Buying & selling - Elements & Types

Buying Elements

                        The activities involved in buying process are called buying elements or Components or Sub - functions.

                         The sub - function of buying involved in buying process can be divided into 5 types as - Making buying plan , Making Contact with , Making a Choice , Talking for Agreement and Making a Contract.

                       Professor Tousley and Clark and clark have identified the five components of buying.  They are as follows:-

1) Planning to Purchase

                Planning begins in buyers mind from want or desire of goods. It means buying must be preceded by a good deal of Thinking , Estimating and  Planning. A plan for buying is said to be appropriate only when the following items are finalized :

a) Preparation of Budget

                   It is the process of estimating the future requirements. It gives an idea of the quality to be bought and amount of Expenditure involved in it. When the Quality , Quantity and price is estimated budget is prepared.

 b) Determining ROT(Rate of Turnover) 

                    It is the rate or speed at which the average Inventory of stock is sold. Stock held for short or shortest period indicates fast movement of particular types of goods.

c) Changes in prices

                      Consideration and attention should be paid to changes in market like price , quality ,fashion trends ,changes in needs and wants etc...

 2) The Contact Function 

                           It means searching for sources to supply. For this they should search and identify the suppliers , prepare their list and establish contact with them for supplying the goods. This is called contact function.

                    Before selecting supplier the buyer has to think about different matters such as price of goods , delivery schedule , transportation cost , quality , capacity of supplier , means and resources , after sale services , promotional policy  ,credibility and responsibility of the supplier , terms and conditions , buying plan etc...

3) Assembling or  Centralization 

                       It means bringing together or collecting a large number of similar goods  of many producers or different sources at a proper place at a proper time. 

                                                                                         OR

                           It is the stage of pooling together of goods from different suppliers and different places by a single businessman or firm.

4) Negotiation(Bargaining)

                      It refers to the process of bargaining between buyers and sellers. buyers and sellers meet with a view  to discuss the contents of contract such as price , payment , quality , quantity , mode and time of delivery , transportation and discount etc...

 5) Contractual(contact)

                           It is the final stage where buyer and seller enter into a contract. It is a written document where all the terms and conditions are clearly written when it is finalized , both parties start their activities. if anyone party violates the contract, another party can appeal to the court for justice and penalty has to be paid as specified in the contract agreement.

Buying methods(types)

                       Different methods are used in buying goods or services. Buying may be in big or small quantity . Goods or services can be bought from one or many sellers or sources according to convenience.

                        Different methods of buying can be classified on the basis of quality , quantity of goods and number of suppliers.

I. Methods of buying based on Quantity of goods

                       Buying can be divided into four categories on the basis of the goods to be purchased. They are :

   1) Conservative buying 

   2) Speculative buying

   3) Buying through tender

   4) Contract buying

Now let us see and understand each one of these buying types in detail.

1) Conservative buying 

                    The method of buying goods in small amount only with the purpose of meeting daily necessity so that there remains q minimum quantity of stock is called conservative buying. This buying is also called Hand to mouth buying  or Current need buying or Economical buying or Small order buying or  Small lot buying.

                            The main aim of this buying method is to avoid loss that may be caused by the decline in the price of goods in stock. Housewives buy goods in the same method to meet daily needs. Wholesalers use this method if there is possibility of decline in the price of goods to avoid loss.

   2) Speculative buying

                          In speculative buying method buyers buy more quantity than needed.  The purpose of this method is to earn maximum profit from selling the goods at higher price. This method of buying is also called Buying long , Forward buying, Bulk buying. 

                     Wholesalers or dealers buy goods in this method. They buy goods in bulk quantity expecting that the price of goods will increase in near future and more profit can be earned by selling at high price. However , there is high risk of overstocking and fluctuation of price due to imbalance of market.

   3) Buying through tender

                       Buying through tender is selecting a supply source (supplier) out of many sources available.

                           Big producers may call for supply of raw materials. They open the tenders received from different suppliers and the suitable is accepted. From this producer gets raw materials regularly at certain price. In this method , the producers have not to bother about searching suppliers. Government offices and large companies buy goods in this method.

   4) Contract buying

                          Under this method, the goods are purchased under a contract. Buyers may sign written contract with capable and reputed suppliers for buying huge amount of goods.

