stores. Examples are
A&P's Family Marts and Wal-Mart's Supercenters. Hypermarkets combine discount,
supermarket, and warehouse retailing, and operate like a warehouse -- products in wire
baskets are stacked high on metal racks, and forklifts move through aisles during selling
hours to restock shelves. They usually give discounts to customers who carry their own
heavy appliances and furniture out of the store.
Relative prices: retailers can also be classified by the prices they charge. Most retailers
charge regular prices and offer normal quality goods and customer service. Some offer higher
quality goods and service at higher prices. Retailers that feature low prices include:
Discount stores sell standard merchandise at lower prices by accepting lower margins
and selling higher volume. Occasional discounts or specials do not make a store a
discount store. A true discount store regularly sells its merchandise at lower prices,
offering mostly national brands, not inferior goods.
Off-price retailers buy at less than regular wholesale and charge customers less than
retail.
With the discounters trading up, off-price retailers have moved in to fill the low-price,
high-volume gap. They obtain a changing and unstable collection of higher-quality
merchandise, often leftover goods, overruns, and irregulars at reduced prices from
manufacturers or other retailers. The three main types of off-price retailers are factory
outlets, independents, and warehouse clubs.
Control of outlets: about 80% of all retail stores are independents, accounting for 2/3 of
retail sales. Other forms of ownership include the corporate chain, the voluntary chain and
retailer cooperative, the franchise organization, and the merchandising conglomerate.
The chain store is one of the most important retail developments of this century.
Corporate chains appear in all types of retailing, but they are strongest in department,
variety, food, drug, shoe, and women's clothing stores. The size of corporate chains
allows them to buy in large quantities at lower prices, and chains gain promotional
economies because their advertising costs are spread out over many stores and over a
large sales volume.
A franchise is a contractual association between a manufacturer, wholesaler, or
service organization (the franchiser) and independent businesspeople (the franchisees)
who buy the right to own and operate one or more units in the franchise system.
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6. Franchising has been prominent in fast-food companies, motels, gas stations, video
stores, auto rentals, hair cutting salons, real estate, and dozens of other goods and
services. The compensation received by the franchiser may include an initial fee, a
royalty on sales, lease fees for equipment, and a share of the profits.
Merchandising conglomerates are corporations that combine several different retailing
forms under central ownership and share some distribution and management functions.
Examples include Dayton-Hudson and JCPenney.
Type of store cluster: Most stores today cluster together to increase their customer
pulling power and to give consumers the convenience of one-stop shopping:
Central business districts were the main form of retail cluster until the 1950's.
Every large city and town had a central business district with banks, department stores,
specialty stores, and movie theatres. When people began to move to the suburbs,
however, these central business districts (with their traffic, parking, and crime problems)
began to lose business.
In recent years, many cities have joined with merchants to try to revive downtown
shopping areas by building malls and providing underground parking. Some central
business districts have made a comeback; others remain in a slow, and possibly
irreversible, decline.
A shopping center is a group of retail businesses planned, developed, owned, and
managed as a unit. All shopping centers combined account for about 1/3 of all retail
sales.
Non-Store Retailing
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7. Non-store retailing includes direct marketing, direct selling, and automatic vending.
Although most goods and services are sold through stores, non-store retailing has been growing
much faster than store retailing.
Traditional store retailers are facing increasing sales competition from catalogs, direct mail,
telephone, home TV shopping shows, and on-line computer shopping services, home and office
parties, and other direct retailing approaches.
Direct Marketing vehicles are used to obtain immediate orders directly from targeted
consumers. Direct Marketing uses various advertising media that interact directly with
consumers, generally calling for the consumer to make a direct response. Although direct
marketing initially consisted mostly of direct mail and mail-order catalogs, it has taken on
several additional forms, including telemarketing, direct radio and TV, and on-line computer
shopping. Its growing use in consumer marketing is largely a response to the "demassification"
of mass markets, which has resulted in an increasing number of fragmented market segments
with highly individualized needs.
Trends that have increased the use of direct marketing include:
number of women in the workforce;
higher costs of driving, including traffic congestion and parking problems;
shortage of retail help;
longer checkout lines;
toll-free telephone numbers;
availability of credit through proliferation of credit cards;
growth of computer power & communication technology; and
Increasing time pressures on consumers.
