aqa bus2-marketingplace
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Place (Distribution)
What this topic is about
• The meaning and purpose of place (distribution)
• Different distribution channels
• Factors to consider when choosing distribution channels
Think about…
• How can a business ensure that its products reach existing and potential customers?
• How and where do customers prefer to buy the product?
• How important are factors such as stock availability, price, speed?
The Objective of Distribution
To make products available in the right
place at the right time in the right quantities
What is a distribution channel?
A distribution channel moves a product from
production to consumption
Channels can have various levels
Producer Producer Producer
WholesalerDistributors
/ Agents
Retailer
Customer Customer Customer
Each party in a distribution channel is called an “intermediary”
Main Types of Intermediary
Retailer
Distributor
Wholesaler
Agent
Retailers - Introduction
• Retailer is the final step in the chain – deals directly with the customer
• Focused on consumer markets• Various kinds of retailer:
– Multiples – chains of shops owned by a single company (e.g. Sainsbury’s or Next)
– Specialist chains (e.g. fast fashion, perfume)– Department stores (e.g. Debenhams, John Lewis)– Convenience stores (e.g. Spar, Costcutter)– Independents – a shop run by an owner– Franchises (retail format operated by franchisee)
Key Trends in Retailing
• Trend towards out-of-town stores • Decline in independents • Growth of retailer “own label” brands• Continued growth in franchising • Increase in international retailing within
Europe • Increasing technology in retailing
Key Advantages of Retail Distribution
• Convenience for customers• Often UK-wide reach to
customers• Retailer chooses the final price• Retailer handles the financial
transaction• Retailer holds the stock• After-sales support (e.g.
returns)
Wholesalers
• Wholesalers “break bulk”– Buy in large quantities from producers– Break into smaller quantities to sell to retailers
• Advantages– Reduce the producer’s transport costs (fewer journeys to
the wholesaler rather than many journeys to retailers)– Retailers can order in smaller amounts from wholesalers
• Wholesaler makes money by buying at a lower price from the producer and adding a profit margin onto the price paid by the retailer
Wholesaler - Example
Producer
Wholesaler
Retailer
Customer
Sale of Daily Newspapers
Newspaper Publisher – e.g. The Sun, The Times – who send bulk print runs of newspapers to large depots run by wholesalers
Wholesaler (e.g. John Menzies) packs newspapers into bundles for retailers (e.g. newsagents)
Retailer (e.g. newsagent; petrol station) displays newspaper in store and delivers to homes
Customer = newspaper buyer
Distributors
• Distribute (sell on) products and serve as a local sales point
• Usually specialise in a particular industry– Examples – building supplies, electrical
components, industrial clothing
• Offer products from many producers = greater choice
• Different from agents in that a distributor holds stock
Producer
Distributor
Customer
Agent
• Specialist type of distributor• Does not hold stock• Tend to operate in tertiary
sector (services)– Travel– Insurance– Publishing
• Earn commission based on sales achieved
Producer
Agent
Customer
Functions of a distribution channel
• Provide a link between production and consumption
• To gather market information• Communicate promotional offers• Find and communicate with prospective
buyers• Physical distribution - transporting and
storing• Financing – other parties finance the stock• Risk taking – other parties take some risk
Channel strategy decisions
• Channel length - direct or indirect?• Choice of intermediary• Use just one or several channels?• How to move the goods through the
channel?• Control over the channel – e.g. who
decides price, promotion, packaging?
Direct or Indirect Channels?
• A business faces a choice of using direct (short) or indirect (long) channels
• Direct– Channel where a producer and consumer deal
directly with each other without the involvement of an intermediary
• Indirect– Involves the use of intermediaries between the
producer and consumer
Direct Channels
• Increasingly popular• Various Methods:
– Direct mailing– E-commerce– Telemarketing (telephone selling)
• Examples– QVC (TV Selling)– Boden (clothes from catalogue)– Direct Line (insurance online)
Producer
Customer
So why use intermediaries?
• Geography- customers may live too far away to be reached directly or spread widely
• Consolidation of small orders into large ones
• Better use of resources elsewhere• Lack of retailing expertise• Segmentation - different
segments of the markets can be best reached by different distribution channels
Short or long channels?
• Short distribution channels– Few if any intermediaries used– Greater control over the marketing of the product– Keeps greater proportion of profit– But means increased distribution costs
• Long distribution channels– Reduced costs– Reduces the producer’s control over marketing
Factors to Consider (1)
• Nature of the product– Perishable/fragile?– Technical/complex?– Customised – Type of product – e.g.
convenience, shopping, speciality
– Desired image for the product
Factors to Consider (2)
• The market– Is it geographically spread?– The extent and nature of the competition
• The business– Its size– Its nature– Does it have established distribution network?
Short channels are used for…
• Industrial products• Expensive and complex goods• Bulking products• Customized products• Services • Products sold in geographically concentrated
market• Products bought infrequently by relative
small numbers of customers
Long channels are used for…
• Consumer goods• Inexpensive and simple goods• Small products• Standardised products• Goods sold in dispersed markets• Goods sold frequently and to many
customers
Test Your Understanding
http://www.tutor2u.net/business/quiz/place/quiz.html
Place (Distribution)