Definition of Tied Shops:
Tied Shops are shops or houses owned and managed by manufacturers. These retail outlets are where the manufacturers/producers sell their products. Tied shops are confined to a single line of a commodity which is directly supplied by the manufacturers.
Advantages of Tied Shops:
1. Personal Contact: Customers come in direct contact with the manufacturers who are able to give them useful advice on the product.
2. High-Profit Margin: The trade and cash discounts that would have been given to wholesalers are retained thereby enabling them to make a high profit.
3. Adequate Monitoring of Sales: They ensure an adequate supply of goods and monitor the sales too.
4. After-sales Services: They educate their customers and offer after-sales services to their customers.
5. Goods Produced according to Customer’s Specification: Customers can approach the manufacturers to directly ask for a particular product and it will be done according to request.
Disadvantages of Tied Shops:
1. Hoarding of Goods: If there are no competitors, the tendency for them to hoard goods is high.
2. Limited Range of Goods: The customers may not have the choice of goods required due to a limited range of goods available.
3. Increased Selling Costs: The use of delivery vans attract high selling costs for the goods to customers.
4. Capital Tied Down: Capital is tied down in stock due to only one distributive channel i.e. from the manufacturer to the final consumers.
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