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Place - Introduction
PLACE
Traditional
Channels of distribution
 Distribution is used as most products are not sold
directly from manufacturer to the final consumer or
the end-user of the product because an individual
would never be able to purchase enough products
directly from the manufacturer to make it worthwhile
for the producer. Products are therefore in
supermarkets or other retailers that buy from
manufacturers in bulks and sell to consumers in
smaller units.
 Chain of distribution refers to the means used to
get a product to the consumer.
 Intermediation is the process used to facilitate this.
Traditional
Channels of distribution
Manufacturer (Producer)
Zero-level channel does not have
intermediaries – the producer sells
directly to the consumer (direct
mail, e-commerce, telesales, mail
orders). Used in service industry
(hotels, restaurants).
Consumer
Zero-level channel or the zero channel chain
 Place refers to the distribution of products (how
products get to the consumer - channels of
distribution)
 Products should be conveniently available for
customers to buy at large warehouses, retail outlets,
through agents or via the Internet
 ‘Places’ also include:
 Stores
 Mail orders
 Telesales
Retailers stock firm’s products, have limited shelf and
floor space and will only want to hold stock that will sell
Traditional
Channels of distribution
 Intermediaries are agents or firms that act as middle
person in the chain of distribution between the
manufacturer and the consumer.
 Traditional chain of distribution consists of
manufacturers, wholesalers and retailers.
 Long chain of distribution raises the price of a
product since each intermediary adds a profit margin to
their price. Such chains are not appropriate for
perishable products
 Dr. Philip Kotler defined distribution channels as levels:
(1) zero-level, (2) one-level, (3) two-level channel
Traditional
Channels of distribution
Manufacturer (Producer)
One-level channel has one intermediary
(retailers or distributors) that sells
products to customers (estate agents
selling houses on behalf of clients).
Retailers, Distributors, Agents
Consumer
One-level channel or the one-channel chain
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Traditional
Types of Intermediaries
Channels of distribution

Manufacturer (Producer)
Two-level channel has two
 Wholesalers
Wholesaler intermediaries (wholesalers  Distributors and agents
and retailers) to get products
to consumers.  Retailers
Retailer

Consumer
Two-level channel or the two-channel chain

Wholesalers
 Wholesalers are businesses (intermediaries)
that purchase large quantities of products from
a manufacturer and sell the bulk-purchases as
smaller units to retailers.
 Benefits of wholesalers for producers and
retailers:
1. They bear the cost of storage (more free
space for producers and retailers)
2. Retailers don’t have to buy bulk (huge
quantities) from manufacturers
Wholesalers
3. Lower transaction costs for the
producer (invoicing, transportation) as
customers are not a large number of
individuals but one wholesaler
4. Manufacturers can focus on
production as wholesalers deal with
distribution

Wholesalers Distributors and Agents

Limitations of wholesalers:
1. Producer takes a risk in passing on the  Distributors are independent and specialist
responsibility of marketing products to firms that trade in the products of only a few
the wholesaler manufacturers (car distributors typically sell
2. Some retailers (hypermarkets) do not use one brand of cars)
wholesalers but order directly from the
manufacturer as it cuts the costs

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Distributors and Agents Retailers

 Agents (brokers) are negotiators who act  Retailers are the sellers of products to the
on behalf of buyers or vendors (sellers) of a final consumer. They have ability to reach a
product. They are experts in their particular large number of consumers and even
market and charge a commission (a fee based globally
on a percentage of the sales made).
Examples: real estate agents, travel agents,
insurance brokers, financial advisors (rely on
personal selling: door-to-door sales,
telesales, trade fairs, exhibitions)

Retailers
 Types of retailers:
1. Independent retailers are small local
vendors owned by a sole trader selling small
range of products or are specialist outlets
2. Multiple retailers (chain stores) have
numerous outlets benefiting from brand
recognition and loyalty
3. Supermarkets sell mostly foodstuffs
buying directly from manufacturer, cutting
out wholesalers
Retailers
4. Hypermarkets (superstores) are huge
outlets that stock a large range of products
(consumer durables and foodstuffs), located
in out of town areas (Carrefour, Walmart,
Tesco)
5. Department stores sell a large range of
products (furniture, jewelry, clothing, toys,
cosmetics) and are located in busy retail
districts (malls)

