IB Business Management 4.5 PLACE

Learning Outcomes To understand the importance of place in the marketing mix (A02) To analyse and evaluate the effectiveness of different types of distribution channels (A03)

Central Question How does a business decide where to sell and what distribution method is most appropriate?

Place (distribution) How products get from the producer to the consumer. “getting the right products to the right customers at the right price in the right place at the right time”

How do these get to the consumer?

Channels of Distribution The method of getting the product to the consumer Intermediaries are agents or businesses that facilitate this (middle man) The longer the distribution channel generally leads to higher prices as each intermediary adds a profit margin to their selling price A long channel of distribution is not suitable for perishable products – why?

Distribution channels as levels A zero level channel – has no intermediaries e.g. service industry A one level channel – has one intermediary e.g. a retailer A two level channel - has two intermediaries e.g. wholesaler and retailer

How many levels?

Types of Intermediaries Retailer – A business which buys goods from manufacturers and wholesalers and sells them in small quantities to customers Wholesaler – A business which buys large quantities of goods from manufacturers. They then ‘break the bulk’ and sell them in smaller quantities to retailers Agent/Broker – An independent company who negotiates between buyers and sellers Distributor – Specialist, i ndependent businesses that sell products of only a few manufacturers

WHOLESALERS – WHY USE THEM?

Wholesaler Advantages Wholesaler takes care of storage o Retailer has less cost & more space Retailers do not have to purchase such large quantities Producer’s costs are lower as they are selling in bulk to fewer customers Producers do not have to deal with distribution issues / problems

Wholesaler Disadvantages Producer loses control of marketing How do you know the wholesaler will promote like you want them to? Retailers have higher prices as the wholesaler’s costs must be passed on

RETAILERS – WHAT ARE THEY ALL ABOUT?

Retailers (shops) The sellers of products to the final customer What Different types of retailers are there?

Some Types of Retailers Department Stores Online Retailers Market Traders Superstores/ Hypermarkets Supermarkets Multiples/Chains Independent stores

Distributors o Independent, specialist businesses that sell products of only a few manufacturers Examples include: o Cars o Books o Movies o Electrical equipment

Agents or Brokers Negotiators who act on behalf of buyers & sellers of a product Usually not employed by the producer, independent Experts in their field Often charge either a commission or a fee Often offer products from a variety of producers Examples: o Real estate, travel, insurance, financial advisors

Agents or Brokers Often rely on personal selling techniques o Product is complicated o Buyer needs education o Buyer can ask questions o Product may need demonstration

Direct Route What methods could a firm use to sell directly to customers?

Can you think of examples of companies which use these methods?

Direct Marketing Distribution Telesales, or telemarketing o Sales people make phone calls o Or automated voice or text messaging o Expense varies o Some people hate it E-commerce o Websites which accept payment online  Credit card  PayPal  E-check o Not appropriate for all products o Growing in popularity Direct Mail o Send promotional material via the postal service o Can be personalized o But often considered ‘junk’ Vending Machines o Drinks, snacks, cigs o Can be placed almost anywhere o New machines can accept various payment methods o Costs are minimal, i.e., no salespeople needed o Vandalism, limited stock, mechanical failures

Factors in Choosing Distribution Strategy Costs & benefits o Direct selling may reduce costs but retailers may have better access to customers o Transportation methods must also be considered, e.g., rail, ship, trucking, air Product o Perishables must have short chains o Fast-moving goods need to be moved in large volumes (wholesalers & retailers more app.) o Many products can now be sold directly through the internet (books, dvds, toys, airfare, vacations, clothes)

Multi-Channel Distribution Many businesses will use more than one channel E.G., airlines will sell tickets via: o Travel agencies o Airport counters o Internet website o Internet travel sites  Expedia  Kayak  Orbitz

What Distribution Channel/Channels do these manufacturers use?

Factors in Choosing Distribution Strategy Market o Niche markets often directly controlled by producer whereas mass markets often best to use intermediaries Time o Some items require immediate delivery while others can be ordered and delivered at a later date Legal Constraints o Often a nation or community’s laws affect the distribution selection o E.g., gambling, alcohol sales, guns & ammunition

Channels of Distribution Channels of distribution are NOT the methods of transport o They are NOT trucking, railroads, shipping etc. Channels of distribution refer to the intermediaries used to get product to customer such as wholesalers, agents, retailers

Place – CUEGIS? CONCEPTRELEVANCE TO PLACE THEORY CHANGE CULTURE ETHICS GLOBALISATION INNOVATION STRAETEGY

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