Topic 6 - Place

Higher Business Management

1

Learning Intentions / Success criteria

Learning

Intentions

Place

Success Criteria

Learners should be able to describe and discuss:

• the costs and benefits of using wholesalers

• the costs and benefits of using different types of

retailers

• the costs and benefits of using direct sales

• the costs and benefits of different distribution

methods

• the overall channels of distribution available to

businesses

• the use of, and costs and benefits of, e-commerce.

2

Place

• Place is about getting the product to the

customer and where it is sold.

• Changes to where the product can be bought

and how it gets to the customer may attract

new customers.

3

Channels of Distribution

• Channel of distribution is the route a product

will follow to get from the manufacturer to the

customer.

• The route always starts with the manufacturer

and ends with the customer.

4

5

Factors Determining Channel of

Distribution

Factor Description

Finance available A manufacturer may not have the finance available to set up

e-commerce or print catalogues to sell direct, so using

wholesalers or retailers are the only options.

Desired image for the

product

Certain products have images that dictate where they can be

sold, e.g. Hugo Boss only sell in retailers that have built up a

good reputation over at least 5 years.

Shelf life of the

product

Some products need to be shipped to retailers fast as they

will go out of date quickly, e.g. fresh fruit.

Legal restrictions Some products can’t be sold through certain channels, e.g.

prescription medicines need to be sold through pharmacies.

Stage of the product

life cycle

Products may only be sold in exclusive outlets at the

beginning of a product’s life cycle, but may be sold in

discount stores during their decline stage to encourage sales.

Technical qualities of

the product

Highly technical products may need to be demonstrated,

which means personal selling is the ideal channel. 6

Direct Selling

• This is selling direct to the

consumer from the

manufacturer.

• This is the shortest channel of

distribution and means there

are less ‘middle men’ taking a

cut of the profits.

• Businesses also retain control

of how their product is

marketed.

Methods of direct

selling a business

could use:

• e-commerce

• mail order

• direct mail

• personal selling

• online shopping

channels.

7

E-commerce

A business sells its products using the internet, e.g. ASOS.

Advantages Disadvantages

• Customers in the global

market can be reached,

24/7.

• An entire range can be

shown online.

• Online discounts can be

offered to attract

customers.

• Product information and

customer comments can

sway purchasing decisions.

• It can take a lot of time and expense

to design attractive, high-quality

websites.

• Customers might be wary of

providing their personal details

online.

• Customers need to have access to

the internet.

• Customers need to wait for products

to arrive and may have to pay

delivery costs. 8

Mail Order

A business sells its products using a catalogue, which is usually

sent directly to the customer, e.g. M and M Direct.

Advantages Disadvantages

• Credit facilities are often offered

to customers.

• Customers can browse for

products and place orders from

home, at a time that suits them.

• Mail-order-only companies save

money on staffing and store

costs.

• Glossy catalogues can be

expensive to produce.

• Producing catalogues is

not environmentally

friendly and may not

meet CSR aims.

• A level of bad debt might

be incurred.

9

Direct Mail

A business posts letters, leaflets and brochures directly

to the customer.

Advantages Disadvantages

• Specific market segments can

be targeted, e.g. by inserting

supermarket recipe cards

inside cookery magazines.

• A wide geographical area can

be targeted by placing leaflets

inside newspapers and

magazines.

• Customers can perceive this

as ‘junk mail’ and simply

throw it away.

• Customers mailing lists can

quickly become out of date,

meaning a business may

target the wrong people and

waste money.

10

Personal Selling

A salesperson sells products directly to the customer, often

by going ‘door to door’ or over the phone (telesales).

Advantages Disadvantages

• Allows a

demonstration or

explanation of the

product to be given.

• Feedback on products

can be gathered from

customers.

• Customers can find this type of

selling a nuisance and may not

be keen to listen.

• Staffing costs and commission

make this method expensive

and increasingly unpopular

with businesses.

11

Online Shopping Channels

A business sells products on the TV using dedicated

shopping channels, e.g. QVC.

Advantages Disadvantages

• Customers can see

products being modelled

and demonstrated.

• Customers can be

encouraged to buy on

impulse due to short-term

bargain prices.

• Customers need to switch

on to the channel before

they can be targeted.

• Customers need to wait for

products to arrive and may

have to pay delivery costs.

12

Retailers

Manufacturers selling products through a retailer have the following

advantages and disadvantages.

