IB Business Management
4.5 PLACE
Learning Outcomes
• To understand the importance of place in the
marketing mix (A02)
• To analyse and evaluate the effectiveness of
different types of distribution channels (A03)
Central Question
How does a
business decide
where to sell and
what distribution
method is most
appropriate?
Place (distribution)
• How products get from the producer to the consumer.
“getting the right products to the right customers at the right
price in the right place at the right time”
How do these get to the
consumer?
Channels of Distribution
• The method of getting the product to the consumer
• Intermediaries are agents or businesses that
facilitate this (middle man)
• The longer the distribution channel generally leads
to higher prices as each intermediary adds a profit
margin to their selling price
• A long channel of distribution is not suitable for
perishable products – why?
Distribution channels as
levels
• A zero level channel – has no intermediaries e.g.
service industry
• A one level channel – has one intermediary e.g. a
retailer
• A two level channel - has two intermediaries e.g.
wholesaler and retailer
How many levels?
Types of Intermediaries
• Retailer – A business which buys goods from
manufacturers and wholesalers and sells them in
small quantities to customers
• Wholesaler – A business which buys large quantities
of goods from manufacturers. They then ‘break the
bulk’ and sell them in smaller quantities to retailers
• Agent/Broker – An independent company who
negotiates between buyers and sellers
• Distributor – Specialist , independent businesses that
sell products of only a few manufacturers
WHOLESALERS – WHY USE
THEM?
Wholesaler Advantages
• Wholesaler takes care
of storage
o Retailer has less cost
& more space
• Retailers do not have to
purchase such large
quantities
• Producer’s costs are
lower as they are
selling in bulk to fewer
customers
• Producers do not have
to deal with distribution
issues / problems
Wholesaler Disadvantages
• Producer loses
control of marketing
• How do you know
the wholesaler will
promote like you
want them to?
• Retailers have
higher prices as the
wholesaler’s costs
must be passed on
RETAILERS – WHAT ARE THEY
ALL ABOUT?
Retailers (shops)
• The sellers of products to the final customer
What Different
types of retailers
are there?
Some Types of Retailers
Superstores/
Hypermarkets
Department Stores
Supermarkets
Multiples/Chains
Market Traders
Online Retailers
Independent
stores
Distributors
• Distributors
o
Independent, specialist
businesses that sell
products of only a few
manufacturers
• Examples include:
o
o
o
o
Cars
Books
Movies
Electrical equipment
Agents or
Brokers
• Negotiators who act on
behalf of buyers & sellers of
a product
• Usually not employed by the
producer, independent
• Experts in their field
• Often charge either a
commission or a fee
• Often offer products from a
variety of producers
• Examples:
o
Real estate, travel, insurance,
financial advisors
Agents or Brokers
• Often rely on personal
selling techniques
o
o
o
o
Product is complicated
Buyer needs education
Buyer can ask
questions
Product may need
demonstration
Direct Route
• What methods could a firm use to sell directly to
customers?
Can you think of examples of companies which use
these methods?
Direct Marketing Distribution
• Telesales, or telemarketing
o
o
o
o
Sales people make phone calls
Or automated voice or text
messaging
Expense varies
Some people hate it
• E-commerce
o
Websites which accept payment
online
 Credit card
 PayPal
 E-check
o
o
Not appropriate for all products
Growing in popularity
• Direct Mail
o
o
o
Send promotional material
via the postal service
Can be personalized
But often considered ‘junk’
• Vending Machines
o
o
o
o
o
Drinks, snacks, cigs
Can be placed almost
anywhere
New machines can accept
various payment methods
Costs are minimal, i.e., no
salespeople needed
Vandalism, limited stock,
mechanical failures
Factors in Choosing Distribution
Strategy
• Costs & benefits
o
o
Direct selling may reduce costs but retailers may have
better access to customers
Transportation methods must also be considered, e.g.,
rail, ship, trucking, air
• Product
Perishables must have short chains
Fast-moving goods need to be moved in large volumes
(wholesalers & retailers more app.)
o Many products can now be sold directly through the
internet (books, dvds, toys, airfare, vacations, clothes)
o
o
Multi-Channel Distribution
• Many businesses will
use more than one
channel
• E.G., airlines will sell
tickets via:
o
o
o
o
Travel agencies
Airport counters
Internet website
Internet travel sites
 Expedia
 Kayak
 Orbitz
What Distribution
Channel/Channels do these
manufacturers use?
Factors in Choosing Distribution
Strategy
• Market
o
Niche markets often directly controlled by producer
whereas mass markets often best to use
intermediaries
• Time
o
Some items require immediate delivery while others
can be ordered and delivered at a later date
• Legal Constraints
o
o
Often a nation or community’s laws affect the
distribution selection
E.g., gambling, alcohol sales, guns & ammunition
Channels of Distribution
• Channels of distribution are NOT the
methods of transport
o They
are NOT trucking, railroads, shipping etc.
• Channels of distribution refer to the
intermediaries used to get product to
customer such as wholesalers, agents,
retailers
Place – CUEGIS?
CONCEPT
CHANGE
CULTURE
ETHICS
GLOBALISATION
INNOVATION
STRAETEGY
RELEVANCE TO PLACE THEORY
Quiz Time