2 What this topic is about The meaning and purpose of place (distribution)Different distribution channelsFactors to consider when choosing distribution channels
3 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?
4 The Objective of Distribution To make products available in the right place at the right time in the right quantities
5 What is a distribution channel? A distribution channel moves a product from production to consumption
6 Channels can have various levels Each party in a distribution channel is called an “intermediary”ProducerWholesalerDistributors/ AgentsRetailerCustomer
7 Main Types of Intermediary RetailerWholesalerDistributorAgent
8 Retailers - Introduction Retailer is the final step in the chain – deals directly with the customerFocused on consumer marketsVarious 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 ownerFranchises (retail format operated by franchisee)
9 Key Trends in Retailing Trend towards out-of-town storesDecline in independentsGrowth of retailer “own label” brandsContinued growth in franchisingIncrease in international retailing within EuropeIncreasing technology in retailing
10 Key Advantages of Retail Distribution Convenience for customersOften UK-wide reach to customersRetailer chooses the final priceRetailer handles the financial transactionRetailer holds the stockAfter-sales support (e.g. returns)
11 Wholesalers Wholesalers “break bulk” Advantages Buy in large quantities from producersBreak into smaller quantities to sell to retailersAdvantagesReduce the producer’s transport costs (fewer journeys to the wholesaler rather than many journeys to retailers)Retailers can order in smaller amounts from wholesalersWholesaler makes money by buying at a lower price from the producer and adding a profit margin onto the price paid by the retailer
12 Sale of Daily Newspapers Wholesaler - ExampleSale of Daily NewspapersProducerNewspaper Publisher – e.g. The Sun, The Times – who send bulk print runs of newspapers to large depots run by wholesalersWholesalerWholesaler (e.g. John Menzies) packs newspapers into bundles for retailers (e.g. newsagents)RetailerRetailer (e.g. newsagent; petrol station) displays newspaper in store and delivers to homesCustomerCustomer = newspaper buyer
13 DistributorsDistribute (sell on) products and serve as a local sales pointUsually specialise in a particular industryExamples – building supplies, electrical components, industrial clothingOffer products from many producers = greater choiceDifferent from agents in that a distributor holds stockProducerDistributorCustomer
14 Agent Specialist type of distributor Does not hold stock Tend to operate in tertiary sector (services)TravelInsurancePublishingEarn commission based on sales achievedProducerAgentCustomer
15 Functions of a distribution channel Provide a link between production and consumptionTo gather market informationCommunicate promotional offersFind and communicate with prospective buyersPhysical distribution - transporting and storingFinancing – other parties finance the stockRisk taking – other parties take some risk
16 Channel strategy decisions Channel length - direct or indirect?Choice of intermediaryUse just one or several channels?How to move the goods through the channel?Control over the channel – e.g. who decides price, promotion, packaging?
17 Direct or Indirect Channels? A business faces a choice of using direct (short) or indirect (long) channelsDirectChannel where a producer and consumer deal directly with each other without the involvement of an intermediaryIndirectInvolves the use of intermediaries between the producer and consumer
18 Direct Channels Increasingly popular Various Methods: Examples Direct mailingE-commerceTelemarketing (telephone selling)ExamplesQVC (TV Selling)Boden (clothes from catalogue)Direct Line (insurance online)ProducerCustomer
19 So why use intermediaries? Geography- customers may live too far away to be reached directly or spread widelyConsolidation of small orders into large onesBetter use of resources elsewhereLack of retailing expertiseSegmentation - different segments of the markets can be best reached by different distribution channels
20 Short or long channels? Short distribution channels Few if any intermediaries usedGreater control over the marketing of the productKeeps greater proportion of profitBut means increased distribution costsLong distribution channelsReduced costsReduces the producer’s control over marketing
21 Factors to Consider (1) Nature of the product Perishable/fragile? Technical/complex?CustomisedType of product – e.g. convenience, shopping, specialityDesired image for the product
22 Factors to Consider (2) The market The business Is it geographically spread?The extent and nature of the competitionThe businessIts sizeIts natureDoes it have established distribution network?
23 Short channels are used for… Industrial productsExpensive and complex goodsBulking productsCustomized productsServicesProducts sold in geographically concentrated marketProducts bought infrequently by relative small numbers of customers
24 Long channels are used for… Consumer goodsInexpensive and simple goodsSmall productsStandardised productsGoods sold in dispersed marketsGoods sold frequently and to many customers