Direct Selling, or door-to-door retailing, started centuries ago with roving peddlers. Direct
Selling offers consumers the advantages of convenience and personal attention. But, the high
costs of hiring, training, paying, and motivating the sales force usually results.
Today, it has grown into a huge industry, with more than 600 companies selling their products
door-to-door, office-to-office, or at home-sales parties. Although some direct selling companies
are thriving, door-to-door selling has a somewhat uncertain future. Trends working against this
form of selling include:
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8. increase in single-person and working-couple households decreases the chances of
finding someone at home;
home-party companies are having difficulty finding non-working women who want to sell
product part-time;
increases in crimes against individuals has made consumers reluctant to invite strangers
into their homes; and
Recent advances in interactive direct-marketing technology mean that the door-to-door
salesperson may be replaced by the telephone, the television, and the home computer.
Automatic Vending Automatic Vending uses space-age and computer technology to sell
a wide variety of convenience and impulse goods, including: beverages, cigarettes, candy,
newspapers, foods and snacks, film, cosmetics, apparel, and fishing worms.
Retailer marketing decisions
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9. Retailers always keep searching for new marketing strategies to attract and hold
customers. Their marketing decisions include choices of target markets, positioning and the
marketing mix- product assortments and services, price, promotion, and place.
Table: Retailer Marketing Decision (Kotler, 2005 p. 403)
Target market a reatilers most important decision concerns with target market. Until the target
market is defined and profiled, the retailer cannot make conistent dicisions on product
assortments, store decor advertising messages and media, price and service lavels.
Price are the key key positioning factors amd must be decided in relation to target market, the
product and service assortmrnt mix,and competition.
Promotion retailers use a very high range of promotion toolsto generate traffic and purchases.
They place ads, run special sales, issue money-saving coupons,and in store sampling. Each
retailers must use promotion tools that support and reinforce its image positioning.
Place retailers must select locations that are assicible to the target market in areas that are
consistent with the retailer positioning.
The Future of Retailing
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10. Several trends will affect the future of retailing, including:
• The slowdown in population and economic growth. Retailers can no longer enjoy sales
and profit growth through natural expansion in current and new markets;
• greater competition and new types of retailers make it harder to improve market shares
in existing markets;
• The retailing industry suffers from severe over-capacity. There is more than 18 square
feet of retail space for every man, woman, and child, more than double that of 1972;
• consumer demographics, lifestyles, and shopping patterns are changing rapidly;
• quickly rising costs make more efficient operation and smarter buying essential to
successful retailing;
• Retail technologies are growing in importance as competitive tools to produce better
forecasts, control inventory costs, order electronically from suppliers, communicate
between stores, and sell to consumers within stores. These technologies include
advanced checkout scanning systems that can deliver individualized couponing and
incentive programs, in-store television, "smart" shopping carts that direct consumers to
in-store specials, on-line transaction processing for better inventory management, and
electronic funds transfer.
Many retailing innovations are partially explained by the Wheel of retailing concept.
According to this concept, new types of retailing forms challenge established retailers that
have become "fat" by letting their costs and margins increase. The new retailers' success
leads them to upgrade their facilities and offer more services, increasing their costs and
forcing them to raise prices. Eventually the new retailers become like the conventional ones
they replaced, and the cycle begins again when still newer types of retail forms evolve with
lower costs and prices. The Wheel of Retailing concept seems to explain the initial success
and later troubles of department stores, supermarkets, and discount stores and the recent
success of off-price retailers.
To be successful, retailers of the future will have to choose target segments carefully
and position themselves strongly. But the life cycle of retail forms is getting shorter:
• department stores took 100 years to reach the mature stage of the product life cycle;
• Catalog showrooms and furniture warehouse stores reached maturity in about 10 years.
Essentially, retailers can no longer sit back with a successful formula. To remain
successful, they must keep adapting.
Mordern-day Retailing
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11. Over time, different types of retailers have emerged and prospered because they have attracted
and maintained a significant customer base. A retail institution is a group of retailers that provide
a similar retail mix designed to satisfy the needs of a specific segment of customers.
