Place: Types of Distribution Channels (Cambridge (CIE) IGCSE Business): Revision Note

The role of place in the marketing mix

• Place in the marketing mix refers to where customers purchase a businesses products and the distribution channels used to move the product from producer to consumer

• In a competitive environment, location and distribution decisions can give a company a competitive advantage

  • Businesses could locate themselves in areas with high foot traffic to achieve high sales volumes

  • They may use innovative online channels to reach customers who prefer to shop online

• Changing consumer needs can impact the way businesses distribute their products

  • E-commerce makes it easier for consumers to shop online and have products delivered to their doorstep

    • Many businesses have therefore invested in their online presence, offering convenience and fast delivery to meet customer needs

Types of distribution channels

• Distribution channels refer to the intermediaries through which products move from the business to the end customer 

Four stage distribution

• Producer → Wholesaler → Retailer → Consumer

• This channel is commonly used by smaller retail business that lack space or sufficient cash flow to hold large amounts of stock

• Advantage: Small shops can buy little and often from the wholesaler, so they don’t need big, costly storage space

• Disadvantage: Two extra markups (wholesaler and  retailer) push the selling price up for customers

  • E.g., The Coca-Cola Company produces soft drinks, which are sold in bulk to a wholesaler

    • The wholesaler sells smaller quantities to a convenience store

    • The convenience store  then sells individual soft drinks to the customer

Three stage distribution

• Producer → Retailer → Consumer

• This channel is often used for products with high demand or where the cost of distribution is high

• This method is also common where customers require support or advice in selecting the product

• Advantage: Retail staff can give advice and after-sales help, which suits complex goods like laptops

• Disadvantage: Stock sits in the retailer’s warehouse or shop, tying up cash until each item is sold

  • E.g., Toshiba produces laptops and sells them directly to retailers such as Walmart or Currys

    • Currys employs knowledgeable sales staff who sell them to end customers

Two stage distribution

• Producer → Consumer

• This channel is commonly used for products that are sold online or through direct sales channels

• Advantage: No middlemen mean lower costs, so the firm can offer keener online prices or keep more profit

  Disadvantage: The producer must handle delivery, returns and customer service itself, which can be expensive and time-consuming

  • E.g., GermanWings sells its service (airline passenger tickets) directly to the end customer on their website

The rise of e-commerce

• Distribution channels have been impacted by social trends such as the growth of e-commerce and the shift from product-based businesses to service-based businesses

• Businesses have adjusted their distribution strategies to better meet the needs of customers and stay competitive

• Online distribution has become increasingly popular due to the convenience and accessibility it offers to consumers

• Drop-shipping allows businesses to sell products without holding stock

  • When products are ordered they are shipped directly from the producer to the customer

  • This reduces the cost and complexity of distribution, making it easier for businesses to sell online

Examples of e-commerce

• Amazon is known as a third-party logistics provider (3PLs)

• They provide small businesses with the infrastructure and a well-known online marketplace, which allows them to reach a wider audience

• This allows even the smallest of businesses to increase sales without having to invest in their own warehouses

Recommending an appropriate distribution channel

• The choice of distribution channel chosen by a business depends on a variety of factors

• The following questions are worth considering when establishing a distribution channel

  • Do consumers want to speak to a salesperson?

  • Will customers want to handle the product before they make a purchase?

  • Would they prefer to purchase it conveniently online?

  • Does the product require special handling, such as protective packaging or quick delivery?

Factors affecting the choice of channel

1. Type of product

• If sold to producers of other goods, distribution is likely to be direct or via a specialist wholesaler 

  • E.g., JCB sells excavators directly to construction companies

  • Specialist wholesalers such as France's Bricoman sell consumable building supplies such as nuts, bolts and cement to builders

2. Frequency of purchase

• If the product is bought on a daily basis, retail stores provide convenience for consumers

  • E.g., Milka chocolate is sold in most EU-based supermarkets

3. The price of the product

• If the products is an expensive luxury good, it would be best sold through a few specialist high-end outlets

  • E.g. Rolex watches are sold in high-end jewellery stores

4. The durability of the product

• Perishable product like fruit and vegetables are distributed through retailers, sometimes via wholesalers, to be sold quickly

5. Proximity of customers

• If customers are located over the world, e-commerce is likely to be a suitable distribution channel

6. Competitors distribution channels

• Products need to be sold where competitors are selling so that a business can compete effectively

  • E.g., Nestlé cereals are sold alongside Kelloggs cereals in a wide range of retail outlets

7. Technical specifications

• If technical information needs to be passed to the customer, direct selling or a retailer is usually preferred

  • E.g., Apple Store staff provide focused advice to customers purchasing its range of phones, computers and entertainment devices