MARKETING

Place Topic 4.6(SL)

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 mix

Traditional Chain of Distribution

Distribution of a Product 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

What determines how a product is 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.

What determines how a product is 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)

Distribution of a Product 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

Distribution Channels 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.

Distribution Channels 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

Distribution Channels 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.

Distribution Channels 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.

Distribution Channels 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

Distribution Channels 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.

Distribution Channels 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

Distribution Channels Disadvantages of Having Retailers: Fight for shelf space Draws customer's attention to other products

Distribution Channels 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

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 efficient

Distribution Channels 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.

Distribution Channels 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.

Distribution Channels Agents and Distributors 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.

Distribution Channels Agents and Distributors 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.

Distribution Channels 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

Distribution Channels 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.

Distribution Channels 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

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:

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 intermediaries

Product: Factors Affecting Distribution Strategy 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.

Factors Affecting Distribution 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.

Factors Affecting Distribution 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.

Factors Affecting Distribution 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.

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.

Distribution Strategy 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

Distribution Strategy 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.

Distribution Strategy 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.

Distribution Strategy 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).