Today, the success of small retailers or major retail corporations depends on how much they
embrace the retailing concept. The retailing concept is a management orientation that focuses a
retailer on determining its target-market needs and satisfying those needs more effectively and
efficiently than its competitors. Three critical environmental factors affect retailing today:
• Competition, because each department store, specialty store, or other type of retail
outlet is competing against all others for the consumer's dollar.
• Consumer demographic and lifestyle trends and the impact they will have on retail
strategies.
• Needs, wants, and decision-making processes that retail consumers utilize.
Characteristics of retailing
The most basic characteristic of a retailer is its retail mix, which include decisions and strategies
regarding the type of merchandise sold, the price of the merchandise, the assortment of the
merchandise, and the level of customer service.
A retail chain is a company operating multiple retail units under common ownership and usually
having some centralization of decision making in defining and implementing its strategy. Some
retail chains are divisions of larger corporations or holding companies. Due to scale economies
and an efficient distribution system, the corporate chains can sell at lower prices.
There are few charecteristics of retailing, according to bangladesh prospective:
Small scale
Ownership
Management
Working hours sources of product
Financing
Low operating cost
Unskilled marketing cost
Sales volume
Sales policy
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12. Monthlu sales variation
Ostacling factors of Retail efficient in Bangladesh
Lack of mordern teniques
Low quality products
Irregular supplies
Price variations
Lack of competetion
Lack of trained sales man
Higgling
Lack of seasonal capitallack of fixed capital
Credit sales
Transportation problem
Lack of communication
Deffective accounting
Among the list of consumer trends that are greatly affecting retail sales today are the
growth of the elderly population, as the baby-boomers age; the rapidly growing minority
segments of the U.S. population; the importance of shopping convenience, with consumers
wanting one-stop shopping; and the rising number of two-income families.
Examples of retailers using a competitive advantage to maintain their position in the market
place at the start of the twenty-first century include AutoZone, which has convenient
neighborhood locations and excellent customer service. Talbot's uses unique synergies
between its stores and its catalogue operation and offers private brand clothing. Starbucks, a
highly regarded brand name in the coffee industry, has maintained strength and customer
loyalty through providing excellent service.
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13. Wholesaling
What is wholesaling?
Wholesaling includes all activities involved in selling goods and services to those buying for
resale or business use. Wholesaling is the sale of goods or merchandise to retailers, to
industrial, commercial, institutional, or other professional business users, or to other wholesalers
and related subordinated services
Wholesaler is those firms engaged primarily in wholesaling. Wholesalers are someone who
buys large quantities of goods and resells to merchants rather than to the ultimate customers
Why would a producer use wholesalers rather than selling directly to retailers or
consumers? Because wholesalers are better at performing many channel functions.
According to the United Nations Statistics Division, "wholesale" is the resale (sale without
transformation) of new and used goods to retailers, to industrial, commercial, institutional or
professional users, or to other wholesalers, or involves acting as an agent or broker in buying
merchandise for, or selling merchandise to, such persons or companies. Wholesalers frequently
physically assemble sort and grade goods in large lots, break bulk, repack and redistribute in
smaller lots.
Business that buys goods from manufacturers and that sells goods, usually in large
quantities to retailers, who in turn sell them to the end user. Virtually everything sold on a retail
basis can be purchased from a wholesaler, who acts as middleman between the manufacturer
(and owner, as in the case of list rentals) and the retailer. Wholesalers help manufacturers by
absorbing some of the costs of sales and distribution, and allow manufacturers to concentrate
their resources on manufacturing.
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14. Functions Of Wholesalers
Selling & promoting: wholesalers' sales forces help manufacturers reach small
customers at low cost. The wholesaler has more contacts and is often more trusted by the
buyer than the distant manufacturer.
Buying & assortment building: wholesalers can select items and build assortments
needed by their customers, thereby saving the consumers much work.
Bulk-breaking: Wholesalers save their customers money by buying in carload lots and
breaking these large lots into smaller quantities.
Warehousing: Wholesalers hold inventory, thereby reducing the inventory costs and risks
of suppliers and customers.
