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.