                        Buyers get regular supply of goods at certain price for fixed duration as mentioned in the contract. In this method buyers need not spend time nor have to bother about searching for supply sources. The supplier himself provides necessary goods at buyers doors.

II. Methods of buying based on Number of suppliers 

                         On the basis of the number of suppliers the buying methods are classified into three types. They are:

   1) Concentrated buying

  2) Diversified buying

  3) Reciprocal buying 

   1) Concentrated buying

                     If purchases are made from single or very few  supplier ,  is known as concentrated buying. In this buying regular regular contact is established with sellers. the buyers get facilities like reasonable price,quantity discount,  best services , low handling and transportation cost , prompt delivery. but there is also limited choice to buy goods due to single or few number of suppliers. so there remains risk of market.

  2) Diversified buying

                    If purchases are made from large number of suppliers , then it is known as diversified buying. This buying is also called  Scattered buying.  The buyers enjoy competitive price and wider selection facilities. But this method can't provide quantity discount to the buyers. Similarly , it also increases transportation cost. 

  3) Reciprocal buying 

                        Exchanging goods to meet the mutual needs of both the parties is called reciprocal buying. Reciprocal buying is like barter system where buyers and sellers enter into a contract to buy and sell the products mutually. 

                         For this both parties should make mutual contract. This means when A is ready b to buy goods of B , then B also becomes ready to buy goods of A. This increases the purchasing and selling activities but it reduces the choice of suppliers. There is limited choice and sometimes prices may be higher too .Hence reciprocal buying is also called as Mutual buying and selling. 

III. Methods of buying based on Quality of goods

                In these methods of buying the buyer makes buying decisions only after being satisfied with the quality of goods. On the basis of the quality of goods the buying decisions  are classified into three types. They are:

 1 )Buying by inspection

 2) Buying by sample

 3) Buying by description

 1) Buying by inspection

                        In this method , buyer inspects and examines goods and gives order for supply only if it can meet the need. Here the seller organizes fair or exhibition so that buyers can get chance to inspect the goods. Buyers can also visit sellers store or collection centers or production place to inspect goods. If goods are found satisfactory , then the buyers give order for supply of the goods.

 2) Buying by sample

                In this method , the buyer purchases goods according to the sample. Sample are given to customers by suppliers. The seller sends the sample and price list of the products to the customer. the product and price should be accurate according to the sample price list Otherwise , the buyers can return the product.

 3) Buying by description

                              If the purchase is made on the basis of detail information about the product feature , price quality etc... through the booklet or catalogue  is known as buying by description. The description of goods can be found in advertisements, signboards , hoarding boards or other business publications. Advertisements and brand name also support to purchase and sale of goods

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SELLING COMPONENTS OR ELEMENTS

                                The following are the main sub-functions or components or elements of selling function. There are mainly five functions .They are: 

1) Product planning and development

            The process of identifying what to produce for selling more quantity and earning more profit is called product planning. The product planning include the activities such as decision on quality , design and quantity of product, necessary technology , knowledge and skill etc... Product development is related with the diversification of product , variety , modification or improvement in the existing products and termination of unprofitable products.

2) Contactual function

          It means to establish contact with customer. To identify potential customers , to find their living place and to keep contact with them is the task of all sellers from producers to retailers . A seller should keep contact with innumerable customers like final consumers , industrial users , institutional buyers , retailers etc......

3) Demand creation

            This is the act of converting the desire into demand. Without demand in the market , it becomes difficult to sell any product. Several methods are used to create demand or stimulate feeling in customers to buy any new product. 

            Promotion , personal selling and advertisement are widely used methods for creation of demand for goods. Along with this display , decoration , exhibition , trade fare , sample distribution , coupon , gift program also help to create demand 

 4) Negotiation

              After creating demand for goods , buyer and seller enter into negotiation for buying and selling . They reach an arrangement. Buyer and seller make arrangement on terms and conditions of  sale , quantity and quality of goods; price , method of delivery , means of transport , time for payment etc.......

5) Contractual function

                        This is the last stage of selling process.  Seller signs a contract to transfer ownership of goods to the buyer as decided by negotiation. Then goods are transferred to buyers hand and money to sellers hand according to the contract. Then selling function ends after seller hands over goods to buyer by taking price of goods.

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