Place Channels of Distribution Channels of distribution l

Place Channels of Distribution

Channels of distribution l Refers to the means used to get a product to the consumer (with the use of intermediaries) • Intermediaries – are agents or businesses that act as a middle person in the channel of distribution between the manufacturer and consumers of a product.

Channel Options

Wholesalers l Are businesses that purchase large quantities of products from a manufacturer and then separate or ‘break’ the bulk-purchases into smaller units for resale, mainly to retailers.

Retailers l Are the sellers of products to the general public (i. e. consumers) that operate in outlets (or ‘shops’ in everyday language).

Choice of distribution channel l l This will depend on a number of factors including: The nature of the product itself - perishable products require very different channels of distribution to consumers The company - many firms are now aiming to distribute directly to consumers The market - if the market is very regionally concentrated, then this will mean different distribution channels to if the product is produced and distributed globally. Legal restrictions - not all products can be openly sold and distributed. Many products like drugs are controlled in their distribution.

Channel 1. Direct Marketing: Manufacturer to Consumer Advantages: l Cuts out profit margins for middlemen, so should mean lower prices for consumers, or higher profits for the business. l Manufacturer has full control over how the product is marketed to consumers. l Targeted consumers can be reached directly (less waste of marketing budget).

Channel 1. Direct Marketing: Manufacturer to Consumer Disadvantages: l The manufacturer must hold all stocks of the product (this can be costly). l Consumers are unlikely to be able to see or try the products before purchasing (added risk for the customer). l Difficulty in providing effective after-sales service (due to remoteness of manufacturer). l Direct marketing promotions are unpopular with consumers (junk mail).

Channel 2: Manufacturer to Retailer to Consumer Advantages: l Retailers hold stocks for the manufacturer (improves product availability for consumers). l Retailers help distribute the product over a wide area. l Allows manufacturers to focus resources on their competencies (making products).

Channel 2: Manufacturer to Retailer to Consumer Disadvantages: l Retailers’ profit margins mean either less profit for the manufacturer, or higher prices for consumers. l The manufacturer loses control over how the product is marketed to consumers. • poor storage may cause product deterioration • Discounting may affect brand image.

Channel 3. Wholesaling: Manufacturer – Wholesaler - Retailer - Consumer l l l Advantages Some producers are too small to sell direct to large numbers of retailers or consumers. Transport costs would be too high to justify the large number of low-volume journeys required. Wholesalers reduce the cost of reaching these customers. Wholesalers can promote products to a large number of retailers. They also employ a sales force to promote the producers products to the retailers.

Channel 3. Wholesaling: Manufacturer – Wholesaler - Retailer - Consumer l Wholesalers provide savings for retailers by buying in bulk from producers at a discount. This can then be broken down into smaller units for retailers at a price that is lower than if retailer bought direct from the producer.

Channel 3. Wholesaling: Manufacturer – Wholesaler - Retailer - Consumer l l Wholesalers can select items and build assortments for their customers. This saves time and money for retailers. Wholesalers store large quantities of products in warehouses. This saves money for producers who no longer need to hold large quantities of stock.

Channel 3. Wholesaling: Manufacturer – Wholesaler - Retailer - Consumer l l l Wholesalers provide quicker delivery to retailers because they are closer than the producer. Wholesalers take on some of the risk from the producer (eg spoilage or obsolescence). Wholesalers can provide valuable market information to both their customers (retailers) and suppliers (producers).

Channel 3. Wholesaling: Manufacturer – Wholesaler - Retailer - Consumer Disadvantages: l The distribution chain is slowed down. It can take a long time for products to reach consumers. l Wholesaler profit margins will add to prices (or reduce profits for retailers and manufacturers).

Speciality channels of distribution l l Is any indirect way to distribute products that does not involve retailers, i. e. distribution without the use of intermediaries. Examples: telemarketing, e-commerce, vending machines and mail order.

Advantages of speciality channels of distribution l l As there are no intermediaries, the business does not have to share out so much of its profits. Businesses can have direct control over their distribution, rather than relying on retailers or wholesalers. The growing popularity of e-commerce means that customers are more willing to use the internet as a distribution channel, esp. with improved online payment security. Can reach potential customers who do not have easy access to retail outlets.

Telemarketing l l Use of telephone systems to sell products directly to potential customers. Can be done through automated voice or text messages Commonly used by businesses that have a database of existing clients Disadvantage: mass telephone calls can be costly

E-commerce l l l Trading via the internet Effective way to reduce the costs and risks of international marketing Disadvantage: not all products are suitable for online distribution

Vending Machines l l l Specialist machines that stock products for sale (ex. Cigarettes, drinks, snacks, toys, hot meals) Advantage: running and maintenance costs are minimal Disadvantage: prone to vandalism and mechanical failures will halt sales