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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
Each party in a distribution channel is called an
“intermediary”
Producer
Producer
Wholesaler
Distributors
/ Agents
Producer
Retailer
Customer
Customer
Customer
Main Types of Intermediary
Retailer
Wholesaler
Distributor
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
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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
Sale of Daily Newspapers
Producer
Wholesaler
Retailer
Customer
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
Producer
Distributor
– Examples – building supplies, electrical
components, industrial clothing
• Offer products from many
producers = greater choice
• Different from agents in that a
distributor holds stock
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
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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:
Producer
– Direct mailing
– E-commerce
– Telemarketing (telephone selling)
• Examples
– QVC (TV Selling)
– Boden (clothes from catalogue)
– Direct Line (insurance online)
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…
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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…
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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
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Place (Distribution)