Retailers
Retailers base their decisions on what to sell
on sales (profits) per square meter (if
one band generates more profit, it will have
more floor space in the store)
Direct Marketing
as a Channel of Distribution
 Direct marketing refers to directly selling
products to the consumer (telesales, e-
commerce, vending machines, direct mail)

Multichannel distribution strategy

(range of channels) is used by most firms
(airliners: travel agents, internet, airports to
sell tickets targeting different market
segments)

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Direct Marketing
as a Channel of Distribution
 Advantages of direct marketing:
1. A firm does not have to share profit with
others as there is no intermediaries
2. Firms have direct control over their
marketing, no relying on agents, brokers,
retailers
3. Benefits from e-commerce as customers
are more willing to use internet, it’s cheaper
4. Direct marketing can reach customers who
do not have an easy access to retail outlets
Telesales
 Telesales (telemarketing) uses telephone
systems to sell products directly to potential
customers (use of automated voice or text
messages by firms that have a database of
existing clients). Examples: satellite TV
company, insurance companies.
Vending Machines
 Vending machines have compact size and
can be placed anywhere, accepting a range of
pay methods and stock cigarettes, drinks,
snacks; they are low maintenance but prone
to vandalism, mechanical failures and are of
low capacity
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Direct Marketing
as a Channel of Distribution
E-commerce
 E-commerce is trading via the Internet
(product information, payment options,
reaches globally, reduces costs). Not all
products can be sold in this way (cars,
jewelry).
Direct Mail
 Direct mail involves sending promotional
material via the postal system by firms that
have customer database; it can provide
personalized communication service and it
can target different market segments; it is
usually regarded as junk mail and therefore
there is a low response rate and the database
can become outdated
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Choosing an Appropriate
Distribution Strategy
 Several factors affect distribution decisions:
1. Cost and benefits need to be taken into
account when using intermediaries and
various transportation methods
2. Products can be sold in many ways, but not
all can be distributed in the same way
(perishables cannot be distributed through
long chains of distribution)
3. Markets require different distribution
channels (niche markets – no intermediaries,
large markets – use of intermediaries)
Place and Business Strategy
 Strategic planning deals with two key
placement issues:
1. The best channels of distribution
2. How it will ensure that intermediaries
stock the firm’s products
Place and Business Strategy
 Opening its own retail stores by the
manufacturers is relatively expensive (Nike,
Adidas)
 Franchise agreements allow certified
people to run the stores under the name of
the business to gain brand recognition
(Nissan, Audi)
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Choosing an Appropriate
Distribution Strategy
4. Time lag between paying for the product and
receiving it (e-commerce–no urgent delivery)
5. Legal constraints (gov. regulations) can
prohibit distribution of certain products and
affect distribution decision (restaurants need
licenses to sell alcohol; some countries have
strict gambling laws)
Integrated distribution strategy refers to
firms using many distribution channels
(supermarkets use online shopping, as well)
Place and Business Strategy
Most suitable types of distribution:
1. Intensive distribution (mass-produced
goods, fast moving consumer goods using as
many channels as possible)
2. Selective distribution (deliberate choice
of particular intermediaries)
3. Exclusive distribution (specially chosen
intermediaries have exclusive rights to sell
firm’s goods
Place and Business Strategy
 Vertical integration is a growth strategy
that unifies supplier, producer, wholesaler
and retailer and it happens when a
manufacturer owns its own retail outlet and
its own suppliers (forward and backward
vertical integrations) having more control
over its supply chain and distribution
channels
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Place and Business Strategy
 International trade for firms exporting
their products is more complicated and has a
few external limitations:
1. Fluctuating exchange rates (changing
rates can make products cheaper or more
expensive depending on a current exchange
rate)
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Place and Business Strategy
2. Government intervention (place trade
barriers on imported products to protect
their own economy making difficult to
distribute the products)
3. Language barriers (communication
problems)
4. Cultural differences (cultural norms
means some products are not suited for
certain regions)