1.3.4 Distribution

Question 1

Distribution channel

Answer 1

The route a product takes from producer to consumer is called the
distribution channel.

Question 2

Intermediaries

Answer 2

between the producer and the

consumer in a distribution channel, such as retailers.

Question 3

A wholesaler typically

Answer 3

buys and stores large quantities of several producers’ goods and then breaks into the bulk deliveries to supply retailers with smaller quantities.

Question 4

Wholesaler suitability

Answer 4

For small retailers with limited order quantities, the use of wholesalers makes economic sense.

Question 5

What factors should be taken into account in choosing the best distribution channel?

Answer 5

Nature of the product (perishable?), The market, The business, Legal issues

Question 6

The business

Answer 6

Size and scope – e.g. can it afford an in-house sales force?

Marketing objectives – revenue or profit maximisation?

Does it have established distribution network or does it need to extend its distribution option

How much control does it want over distribution? The longer the channel, the less control is available

Question 7

Legal issues

Answer 7

Are there limitations on sale?

What are the risks if an intermediary sells the product to an inappropriate customer?

Question 8

The market

Answer 8

Is it geographically spread?

Does it involve selling overseas (see further below)

The extent and nature of the competition – which distribution channels and intermediaries do competitors use?

Question 9

Place meaning

Answer 9

Place defines both the physical location where a product is
available as well as the distribution channel it has travelled
through to get from the manufacturer to the customer

Question 10

Main objective of distribution

Answer 10

To make products available in the right place at the right time in the right quantities

Question 11

Example of a distribution channel

Answer 11

Producer>wholesaler>retailer>customer

Question 12

Distribution channels serve more than one purpose

Answer 12

Provide a link between production and consumption
• Help 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

Question 13

Main Types of Intermediary in Distribution Channels

Answer 13

Retailer, wholesaler, distributor, agent

Question 14

Key Advantages of Retail Distribution

Answer 14

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)

Question 15

Wholesalers “break bulk”

Answer 15

– Buy in large quantities from producers

– Break into smaller quantities to sell to retailers

Question 16

Wholesaler advantages

Answer 16

– 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

Question 17

Example

Answer 17

PRODUCER: Newspaper Publisher – e.g. The Sun, The Times – who send bulk print runs of newspapers to large depots run by wholesalers
WHOLESALER: (e.g. John Menzies) packs newspapers into bundles for retailers (e.g. newsagents)
Retailer (e.g. newsagent; petrol station) displays newspaper in store and delivers to homes
Customer = newspaper buyer

Question 18

Distributors

Answer 18

Distribute (sell on) products and serve as a local sales point
• Usually specialise in a particular industry
– Examples – building supplies, electrical components, industrial clothing
• Offer products from many producers = greater choice
• Different from agents in that a distributor holds stock

Question 19

Agents

Answer 19

Specialist type of distributor
• Does not hold stock
• Tend to operate in tertiary sector (services)
– Travel
– Insurance – Publishing
• Earn commission based on sales achieved

Question 20

Direct Distribution

Answer 20

Channel where a producer and consumer deal directly with each other without the involvement of an intermediary

Question 21

Indirect Distribution

Answer 21

Involves the use of intermediaries between the producer and consumer

Question 22

Direct channels examples

Answer 22

Direct mailing
– E-commerce
– Telemarketing (telephone selling)

Question 23

Possible Reasons to Use Indirect Distribution Channels

Answer 23

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

Question 24

The product

Answer 24

Perishable/fragile? – Technical/complex? – Customised
– Type of product – e.g. convenience, shopping, speciality
–Desired imageforthe product

Question 25

What is Multi-Channel Distribution?

Answer 25

Multi-channel distribution involves a business using more than one type of distribution channel

Question 26

Benefits of multi-channel distribution

Answer 26

Allows more target market segments to be reached, Customers increasingly expect products to be available via more than one channel, Enables higher revenues – e.g. if retail outlets have no stock, but customer can buy online.

Question 27

Drawbacks of multi-channel distribution

Answer 27

Potential for channel “conflict” –e.g. competing with retailers by also selling direct, can be complex to manage, Danger that pricing strategy becomes confused (in the eyes of customers). You’ll need to set aside a budget for marketing and advertising. You could be spreading yourself and resources too thin. Employees could get overwhelmed and start making costly mistakes. Cannibalization of sales: Opening an online store could eat into your in-store experience

Question 28

Some Key Changes in Distribution to Reflect Social Trends

Answer 28

Sale of services via mobile devices, particularly media content, Widespread adoption of e- commerce by households reducing high street retail sales,

Question 29

What is distribution strongly influenced by

Answer 29

the Nature of the Target Market Segment. 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?

Question 30

What Is Market Cannibalization?

Answer 30

Market cannibalization is a loss in sales caused by a company’s introduction of a new product that displaces one of its own older products. The cannibalization of existing products leads to no increase in the company’s market share despite sales growth for the new product.