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 , independent businesses that sell products of only a few manufacturers

WHOLESALERS – WHY USE THEM?

Wholesaler Advantages

• Wholesaler takes care of storageo 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

• Distributorso Independent,

specialist businesses that sell products of only a few manufacturers

• Examples include:o Carso Bookso Movieso 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 techniqueso Product is

complicatedo Buyer needs

educationo Buyer can ask

questionso 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 telemarketingo Sales people make phone

callso Or automated voice or text

messagingo Expense varieso Some people hate it

• E-commerceo Websites which accept

payment online Credit card PayPal E-check

o Not appropriate for all products

o Growing in popularity

• Direct Mailo Send promotional

material via the postal service

o Can be personalizedo But often considered

‘junk’• Vending Machines

o Drinks, snacks, cigso Can be placed almost

anywhereo 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 & benefitso Direct selling may reduce costs but retailers

may have better access to customerso Transportation methods must also be

considered, e.g., rail, ship, trucking, air• Product

o Perishables must have short chainso 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 agencieso Airport counterso Internet websiteo Internet travel sites

Expedia Kayak Orbitz

What Distribution Channel/Channels do these

manufacturers use?

Factors in Choosing Distribution Strategy

• Marketo Niche markets often directly controlled by

producer whereas mass markets often best to use intermediaries

• Timeo Some items require immediate delivery while

others can be ordered and delivered at a later date

• Legal Constraintso Often a nation or community’s laws affect the

distribution selectiono E.g., gambling, alcohol sales, guns &

ammunition

Channels of Distribution

• Channels of distribution are NOT the methods of transporto 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?

CONCEPT RELEVANCE TO PLACE THEORY

CHANGE

CULTURE

ETHICS

GLOBALISATION

INNOVATION

STRAETEGY

Quiz Time