Download Channels of Distribution

BMI3C – What is Place? In the Marketing Mix?
1. Explain the purpose of channel distribution
2. Explain the difference between a wholesaler and a retailer and why a business
would use each.
3. Explain why a company would use an agent or a broker
4. Distinguish between direct distribution and indirect distribution
5. Summarize the advantages and disadvantages of each of the five modes of
transportation
Place is one of the Four Ps of the
marketing mix, the last one we
have yet to look at!. As you
learned in Chapter 1, place is the term for marketing activities involved in making products
available to customers. It includes distribution.
Place decisions are critical to the success of a product. Place decisions include
determining when, where, and how products get to customers. Distribution and retailing
are often part of place decisions.
In this lesson, you will explore the route that goods take when they travel from their
original source to the place where they can be sold to customers. You will also explore how
those goods travel and the decisions that are make along the way about shipping and
storage.
Think of an apple or other fruit or vegetable that you ate recently. How did it get to you
from the place where it was growing?
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BMI3C – What is Place? In the Marketing Mix?
A channel of distribution – the route a good takes from its original source to its final
customer.
Think of an apple:
Why couldn’t you just buy the apple directly from the farmer?
The apple orchard, the apple buyer and the grocery store make up the channel of
distribution for the apple.
CPT Reflection: Think of the channel of distribution for the product that you are focusing on
for your culminating project. Map out the channel of distribution. You may need to do
some research to learn where the various products are made; especially if you chose a
manufactured product.
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BMI3C – What is Place? In the Marketing Mix?
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The businesses between the original source (the apple farmer) and the customer
(you) are the intermediaries. The apple buyer and the grocery store are the
intermediaries. Intermediaries are also called middlemen.
The two most common types of intermediaries are wholesalers and retailers.
A wholesaler buys products from a producer, and then sells them to another
business. Wholesalers are also called distributors.
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A retailer is a business that buys products from a producer or a wholesaler, and
then sells the product to the final customer in the consumer market.
In the 21st century, we have the emergence of non-store retailers – these are
businesses that sell directly to the consumer through other ways that a retail
store: TV shopping, web-sites and sales representatives (door to door)
CPT Reflection: Who are the wholesalers and retailers for your chosen product?
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A channel of distribution is like a chain that links a raw material to the final
customer. For this reason, a channel of distribution is often called a
supply
chain.
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Each step in the supply chain is called a segment. In a simple supply chain as
noted above (apple tree), the segments are the producer, the wholesaler, the
retailer and the final consumer. The producer supplies to the wholesaler, the
wholesaler supplies to the retailer and the retailer supplies to the consumer.
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Supply chains can be short or very long and complex. They can be complex
because of the hundreds of raw materials and manufactured parts that are
needed for most manufactured products. Think of a car. You need a
manufacturer of wheels, glass, steel, electronics, etc. Not as simple as a fruit
or vegetable supply chain!
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BMI3C – What is Place? In the Marketing Mix?
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A Common Supply Chain for manufactured products is: Raw Materials Suppliers
(mines, farms) / Product manufacturers (factories)/ Wholesalers (warehouses)/
Retailers (stores)/ Final Consumer.
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Another type of intermediary is the agent or broker. These terms mean the
same thing and are used interchangeably. An agent or broker’s purpose is to link
buyers and sellers. For example, a Real Estate agent is a broker. They work on
behalf of either the buyer or seller to arrange a mutually beneficial exchange.
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Agents and brokers may be used at any step of a distribution channel. They can
be used to connect manufacturers with wholesalers or to connect producers (i.e.
a mining company) with a jewellery manufacturer.
Agents and brokers are especially useful for offshore manufacturers who want
to connect with wholesalers in Canada.
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Why do producers use intermediaries? Why wouldn’t the apple farmer sell directly
to consumers? If they did this would be called direct distribution.
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Many services have direct distribution (hair cutting, manicure)
The majority of goods and services are sold to companies using indirect
distribution (a channel of distribution that used one or more intermediaries)
Choosing the best channel of distribution is critical to the success of a company.
A producer might have the best product in the world but poor distribution decisions
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will make it fail. For example, if an organic apple farmer sells its apples to an apple
buyer who then sells to a remote convenience store for example, it is possible that
no one will buy the apples.
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Also, the apple producer is good at making apples, but has no expertise is shipping
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products efficiently to another country.
Intermediaries specialize in distribution (shipping, storing, inventory, stocking)
CPT Reflection: How many countries are involved in the supply chain of your product? Think
for example of a coffee from Starbucks – the coffee beans may come from Kenya, the coffee
cups may be produced in China, the sugar may come from Canada, the milk may come from
Italy…
Map out the countries involved in the supply chain of your product.
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BMI3C – What is Place? In the Marketing Mix?
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How do goods get from one step of a channel of distribution to the next? Goods
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must be physically carried to the next step in the chain.
A combination of ship, train, and truck bring the goods from the producer to the
consumer.
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The physical movement of goods in the distribution channel is often called
physical distribution
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Products, Channel Members, Transportation Companies, and Warehouses
Products: Products are the items to be shipped.
The method of distribution
depends on the type of product.
Channel Members:
These are members in the supply chain: Nick’s Apple Orchard,
Tammy’s apple distributors, Longo’s. Suppliers are responsible for making sure that their
product is shipped in the most efficient, economical way. Some suppliers even have their
own transportation for moving their goods.
Transportation Companies:
These companies physically move the products from
buyer to seller. Trucks, trains, planes, pipelines, or ships. Can also be Canada Post, UPS, or
FedEx?
Warehouses:
At many steps along the channel of distribution, products must be
stored. A warehouse is a building for storing large quantities of products.
There are five major modes of transportation. (1) Truck (2) Ship
(3) Train (4) Plane and (5) Pipeline
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BMI3C – What is Place? In the Marketing Mix?
Fill in the following chart:
Mode of
Advantages
Transportation
Truck
Disadvantages
Ship
Train
Plane
Pipeline
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BMI3C – What is Place? In the Marketing Mix?
Test your Knowledge!
Part A: Fill in the blanks:
1. The route a good takes from its original source to its final
customer. _____________
2. An intermediary that typically sells to retailers. ____________
3. A __________ sells to the final consumer.
4. Make the exchange process between buyers and sellers easier.
________________.
5. The four components or elements of physical distribution:
______________, _____________________,
_______________, ________________.
6. The five modes of transportation: ____________,
___________, ____________, __________, ____________
Part B:
Briefly answer the 5 questions noted under “learning goals”.
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