marketing 1. place topic 4.6(sl) 2 3 4 introduction place refers to the distribution of a product...

MARKETING

1

Place

Topic 4.6(SL) 2

Introduction

Place refers to the distribution of a

product i.e. how products get to the

consumer.

Basically distribution meant getting the

right products to the right customers at

the right price in the right place and at

the right time.

Distribution is also one of the key

components of any marketing mix5

Traditional Chain of Distribution

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Distribution of a Product

1. What determines how a product is

distributed?

Market coverage: number of outlets

required

Marketing aims: secure as wide

distribution as possible to increase sales

volume.

Cost considerations: longer distribution

channel higher cost (for the consumer

as each intermediary adds a profit),

short channel high stockholding costs

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distributed?

Product characteristics: cost of product,

shelf life, product type (consumer product,

producer product, etc.)

Special services: specialist purchasing

advice (ie suitable channel with the ability

to sell & stock the firm’s products e.g. use

of franchised agreements which allows

other certified people to run the stores

under the name of the business e.g. Honda

& BMW (instead of opening up its own

stores), etc.

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distributed?

Degree of control: longer channel lesser

control

Customer expectations & brand image:

Chanel sold at Tesco is not right

Legal Restrictions: Illegal to sell alcohol at

petrol station

Product lifecycle (e.g. introduction

selective distribution; growth intensive

distribution; saturation intensive

distribution; decline selective, phase out

unprofitable outlets)

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Distribution of a Product

II. Distribution Channels

Distribution channels refers to the

different ways of product distribution i.e.

by retailing or online placement of a

firm’s products.

The placement decision also addresses

the geographical distribution (i.e. local,

national or international) of products and

the market segments (i.e. age, gender,

etc.) for different products

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Direct Distribution (Or Zero-level

Channel) Producer sells goods directly to

the end customer e.g. direct mail, e-

commerce, telesales, mail order, vending

machines, etc.

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Advantages:

Sell at lower/more competitive price without

affecting profit - removed mark-ups by

intermediaries

Producer is able to develop relationship with

consumers - direct product feedback

Producer able to react faster to changing

market condition

Producer able to react faster to changing

market condition 13


Retailers

These are the sellers (‘shops’) of

products to the final consumers. They

have the ability to reach large numbers

of consumers particularly large multiple

retailers that have a global reach.

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Types of Retailers

Independent retailers - small local

vendor (seller) operating as a sole

proprietorship usually sell a small

range of products.

Multiple retailers (Chain stores) – have

many outlets e.g. McDonald’s, The

Body Shop, etc.

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Types of Retailers

Supermarkets – retailers that mainly

sell foodstuffs. Tend to buy their

produce and other products directly

from manufacturers.

Hypermarkets (Superstores) – huge

outlets that stock not just foodstuff

but also consumer durables. Tend to be

located in “out of the way” areas

where the space is available and land

costs are low due their enormous size

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Types of Retailers

Departmental stores – sell a large

range of products such as furniture,

jewellery, clothing, toys, cosmetics,

etc. Tend to be built over several floors

and located in busy retail districts.

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Advantages of Having Retailers:

Achieve wide distribution

Help develop brand image - e.g. shirt

sold at popular boutique

Retailers help promote products

Some retailers offer credit to

customers for bulk purchases

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Disadvantages of Having Retailers:

Fight for shelf space

Draws customer's attention to other

products

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Wholesalers

are a link between producers and

consumers (retailers)

break down bulk into smaller

quantities for resale (particularly to

retailers)

are an alternative route to the market

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Advantages of Having Wholesalers:

Wholesalers bear the distribution costs

Provide storage facilities - reduce

producer's stockholding costs

Buffer between producers, retailers,

and customers - avoid direct contact

with distribution issues and problems

thus freeing up time for manufacturers

to focus on production

returned goods are returned in bulk -

more efficient21


Disadvantages of Having Wholesalers:

May not promote the manufacturer’s

products in a way that the producer

want.

Some retailers such as hypermarkets

may not use wholesalers as their

suppliers and order directly from

manufacturers.

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Agents and Distributors

Agents never actually own a product

but act on behalf of buyers and

vendors (sellers). They connect buyers

and sellers, and they manage the

transfer of goods.

