The Marketing Mix: Place (HL IB Business Management)

• Distribution channels refer to the chain of intermediaries through which goods/services move from the manufacturer to the end customer 
   

Diagram of Three Common Distribution Channels

The three different types of distribution channels businesses can use to move products from the manufacturer to the end consumer
 

• A traditional channel consists of four stages: producer, wholesaler, retailer, and consumer
• This channel is commonly used for products such as groceries, clothing, and electronics
  • E.g. The Coca-Cola Company produces the soft drink and then sells it to a wholesaler, who in turn sells it to a retailer
  • The retailer then sells the soft drink to the customer
      

Advantages & Disadvantages of a Four Stage Distribution Channel

Advantages	Disadvantages
Storage costs are absorbed by the wholesaler The wholesaler takes on responsibility for breaking a large quantity of products into smaller batches for retailers to purchase	The wholesaler and retailer each demand a mark-up, reducing profit for the producer or increasing prices for consumers Control over below-the-line promotional activity is no longer under the control of the producer

 

• The three stage distribution channel eliminates the wholesaler stage, with the producer selling directly to the retailer
• This channel is often used for products with high demand or where the cost of distribution is high
• It is also frequently used for products with high profit margins, where the manufacturer can afford to sell directly to the retailer and still make a profit
  • Eg Toshiba produces laptops and sells them directly to retailers like Currys, who then sell them to the end customer
     

Advantages & Disadvantages of a Three Stage Distribution Channel

Advantages	Disadvantages
Customer service and some promotional activities are carried out by the retailer Storage and display costs are absorbed by the retailer	The retailer's mark-up will reduce the profit of the producer or make the product more expensive for consumers Promotional activity by the retailer may not be communicated with the producer, potentially causing production shortfalls

  

• The two stage distribution channel eliminates both the wholesaler and retailer stages, with the manufacturer selling directly to the end consumer
• This channel is commonly used for products that are sold online or through direct sales channels
  • E.g. RyanAir sells its service (passenger tickets) directly to the end customer on their website
     

Advantages & Disadvantages of a two Stage Distribution Channel

Advantages	Disadvantages
A low-cost and fast way to get products to consumers The producer has full control over promotional activity, merchandising and customer service	All storage and distribution costs are the responsibility of the producer Resolving customer service issues can take a lot of time and take attention away from production

 

• Changes in distribution have been impacted by social trends such as the growth of e-commerce and the shift from product-based businesses to service-based businesses
  
• By understanding these trends, businesses can adjust their distribution strategies to meet the needs of their customers better and stay competitive in the marketplace
   

 The Growth of E-commerce

Explanation

Example

Online distribution has become increasingly popular due to the convenience and accessibility it offers to consumers Many businesses now use drop-shipping, which allows them to sell products without holding stock Once the business has sold the products, 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

Amazon is known as a third-party logistics provider (3PLs) It provides businesses with the infrastructure and online marketplace which allows them to reach a wide audience and increase sales without having to invest in their distribution infrastructure Many businesses now generate the bulk of their sales selling on Amazon