Distribution 1.3.4

Question 1

When looking at distribution, what factors must a company consider?

Answer 1

• Where p/s is available
• When p/s is available
• What quantity of p/s is needed to satisfy demand?

Question 2

What might happen if distribution factors are not considered?

Answer 2

It may fail to draw attention or satisfy demand.

Question 3

What should distribution networks do?

Answer 3

• encourage repeat purchases.
• enable safe delivery.
• maximise the number of potential consumers.
• ensure quick delivery.
• provide market information to producers/retailers.
• create a positive relationship between consumer/producer.

Question 4

What is a distribution channel?

Answer 4

The flow of organisations that connect a product from producer to consumer.

Question 5

What are the purposes of distribution channels?

Answer 5

• To provide a link between production and consumption
• To help gather market research and information
• To help find and communicate with prospective buyers

Question 6

What is an intermediary?

Answer 6

Each party in a distribution channel - retailers and wholesale services referred to this in the distribution process

Lots of businesses use a mixture of all distribution channels as the companies can choose/change/have a mixture of distribution channels

Question 7

What are the advantages and disadvantages of intermediaries?

Answer 7

+ Access to a larger number of customers for the producer.
+ Save costs for the producer.

• The increased price at each level.
• Producer may lose control of how and where the product is sold.

Question 8

What does it mean if your have lots of intermediaries?

Answer 8

They want cuts of the profits.

Question 9

What would expenses be like if a small-scale producer handled distribution alone?

Answer 9

Expenses would be high.

Question 10

What are the 3 distribution channels?

Answer 10

1. Producer –> wholesaler–> retailer–> consumer
2. Producer–> retailer–> consumer
3. Producer———> consumer

The first two are indirect marketing channels but the 3rd one is a direct marketing channel.

Question 11

What is channel 1 distribution?

Answer 11

contains two intermediary levels - a wholesaler and a retailer. A wholesaler typically buys and stores large quantities of several producers’ goods and then breaks into bulk deliveries to supply retailers with smaller quantities. For small retailers with limited order quantities, the use of wholesalers makes economic sense. This arrangement tends to work best where the retail channel is fragmented - i.e. not dominated by a small number of large, powerful retailers who have the incentive to cut out the wholesaler. A good example of this channel arrangement in the UK is the distribution of drugs.

Question 12

What is channel 2 distribution?

Answer 12

Channel 2 contains one intermediary. In consumer markets, this is typically a retailer. The consumer electrical goods market in the UK is typical of this arrangement whereby producers such as Sony, Panasonic, Canon etc. sell their goods directly to large retailers and e-tailers such as Comet, Tesco and Amazon which then sell to the final consumers.

Question 13

What is stage 3 distribution?

Answer 13

Channel 3 is called a “direct-marketing” channel since it has no intermediary levels. In this case, the manufacturer sells directly to customers. An example of a direct marketing channel would be a factory outlet store. Many holiday companies also market direct to consumers, bypassing a traditional retail intermediary - the travel agent.

Question 14

What is the aim of a distribution network?

Answer 14

To deliver a p/s on time and in good condition.

Question 15

When choosing the most relevant distribution network, what must businesses consider?

Answer 15

• the product
• the market
• legal restrictions
• customer expectations

Question 16

When choosing the most relevant distribution network, why must businesses consider the product?

Answer 16

The product may need to be introduced through practical demonstrations or explanations, so it would be inappropriate to sell it through general retail outlets.

Question 17

When choosing the most relevant distribution network, why must businesses consider the market?

Answer 17

Products that are extremely specialist or expensive have a relatively small customer base and need to be made available to buyers through a small number of specialist retailers. This is different from general household goods, which have a very wide customer base and can be sold at a large number of outlets.

Question 18

When choosing the most relevant distribution network, why must businesses consider legal restrictions?

Answer 18

The law of the country will determine where certain goods can be sold.

Question 19

What are the advantages of having multiple channels of distribution?

