2. What this topic is about
• The meaning and purpose
of place (distribution)
• Different distribution
channels
• Factors 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”
Producer Producer Producer
Distributors
Wholesaler
/ Agents
Retailer
Customer Customer Customer
7. Main Types of Intermediary
Retailer Wholesaler
Distributor Agent
8. Retailers - Introduction
• Retailer is the final step in the chain – deals
directly with the customer
• Focused on consumer markets
• Various 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 owner
– Franchises (retail format operated by franchisee)
9. Key Trends in Retailing
• Trend towards out-of-town stores
• Decline in independents
• Growth of retailer “own label” brands
• Continued growth in franchising
• Increase in international retailing within
Europe
• Increasing technology in retailing
10. Key Advantages of Retail Distribution
• Convenience for customers
• Often UK-wide reach to
customers
• Retailer chooses the final price
• Retailer handles the financial
transaction
• Retailer holds the stock
• After-sales support (e.g.
returns)
11. Wholesalers
• Wholesalers “break bulk”
– Buy in large quantities from producers
– Break into smaller quantities to sell to retailers
• Advantages
– Reduce the producer’s transport costs (fewer journeys to
the wholesaler rather than many journeys to retailers)
– Retailers can order in smaller amounts from wholesalers
• Wholesaler makes money by buying at a lower
price from the producer and adding a profit
margin onto the price paid by the retailer
12. Wholesaler - Example
Sale of Daily Newspapers
Newspaper Publisher – e.g. The Sun, The Times
Producer – who send bulk print runs of newspapers to
large depots run by wholesalers
Wholesaler (e.g. John Menzies) packs
Wholesaler newspapers into bundles for retailers (e.g.
newsagents)
Retailer (e.g. newsagent; petrol station) displays
Retailer
newspaper in store and delivers to homes
Customer Customer = newspaper buyer
13. Distributors
• Distribute (sell on) products and
serve as a local sales point Producer
• Usually specialise in a particular Distributor
industry
– Examples – building supplies, electrical
components, industrial clothing
• Offer products from many Customer
producers = greater choice
• Different from agents in that a
distributor holds stock
14. Agent
• Specialist type of distributor
Producer
• Does not hold stock
• Tend to operate in tertiary Agent
sector (services)
– Travel
– Insurance
Customer
– Publishing
• Earn commission based on
sales achieved
15. Functions of a distribution channel
• Provide a link between production and
consumption
• To gather market information
• Communicate promotional offers
• Find and communicate with prospective
buyers
• Physical distribution - transporting and
storing
• Financing – other parties finance the stock
• Risk taking – other parties take some risk
16. Channel strategy decisions
• Channel length - direct or indirect?
• Choice of intermediary
• Use 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) channels
• Direct
– Channel where a producer and consumer deal
directly with each other without the involvement
of an intermediary
• Indirect
– Involves the use of intermediaries between the
producer and consumer
18. Direct Channels
• Increasingly popular
Producer
• Various Methods:
– Direct mailing
– E-commerce
– Telemarketing (telephone selling)
• Examples
– QVC (TV Selling) Customer
– Boden (clothes from catalogue)
– Direct Line (insurance online)
19. So why use intermediaries?
• Geography- customers may live
too far away to be reached
directly or spread widely
• Consolidation of small orders into
large ones
• Better use of resources elsewhere
• Lack of retailing expertise
• Segmentation - 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 used
– Greater control over the marketing of the product
– Keeps greater proportion of profit
– But means increased distribution costs
• Long distribution channels
– Reduced costs
– Reduces the producer’s control over marketing
21. Factors to Consider (1)
• Nature of the product
– Perishable/fragile?
– Technical/complex?
– Customised
– Type of product – e.g.
convenience, shopping,
speciality
– Desired image for the product
22. Factors to Consider (2)
• The market
– Is it geographically spread?
– The extent and nature of the competition
• The business
– Its size
– Its nature
– Does it have established distribution network?
23. Short channels are used for…
• Industrial products
• Expensive and complex goods
• Bulking products
• Customized products
• Services
• Products sold in geographically concentrated
market
• Products bought infrequently by relative
small numbers of customers
24. Long channels are used for…
• Consumer goods
• Inexpensive and simple goods
• Small products
• Standardised products
• Goods sold in dispersed markets
• Goods sold frequently and to many
customers