Payments are usually by commission or

by fee.

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Examples include real estate agents

earning commission on sale of

property made on behalf of their

clients, travel agents earning

commission on the holiday and tour

packages they sell, insurance brokers

finding the ‘best deal’ for their clients

from the various insurance companies

that they have access to, etc.

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Distributors are independent and

specialist businesses that trade in the

product of a few manufacturers e.g.

car distributors will typically sell the

products of one manufacturer such as

Honda or Ford to the consumer.

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Agents and Distributors: Advantages

Take away the hassle of complex

import-export procedures

Agents deal with different local laws -

can be very challenging

Relatively a safe way of entering new

foreign market

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Agents and Distributors: Disadvantages

Agents may not promote the

manufacturer’s products in a way that

the producer want i.e. no direct control

over their marketing.

Depending on the commission

payments, agents may push for

products with the highest payment

e.g. insurance with various insurance

companies, etc.

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Most businesses will use a range of

channels to distribute their products.

This is known as a multichannel

distribution strategy.

Example: An airline company will use

travel agencies, the internet and

airport outlets to sell their tickets,

enabling the business to reach a wider

range of customers, located in

different areas and in different market

segments

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III.Factors Affecting Distribution Strategy

An efficient and cost-effective

distribution strategy enables a business

to make products conveniently available

to potential customers.

The factors that can affect the

distribution decision or the choice of an

appropriate distribution strategy include:

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III.Factors Affecting Distribution Strategy

Cost and Benefits:

Direct selling, without the use of

intermediaries (direct distribution or

zero-level channel), will help to reduce

the costs of distribution.

However, retailers and distributors may

have better access to customers. Hence,

need to weigh up the costs and benefits

of using intermediaries32

III.Factors Affecting Distribution

Strategy

Product: Perishable products cannot be distributed

through long chains of distribution e.g.

fresh flowers, fresh meat, etc.

By contrast, fast-moving consumer goods

(FMCG) need to be sold in large volumes will

use wholesalers and retailers.

Many other products are sold directly

through the internet such as books, music

CDs, clothes, toys, etc.

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Strategy

Market:

Small local niche market can be

catered for by the supplier i.e. direct

selling, without the use of

intermediaries.

While large and dispersed markets will

usually require the services by

intermediaries. 34


Strategy

Time:

Whilst e-commerce can be a

convenient channel of distribution,

there is a time lag between paying for

the product and receiving it.

This method may not be desirable for

purchasing items that require urgent

delivery. 35


Strategy

Legal Constraints

Government rules and regulations can

prohibit the use of certain distribution

channels e.g. many countries impose

anti-gambling laws including online

gaming, retailers and restaurants need

special licences in order to sell alcohol on

their premises, etc. 36

IV.Distribution Strategy

In choosing a channel of distribution i.e.

the intermediaries, a firm will have also

have to decide on the type of distribution

(mentioned briefly under factors (PLC)

that determines how a product is

distributed in the earlier slides) that is

most suitable.

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Intensive Distribution

Used when the firm wishes to distribute

mass-produced products such as fast

moving consumer goods (FMCGs)

through many channels as possible e.g.

Heinz and Coca-Cola will aim to maximize

the number of outlets that sells their

products

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Selective Distribution

Firm will deliberately choose suitable

intermediaries to resell and stock the

firm’s products e.g. Tiffany & Co and

Rolls-Royce do not aim to have their

products distributed to a maximum

number of outlets throughout the

country; to do so would remove the

exclusivity of their brands. 39


Exclusive Distribution

The least commonly used method

whereby only specially chosen

intermediaries are given the exclusive

right to sell the firm’s products e.g. a

firm can use franchise agreement which

allow other certified people to run the

stores under the name of the business

such as car manufacturers like Honda

and BMW use the franchised dealership

to help sell their cars.

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Exclusive Distribution

The manufacturer grant permission to

the franchisor to use their name in order

to gain brand recognition and to reassure

customers (since they are more familiar

with the manufacturer’s brands).

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marketing 1. place topic 4.6(sl) 2 3 4 introduction place refers to the distribution of a product...

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