Answer 19

• Improved customer perception.
• Widens customer base.
• Enables high levels of revenue.

Question 20

What are the disadvantages of having multiple channels of distribution?

Answer 20

• Potential for channel ‘conflict’
• Can be complex to manage
• Danger that pricing strategy becomes confused in consumer’s eyes.

Question 21

What factors must be considered when deciding on a distribution channel?

Answer 21

• Nature of the product
• The market
• The business

Question 22

Name some examples of retailers

Answer 22

• Multiples (Chains owned by one company)
• Specialist chains
• Franchises

Question 23

What are wholesalers?

Answer 23

Businesses that buy large quantities of products, to then resell them in smaller batches to places such as retailers

Question 24

What are retailers?

Answer 24

Retailers are businesses that buy directly from wholesalers to sell in places such as shops and markets.

Question 25

What is direct selling?

Answer 25

Direct selling is when the distribution involves no intermediaries such as hairdressing.

Question 26

What are the advantages of wholesalers involved in distribution?

Answer 26

• Reduces transportation costs for producers.
• Allows retailers to buy in smaller quantities.

Question 27

What are the drawbacks and benefits of retailers involved in distribution?

Answer 27

Drawbacks:
- Loss of margin due to the fact that retailers add their own mark up to the price charged

Benefits:
- Convenient for customers
- Retailers handle financial transactions and after sales support

Question 28

Define online distribution.

Answer 28

Online distribution is the process of operating in a virtual marketplace so goods ordered online are delivered directly to the customer.

Question 29

What are the benefits to online distribution?

Answer 29

• Access to the global market
• Business location is not important
• 24/7 trading is possible
• Cuts overhead costs
• Easier for consumers to compare prices

Question 30

What are the drawbacks to online distribution?

Answer 30

• Security issues over identity fraud and secure methods of payment
• Hackers may steal business ideas
• Increase competition
• Easier for consumers to compare prices
• Shipping costs and delivery times may become an issue.

Question 31

What social trends cause businesses to change their distribution methods?

Answer 31

1. A huge growth in online shopping
2. Building of large US-style shopping malls
3. Sellers using call centres to sell products, such as financial services
4. Supermarkets extending their product ranges and opening hours
5. Shopping becoming more of a leisure activity for many people
6. A growth in the use of TV shopping channels
7. The flourishing of charity shops on the high street

Question 32

What are the benefits to consumers of online distribution?

Answer 32

1. It is cheaper because online retailers often have lower costs.
2. Consumers can shop 24/7.
3. There is generally a huge amount of choice.
4. People can shop from anywhere if they have access to the internet.

Question 33

What are the benefits to businesses of online distribution?

Answer 33

1. E-tailers may not have to meet the costs of operating stores.
2. Lower start-up costs - both fixed and variable costs are lower.
3. Lower costs when processing transactions - many systems are automated.
4. Less paper is needed for documents, such as invoices and receipts.
5. Payments can be made and received online using credit cards or PayPal.
6. B2C businesses can offer goods to much wider markets - e.g. global.
7. Businesses can serve their customers 24/7.
8. Businesses have more choices of where to locate their operations.

Question 34

What are some drawbacks to businesses using online distribution?

Answer 34

1. Increase in competition.
2. Lack of human contact.
3. May be technical problems online.
4. Security risk.

Question 35

What are some drawbacks to consumers of online distribution?

Answer 35

1. Not being able to physically inspect goods before purchase.
2. Risk of poor after-sales service.
3. Exclusion of customers without internet access or credit cards.
4. Bogus traders are harder to identify.
5. People may have problems taking delivery of goods.

Question 36

State some examples of business’s changing from product to service?

Answer 36

1. People used to buy CDs which have been sold by a retailer or wholesaler. However, now people listen to music via the internet.
2. People used to buy DVDs sold in retail outlets. Now people can stream and watch movies online.
3. Instead of buying a newspaper from a local shop, some businesses provide a subscription service which allows consumers to view news online.