5.4e The Marketing Mix: Place
Distribution Channels
The distribution channel is the path taken to get the product from producer to the customer.
There are different distribution channels, but all start and end in the same way.
Producer
Customer
The product manufacturer sells directly to the customer, usually via mail order or e-commerce. This is known as direct selling. Example: Buying an iPhone from Apple's website.
Advantages
- Customers should get good value because there are no "middle-men" adding to the cost.
- The customer should be able to get answers to technical questions about products.
- Unlike wholesalers, customers will not buy in bulk so the producer does not need to give bulk discounts can retain more of the revenue.
Disadvantages
- The producer may find it logistically challenging to sell directly, often in small volumes.
- They will also need to set up sales and logisitics departments for consumers.
Producer
Wholesaler
Customer
The wholesaler bulk-buys products from the manufacturer, then sells smaller volumes to customers. Example: Cash & Carry warehouses.
Advantages
- Easier for the producer to deal with a few wholesalers rather than lots of individual customers.
- Convenient for customer to purchase lots of different products from one wholesaler.
- Customers using wholesalers will usually find it cheaper than buying from a retailer.
Disadvantages
- The producer will be expected to give a bulk discount to the wholesaler.
- The wholesaler will add a mark-up to the prices, increasing the cost to the customer.
- Customers purchasing from wholesalers may not find it as convenient as purchasing from a retailer.
Producer
Wholesaler
Retailer
Customer
The wholesaler bulk-buys products from the manufacturer, then sells smaller volumes to retailers (shops), who then sell to the customer. Example: Small convenience stores
Advantages
- Convenient for smaller retailers to purchase in lower volumes from wholesalers.
- Retailers provide convenience and a pleasant environment to customers.
- Customers can buy in small quantities.
Disadvantages
- The producer may lose control of how / where the product is sold.
- The wholesaler and retailer add to the product’s cost. This makes the final cost more expensive for the customer.
- Increased time between getting goods from the producer to the customer – important for goods with a short lifespan (e.g. food).
Producer
Retailer
Customer
Large retailers can purchase in sufficient volumes to deal directly with the producer, missing-out wholesalers. Examples: Tesco, ASDA, Sainsbury's, Morrisons.
Advantages
- Cutting-out the wholesaler removes a link and reduces the final cost of products.
- Products can be shipped faster — important with perishable goods.
Disadvantages
- Retailers will have to deal with lots of different producers, which can be logistically difficult.
- Retailers in this position have great power over the producers, and can exert extreme pressure on them. Supermarkets are especially guilty of this!