Transportation: wholesalers can provide quicker delivery to buyers because they are
closer than the producers.
Financing: Wholesalers finance their customers by giving credit, and they finance their
suppliers by ordering early and paying bills on time.
Risk bearing: wholesalers absorb risk by taking title and bearing the cost of theft, damage,
spoilage, and obsolescence.
Market information: wholesalers give information to suppliers and customers about
competitors, new products, and price developments.
Management services & advice: wholesalers often help retailers train their salesclerks,
improve store layouts and displays, and set up accounting and inventory control systems.
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15. Types Of Wholesalers
Wholesalers fall into three major groups: merchant wholesalers, brokers & agents, and
manufacturers' sales branches and offices. They can be classified as shown below:
Manufactures’ &
retailers’ branches
& offices
Table 2: Classification of Wholesalers Intermediaries (created by Author, SEU)
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16. Independent Wholesaling Intermediaries
Merchant wholesalers are independently owned businesses that take title to the
merchandise they handle. There are two types of such merchants. One is full service
merchants who provide all the services relating to the marketing, carry stock and make
deliveries. The other one is limited service wholesalers who provide limited services, examples-
electrical merchants, hardware merchants, pharmaceutical merchants that sell goods in
particular category only.
Full-service merchant wholesalers provide a full set of services, such as carrying stock, using a
sales force, offering credit, making deliveries, and providing management assistance. They are
of two types:
Wholesale merchants: sell primarily to retailers and provide full range of services.
Example: health foods wholesalers, and sea food wholesalers.
Industrial distributors: sell to manufacturers rather than retailers. Provide several
services, such as carrying stock, offering credit and providing delivery.
Limited service merchant wholesalers offer fewer services to their suppliers and customers, and
include:
Cash-n-carry wholesalers: offer a limited line of fast-moving goods, sell to small
retailers for cash, and generally do not deliver. A small fish store retailer, for example,
normally drives at dawn to a cash-n-carry fish wholesaler and buys several crates of fish,
pays on the spot, drives the merchandise back to the store, and unloads it.
Truck jobbers: perform a selling and delivery function. They carry a limited line of
goods (such as milk, bread, eggs, or snack foods) that they sell for cash as they make
their rounds of supermarkets, small grocery stores, hospitals, restaurants, factory
cafeterias, and hotels.
Drop shippers: operate in bulk industries such as coal, lumber, and heavy equipment.
They do not carry inventory or handle the product. Once an order is received, they find
a producer who ships the goods directly to the customer. The drop shipper takes title
and risk from the time the order is accepted to the time it is delivered to the customer.
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17. Rack jobbers: serve grocery and drug retailers, mostly in the area of non-food items.
Rack jobbers send delivery trucks to stores, and the delivery person sets ups racks of
toys, paperback books, hardware items, pet supplies, health & beauty aids, and other
items. They price the goods, keep them fresh, and maintain inventory records. Rack
jobbers sell on consignment; they retain title to the goods and bill the retailers only for
the goods sold to consumers.
Producers' cooperatives: owned by farmer-members, they assemble farm produce to
sell in local markets. Profits are divided among members at the end of the year. They
often try to improve product quality and promote a co-op brand, such as Sun Maid
Raisins, Sunkist Oranges, or Diamond Walnuts.
Mail order wholesalers: send catalogs to retail, industrial, and institutional customers,
offering jewelry, cosmetics, specialty foods, and other small items. Their main
customers are businesses in small, outlying areas.
Brokers & Agents differ from merchant wholesalers in two ways -- (1) they do not take
title to goods, and (2) they perform only a few functions. Their main function is to aid in buying
and selling, and for these services they earn a commission on the selling price. Like merchant
wholesalers, they generally specialize by product line or customer type. They account for 11%
of total wholesale volume.
A broker brings buyers and sellers together and assists in negotiation. Brokers are
paid by the parties hiring them. They do not carry inventory, get involved in financing, or
assume risk. The most familiar examples are food, real estate, insurance, and
securities brokers.
Agents represent buyers or sellers on a more permanent basis. Selling agents contract
to sell a producer's entire output -- either the manufacturer is not interested in doing the
selling, or feels unqualified.
