distribution Flashcards
A channel of distribution is:
the route a product takes from the manufacturer or producer to the consumer
A product usually passes through:
Intermediaries on the way from producer to customer - e.g. retailers, wholesalers and agents
Retailers:
Shops who sell to consumers. They’re usually the final stage in the distribution channel.
Examples of retailers:
Tesco, Argos and Amazon. Retailers can be physical shops or online “e-tailers.”
Wholesalers make life:
Easier for retailers and manufacturers
Wholesalers buy:
Goods from manufacturers in bulk and sell them in smaller quantities to retailers. This is called “breaking bulk”
Breaking bulk:
A wholesaler takes the goods off the manufacturer’s hands and pays for the whole lot. Manufacturers don’t have to wait for customers to buy the goods before they see any cash
Wholesalers make:
Distribution simpler. Without a wholesaler, the manufacturer would have to make separate deliveries to lots of retailers, and send each and every retailer an invoice. Selling to one wholesaler cuts down the paperwork and the number of journeys
Wholesalers can:
Store more goods than a retailer can - they act as the retailers storage cupboard
Agents, such as travel agents:
Sell products to customers on behalf of businesses. They’re often paid commission for the products that they sell
A business will look at:
The product, the market and the size of the business when deciding which distribution channel to use
Different channels of distribution:
Direct selling (Two stage channel): Manufacturer -> consumer
Indirect selling (Three stage channel): Manufacturer -> Retailer -> Consumer
Indirect selling (Four stage channel): Manufacturer -> Wholesaler -> Retailer -> Consumer
Direct selling (Two stage channel): Manufacturer -> Consumer
The internet has made it easier for producers to sell directly to the consumer. Buying and selling on the internet is called e-commerce. This allows access to a worldwide market. For small firms, a low-cost option is to sell goods using electronic marketplaces (e.g. eBay).
Indirect selling (Three stage channel): Manufacturer -> Retailer -> Consumer
This is a common distribution channel for recreational items such as clothes, shoes and homeware. Retailers are usually in places that are convenient for the consumer, such as shops on the high street
Indirect selling (Four stage channel): Manufacturer -> Wholesaler -> Retailer -> Consumer
This is a traditional distribution channel used for groceries, e.g. by supermarkets. However, because those at each stage of the distribution channel want to make a profit, it can increase the cost to the consumer
Multi-channel distribution:
When businesses sell through more than one method, e.g. online and in-store.
What does multi-channel distribution do:
Gives flexibility for customers and wide market coverage for manufacturers
Supermarkets and fashion retailers which have high street stores as well as an internet store are using a:
Multi-channel strategy. This may lead to added costs, but it allows them to target a wider market
Stores which only sell online may have:
Cheaper costs, because they use a single channel of distribution.
Problems with stores that only sell online:
Can have problems establishing brand loyalty. Also, customers often like to see and feel goods before they buy them, which is a limitation of e-commerce
Online distribution means:
Firms can provide services instead of products
Online distribution is:
The streaming or downloading of media content (like games, films, music and books) via the internet
The consumer is purchasing the:
Right to download the media content as opposed to buying a good - they’re purchasing a service instead of a physical product
Delivery via online distribution is:
Direct and almost immediate once an item has been purchased. In certain markets, the traditional distribution channels are being replaced by online distribution
There are:
Cost savings for the business because there is no need to spend money on producing boxed products, whereas there is for traditional distribution
The price of downloads for the consumer can be:
Cheaper than actually buying a physical film or book, due to these reduced costs for the business
Online distribution is more:
Environmentally friendly than the production of physical goods such as DVDs which contain non-biodegradable plastics
Using online distribution also:
Reduces the pollution from transporting physical goods across countries
Setting up online distribution can be:
Relatively easy and can be run from anywhere with an internet connection. The set-up costs are also low, which means that there are opportunities for fast growth and return
However, online distribution requires:
A different set of skills to traditional distribution, so staff may need further training in IT skills
Businesses can respond to:
Changing customer needs more quickly as goods do not need to be packaged and distributed but can instead be updated online ready for download
These businesses will also have:
More working capital as it’s not tied up in stock, which also needs to be stored in distribution centres. This money that was previously invested in production and distribution can be invested elsewhere in the business
Online distribution is becoming more popular because:
Buying through online distribution is easy and cheap, more and more consumers are buying online. To stay competitive, more businesses are moving to online distribution.
This has also led to changes in social trends. For example, many people now watch shows on streaming services, such as netflix, instead of on TV
Instead of needing to store CDs and DVDs in houses, all of the downloaded media content is stored on computers, mobile devices or virtual hard drives
This means there’s been a growth in third party service providers, such as Spotify and Amazon’s prime video, who provide downloadable or streaming services
