Business and Management 3.6 Place- Distribution Channels ‘Place’ decisions are concerned with how products should pass from manufacturer to the final consumer. There are several different options available: a. Short or direct (zero-level channel) Producer Consumer b. Single-intermediary channel (One-level channel) Producer Producer Producer Distributors Agents Retailers Consumer Consumer Consumer c. Two-intermediary channel (long) (Two-level channel) Producer Wholesalers Retailer Consumer Draw each!!!!! Factors to consider: a. Type of product - Industrial products tend to be sold more directly with fewer intermediaries than consumer goods. b. Geographical Geographical dispersion of the target market – if the target market is large but widely dispersed throughout the country, then the use of intermediaries is more likely. Level of service - The level of service expected by consumers, e.g. aftersales servicing of a car means that internet selling is not appropriate for most manufacturers. Technical complexity - Technical complexity (e.g. business computers) is sold directly as they require a great deal of technical sales staff know-how and a supporting service team. Unit value of product - It may be worth employing sales staff to sell directly to customers if the unit cost of, for example, a luxury yacht is $5 million, but not worthwhile if items of jewellery are being sold for $5. Number of potential customers - If it the number of potential customer is few, as with commercial aircraft, direct selling might be used, but Nike, or Reebok with their millions of customers for sports shoes worldwide would use intermediate channels to distribute their products. - c. d. e. f. Need to matched with marketing objectives- eg/ niche market/price skimming should not use street vendors. If marketing objective is maximum sales, then using an exclusive distribution channel not advised- use an extensive one. Define the following terms (use pp577-581): i. ii. iii. iv. Wholesalers A wholesaler is a business that purchases large quantities of products from the manufacture. They then separate the bulk purchases into smaller units for resale to retailers. Distributors They are independent and specialist businesses that trade in the products of only a few manufactures. Agents (brokers) They are negotiators who act on behalf of buyers and venders (sellers) of a product. They are intermediaries to help sell the vendors products. They are experts in particular markets. Retailers They are the sellers of products to the final consumer. a. Independent: They are the small local vendors, often operating as a sole proprietor. They usually sell a small range of products or are specialist outlets. b. Multiple (chian stores): Have several or many outlets. Eg. Mc Donalds. They have customer familiarity and brand loyalty c. Supermarkets: Retailers that mainly sell foodstuffs. They tend to buy the produce and other products directly from manufactures. d. Hypermarkets: They are huge outlets that stock not only foodstuffs but also other products like consumer durables (eg. Phones) Due to their enormous size they tend to be located in out of town areas where space is available at relatively low price. e. Department stores: Retail outlets that sell a large range of products. Such as furniture, kitchen equipment, clothing, toys, cosmetics and jewellery v. vi. vii. viii. ix. Direct marketing Refers to the direct selling of product to the consumer i.e. Marketing without the use of any intermediaries Telesales Refers to the use of telephone systems to sell product directly to potential customers. E-commerce This is a term used to describe trading via the internet. Direct mail Involves a business sending promotional material via the male system to entice customers to buy a firms products. Vending machines They are specialist machines that stock products such as cigarettes, drink and snacks. They can be placed almost anywhere. Factors affecting choice of distribution channels (p581) Factors affecting choice of distrubution channels Costs and benefits Direct selling – help to reduce the costs of distribution. However, retailers and distributors may have better access to customers. Hence, businesses will need to weigh up the costs and benefits if using intermediaries. Also need to take into account- transportation. 2. Product Perishables – shorter distribution channels will be necessary. Fast-moving consumer goods – need to be sold in large volumes, so the use of wholesalers and retailers would be appropriate. Books, CD, clothes – can be directly sold through the internet. 3. Market Niche markets – can be catered for by the supplier without use of intermediaries Large markets – require the services offered by intermediaries 4. Time E-commerce – time tag between paying for the product and receiving it. Hence, not be desirable for purchasing items that require urgent delivery. More direct channel of distribution would be more suitable\ 5. Legal constraints Government rules and regulations can prohibit the use of certain distribution channels o E.g. anti-gambling laws An integrated distribution strategy consists of a company implementing several different methods of distribution, including direct marketing and also through chains of distribution. The purpose of this is to reach out to as many potential customers as possible. An example of this is traditional supermarkets being unable to simply rely on customers visiting their physical outlets, for customers now have the choice of purchasing online, by e-commerce. HL ONLY Supply Chain Management (SCM)- aka logisitics- is the process of coordinating and managing the sequence of activities from the production of a good or service to it being delivered to the end customer. Involves several key functions (p583): i. Stock control – managers must plan, implement and monitor the movement and storage of all stocks from its sources to the point of consumption ii. Quality control – supply chain need to ensure there quality and value added, in order for product to be bought by customers. Thus will generate profit iii. Supplier networks – coordination and collaboration with suppliers from the primary stage of production to the product being distributed to the consumer is essential in helping to reduce cost without compromising overall quality. iv. Transportation – depending on issue such as frequency, speed and reliability of different transportation system, the most cost-effective method of distributing must be investigated Reasons and limitations of SCM (p583) Reason: - Since long supply chain can go wrong, SCM can prevent mistake that could adversely affect the business - Ensure appropriate supply of stock to meet level of demand in market - Help to save time and cost as it will identify area of wastage and inefficiency, therefore achieving lean production (minimal input for maximum output) Limitation: - Increase in globalisation, international sourcing become more complex as there more partners from various part of the world (long supply chain) to deal with - Time lags and potential conflicts delay the process of distributing products to costumers - Greater interdependence also mean that a single problem in the supply chain can cause major disruption - Require trust among partners as information need to be share - Require more time and resources.