The selling agent serves as a sales department and has much influence over prices,
terms, and conditions of sale.
Manufacturers' agent’s representatives handle two or more related lines, with separate
formal agreements, from two or more different manufacturers. They are most often
used in lines such as apparel, furniture, and electrical goods.
Purchasing agents generally have long term relationships with buyers. They make
purchases for buyers and often receive, inspect, warehouse, and ship goods to the
buyers.
Commission merchants (or houses) are agents that take physical possession of
products and negotiate sales.
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18. Manufacturers' Sales Branches & Offices account for about 31% of all wholesale
volume. Manufacturers set up their own sales branches and offices to improve inventory
control, selling, and promotion. Sales branches carry inventory, and are found in industries
such as lumber and automotive equipment and parts. Sales offices do not carry inventory, and
are most often found in the dry goods and notion industries. Purchasing officers perform a role
similar to that of brokers or agents but are part of the buyer organizations.
Wholesaler Marketing Decisions
Wholesalers now face growing competitive pressures, more demanding Customers, new
technologies, and more direct-buying programs on the part of large industrial, institution and
retails buyers. As a result, they have taken a fresh look at their marketing strategies. As with
retails, their marketing decisions include choices of target markets, positioning and the
marketing mix- product assortments and services, price, promotion, and place.
Table: Wholesaler Marketing Decision (Kotler, 2005 p. 418
Target Market and positioning Decision
Like retails, wholesalers must define their target markets and position themselves effectively –
they cannot serve everyone. They can choose a target group by size of customer large (only
large retailers) types of customers, need for services or others factor. Within the large group,
they can identify the more profitable customers, design stronger offers and build better
relationship with them.
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19. Price wholesalers usually mark up their cost of goods by conventional percentage to cover their
expenses. They ask suppliers for a special price break when they can turn it into an opportunity
to increase the supplier’s sales.
Promotion wholesalers rely primarily on their sales force to achieve promotional objectives.
They need to develop an overall promotion strategy involving trade advertising, sales promotion,
and publicity.
Place wholesalers must choose the locations, facilities and web locations carefully.
Trends in Wholesaling
Progressive wholesalers are always looking for better ways to meet the needs of their
suppliers and target customers. They can do this best by reducing costs while improving
services. Wholesalers' reason for existence comes from increasing the efficiency and
effectiveness of the entire marketing channel.
The distinction between large retailers and wholesalers continues to blur. Many retailers now
operate formats such as warehouse clubs and hypermarkets that perform many wholesale
functions. In return, many wholesalers are setting up their own retailing operations. For
example, Super Value and Fleming, both leading food wholesalers, now operate their own retail
outlets.
Wholesalers will continue to expand the services they provide to retailers -- retail pricing,
cooperative advertising, marketing and management information reports, accounting services,
and others. Rising costs on the one hand, the demand for increased services on the other, will
put the squeeze on wholesaler profits. Wholesalers who do not find efficient ways to deliver
value to their customers will soon drop by the wayside.
Because of slow growth in their domestic markets, and through such developments as
the North American Free Trade Agreement (NAFTA), many large wholesalers are now going
global. The National Association of Wholesaler-Distributors predicts that, by the year 2000,
wholesalers will generate 18% of their sales outside the United States, twice the current share.
(Weber, Joseph "On a Fast Boat to Anywhere," Business Week, January 11, 1993, p. 64)
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21. Visiting Karwan Bazar and Mohammadpur Krishi Market yesterday, it was found by The Daily
Star, although wholesale prices of Indian rice came down by Tk 30 to Tk 40 a maund,
interestingly on retail markets the prices went up by Tk 1 a kilogram (kg).
Retailers said they were not being able to sell rice at lower prices in line with the decrease in
prices on wholesale markets yesterday, because they had bought the rice they were selling at
higher prices from the wholesalers two days ago.
Bibliography
Kotler. P, Gray. A, 2005, Principles of Marketing, 11th Edition, Pearson Prentice hall, p. 397-419
Kotler. P, 2003, Marketing Management, 11th Edition, Pearson Education, p. 534-50
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