3.3.3 PLACE

Central Question

How do you decide how and where to

sell your product/service?

Factors to consider

• Your costs• Lead time – between order and receipt of prod/serv• Scale of business (size)• Your company objectives• The competition• Your product – size, shape, perishable• The market• The state of the economy• The company or brand image – Silicon valley, Saville row• Your consumers / customers• Exchange rate?

Learning Outcomes

• To understand the advantages and disadvantages of the different distribution channels

• To be able to recommend and justify an appropriate distribution channel in given circumstances

The Distribution Channels

TASK – 5 mins

• I will assign you a distribution method• In pairs – research and identify products which

use this distribution method• Why have they chosen this method?• Are there any advantages or disadvantages of

each method?

Feedback…

• How do you decide the most suitable method of distribution?

Methods of DistributionMethod Description

Department

Stores

Large store usually in town centres. Sells large variety of products from wide range of suppliers

Chain Stores Two or more stores which have the same name and the same characteristics

Discount Stores Retail stores offering wide range of branded products at discount prices. Often products linked e.g. electrical

Superstores Very large out of town stores which sell wide range of products

Supermarkets Very large retailer of food produce and other items e.g. clothes, electrics etc

Direct Sales Products sold directly from manufacturer to consumer

Mail order Customers order from catalogue through post, by phone or online

E-commerce Customers view goods on line and then purchase

E-Commerce

• The use of internet and electronic communications to carry out business transactions.

• Can use to sell straight to customersDistribution channel 1• Also used by retailers to sell to customersDistribution method 2

WholesalersWholesalers

Wholesalers are a type of intermediary. This means that they are in between retailers and producers in the chain of distribution.

Wholesalers ‘break bulk’ – they buy in large quantities from manufacturers, store them, and sell in small quantities to retailers.

This is a traditional channel of distribution, consisting of 2 levels (the wholesaler and the retailer):

Manufacturer Wholesaler Retailer Consumer

• Without Wholesaler • With Wholesaler

M1 M2 M3 M4 M4M3M2M1

R6R1 R2 R3 R4 R5 R6R5R4R3R2R1

WHOLESALER

Advantages of a Wholesaler

• Breaking bulk – buys large quantities and sells in small quantities

• Reduces storage space needed by manufacturer reduces storage costs

• Fewer transactions needed by manufacturer so cheaper to use wholesaler

• Gives credit to small retailers• Promotion carried out by wholesaler not

manufacturer

Disadvantages of Wholesaler

• May be more expensive for small shop to buy from wholesaler than to go direct to manufacturer

• Takes longer for fresh produce to reach the shelves in retailers

• Wholesaler may be located a long way from the shops

Which Channel to Use?• What type of product is it?• Is the product technical?• How often is product purchased?• How expensive the product is?• How perishable the product is?• Where are the customers located?• Where do competitors sell their products?

Methods of TransportMethods of Transport

Whatever channel of distribution is chosen, it all relies on transport. There are 4 main methods of transport:

Rail (freight) Plane (air freight)

Ship (tankers or container ships) Road (lorry or van)

Rail freight is useful for moving bulky items long distances,such as coal and aggregates.It is convenient only if abusiness is locatedclose to thefreight railnetwork.

Air FreightAir Freight

Air freight is quick but expensive.

Cargo ships (container ships and oil tankers) are cheaper than air freight but very slow in comparison. They are used for very bulky items that need to be sent long distances abroad.

Cargo ShipsCargo Ships

The downside is that they cause pollution, and use a lot of diesel.

Road TransportRoad Transport

Lorries and vans are the most common form of transport used for goods in the UK. They are fast, relatively inexpensive, can deliver door-to-door and can be sent at anytime day or night. They can also go to Europe, via the Tunnel or by ferry.

Choice of TransportChoice of Transport

There are many different factors which will affect the choice of transport, such as:

Where and how far the goods have to travel.

The cost of each option, compared to the profit expected.

How bulky and heavy the products are.

How quick they need to get there.

How accessible the destination is.

Choice of TransportChoice of Transport

There are many different factors which will affect the choice of transport, such as:

The nature of the goods:

Are they fragile? (e.g. glassware)

Do they need refrigerating during the journey? (e.g. dairy produce, frozen food)

Do they need special care? (e.g. flowers, pets)

Are they extremely valuable? (e.g. jewellery)

Large companies who need to use a lot of transport may have their own fleet of lorries. This helps them reduce costs.

Other companies who do not need that much transport, or who do not have the expertise, will use haulage companies.

What transport and distribution channel considerations would be needed for these products?