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 Wholesaler Distributors / Agents Retailer 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 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” Advantages 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

Sale of Daily Newspapers Wholesaler - Example Sale of Daily Newspapers Producer Newspaper Publisher – e.g. The Sun, The Times – who send bulk print runs of newspapers to large depots run by wholesalers Wholesaler Wholesaler (e.g. John Menzies) packs newspapers into bundles for retailers (e.g. newsagents) Retailer Retailer (e.g. newsagent; petrol station) displays newspaper in store and delivers to homes Customer 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: Examples 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 The business 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

Place (Distribution)