Types of retailers: hypermarkets and superstores, convenience

supermarkets, out-of-town retail parks, online retailers and discount

stores.

Advantages Disadvantages

• Retailers are located close to

customers.

• Retailers often promote the

product for the manufacturer.

• Retailers employ sales

assistants to help sell the

product.

• Larger retailers buy in bulk.

• Retailers take a cut of the profits.

• Retailers may alter the price of

the product and so have an effect

on the image of the product.

• The product will face

competition from other products

stocked by the retailer.

13

Hypermarkets and Superstores

There has been a growth in massive supermarkets,

which sell many goods and services under one roof. The

largest of these are known as Hypermarkets, e.g. Tesco

Extra.

Advantages Disadvantages

• Most hypermarkets open

24/7.

• A huge range of products

are offered to customers.

Lack of competition from

high-street stores can lead to

poorest quality products.

14

Convenience Supermarkets

Due to changing work patterns and lifestyle changes, there has

been a growth in smaller supermarkets appearing in convenient

locations, such as M&S Simply Food or Little Waitrose in city

centres, near transport hubs or on forecourts.

Advantages Disadvantages

• Cater for the changing needs

of customers so are

guaranteed footfall.

• Prices can be slightly higher

than larger supermarkets

due to the convenience

factor.

• Limited choice of products

due to smaller store sizes.

• There can be high levels of

waste as it is harder to predict

customer numbers than it is

for larger, more traditional

supermarkets.

15

Out-of-town Retail Parks

Out-of-town (OOT) retailing is now found on the outskirts of

most major towns in the UK, with good infrastructure such as

road links and free car parking, e.g. Glasgow Fort.

Advantages Disadvantages

• Infrastructure attracts customers.

• Often near amenities such as

restaurant chains and cinemas,

which can increase footfall.

• Larger store sizes mean a good

product range for low prices due

to bulk buying by OOT retailers.

• Limited choice of stores

compared to high-street

shopping or more

traditional shopping

malls.

• Only suitable for

customers with access to

transport.

16

Online Retailers

Amazon is the biggest online retailer (dubbed ‘e-tailor’)

in the UK. Rather than setting up their own e-commerce

site, some manufacturers will sell through retailers like

this.

Advantages Disadvantages

• Products can be sold to a

world-wide market by

online retailers.

• Products can be sold 24/7.

• Customers can’t try or

touch the product before

buying.

• Delivery charges may put

some customers off.

17

Discount Stores

In response to the recession, discount stores have become

popular in the UK over the last few years, e.g. Poundland

and B&M Homestores.

Advantages Disadvantages

Products are sold for rock-

bottom prices, which

attracts customers looking

for value.

• Limited product range

compared to other retailers.

• Some customers don’t like

the image of discount stores.

18

Wholesalers (1)

Manufacturers can sell goods to Wholesalers to distribute to smaller retailers

or, direct to customers. Using a wholesaler has the following advantages and

disadvantages for manufacturers:

Advantages for manufacturers Disadvantages for

manufacturers

• Packaging and displaying of goods is carried

out by the wholesalers, saving the

manufacturer time and costs.

• Wholesalers buy in bulk, saving manufacturers

from making lots of smaller deliveries.

• Wholesalers can promote products to retailers,

which saves the manufacturer promotion costs.

• The wholesaler carries the risk of products

going out of fashion as manufacturers get rid

of stock as soon it is produced.

• Manufacturers makes

less profit as a cut is

taken by wholesalers.

• The manufacturer

loses control of how

the products is

marketed.

• The manufacturer

loses control of which

retailers the product is

sold to. 19

Wholesalers (2)

There are also advantages and disadvantages of using a wholesaler for

retailers:

Advantages for retailers Disadvantages for retailers

• Retailers can save on storage

facilities by buying smaller

quantities from wholesalers than

they would get from manufacturers.

• Retailers can benefit from

promotions offered by wholesalers

that they may not get direct from

manufacturers.

• Retailers can trial smaller orders of

newer products and not be left with

large amounts of unsold stock.

• It is more expensive than going

directly to manufacturers as

wholesalers add on a margin of

profit.

• Wholesalers offer the same

products to retailers’

competitions, so other areas of the

marketing mix have to be relied

on.

• The retailer may miss out on

exclusivity deals by not going

direct to manufacturers. 20