Place and Distribution (HSC SSCE Business Studies): Revision Notes

Place and Distribution

What is place in the marketing mix?

Place (or distribution) is the fourth element of the marketing mix. It refers to all the activities that make products available to customers when and where they want to purchase them. Getting the right product to the right location at the right time is essential for business success.

Distribution channels

Distribution channels (also called marketing channels) are the routes taken to move a product from the manufacturer to the customer. These routes usually involve several intermediaries - businesses or individuals that help move products along the supply chain.

Common intermediaries include:

• Retailers - sell products directly to consumers
• Wholesalers - buy in bulk from producers and resell in smaller quantities to retailers
• Agents - distribute products but never own them; they earn commission from producers
• Brokers - facilitate transactions between buyers and sellers

Most customers only interact with retailers, while other intermediaries remain largely invisible in the distribution process.

Traditional distribution channels

There are four main traditional distribution channels, each involving different levels of intermediaries:

1. Producer → Customer

This is the simplest and most direct channel, with no intermediaries involved. Most services use this method, including professional services like tax advice, medical care, and car repairs. This approach gives producers complete control over the customer relationship.

2. Producer → Retailer → Customer

In this channel, retailers act as intermediaries by purchasing products from producers and reselling them to customers. This method is commonly used for bulky or perishable products such as furniture, fresh fruit, and vegetables. The retailer adds value by providing convenient locations and product selection for customers.

3. Producer → Wholesaler → Retailer → Customer

This is the most common distribution channel for consumer goods. Wholesalers purchase large quantities from producers at discounted prices, then break these bulk purchases into smaller quantities for retailers. This system allows producers to sell in volume while enabling smaller retailers to stock diverse product ranges without massive capital investment.

4. Producer → Agent → Wholesaler → Retailer → Customer

This longest channel involves agents who distribute products to wholesalers without taking ownership. Agents earn commission from producers for facilitating sales. This method is typically used for inexpensive, frequently purchased products. Businesses without their own sales teams often rely on agents to reach the market.

Innovative distribution methods

Non-store retailing refers to retail activity conducted away from traditional physical stores. While methods like door-to-door selling, mail-order catalogues, and vending machines have existed for years, rapid advances in electronic communication have created new distribution opportunities.

E-commerce

E-commerce involves buying and selling goods and services via the internet. This channel has revolutionized retail distribution and continues to grow rapidly. By 2019, online sales accounted for approximately 14.1% of total retail sales in Australia, compared to less than 1% in 2000.

E-commerce appeals to different customer segments for various reasons:

• Time-poor consumers value the convenience of shopping from home
• Price-conscious shoppers can easily compare prices across multiple retailers
• Some customers appreciate access to wider product ranges than physical stores can offer
• The ability to shop at any time suits customers with non-standard schedules

M-commerce

Mobile commerce (m-commerce) involves purchasing goods and services through wireless handheld devices like smartphones and tablets. As e-commerce has grown, m-commerce has captured an increasing share, with smartphone-enabled purchases representing 49% of total online retail commerce in 2020. This growth reflects retailers' efforts to create smartphone-friendly websites and streamlined mobile checkout processes.

Channel choice

Market coverage refers to the number of outlets a business chooses to stock its product. This strategic decision significantly impacts how accessible a product is to consumers. Businesses can adopt one of three approaches, differing in coverage intensity.

Intensive distribution

Intensive distribution aims to saturate the market by making products available through as many outlets as possible. Customers should be able to purchase the product at their local shop with minimal effort or travel.

This approach is typically used for convenience goods - everyday items that customers purchase frequently without much thought. Examples include milk, bread, newspapers, soft drinks, and confectionery. The goal is maximum market penetration and brand visibility.

Selective distribution

Selective distribution uses a moderate proportion of available outlets rather than every possible location. Products are available in multiple stores, but not everywhere.

This method suits shopping goods - products that customers are willing to search for and compare before purchasing. Clothing, furniture, and electrical appliances are commonly distributed selectively. Customers expect to travel to specific retail outlets known for stocking particular brands, and they're prepared to make this effort for products they consider important purchases.

Exclusive distribution

Exclusive distribution restricts product availability to just one retail outlet within a large geographic area. This highly selective approach creates an aura of exclusivity and prestige.

This method is typically reserved for luxury or specialty goods - exclusive, expensive products where the limited availability enhances brand image. Examples include designer fashion, high-end jewelry, and luxury vehicles. The restricted distribution reinforces the product's premium positioning and justifies higher prices.

Physical distribution issues

Physical distribution encompasses all activities involved in the efficient movement of products from producer to customer. It represents the actual flow of goods through their distribution channels. Three key elements require careful management: transport, warehousing, and inventory control.

Transport

An extensive transportation network is essential for delivering products to customers. Transportation is a critical supply chain management function involving the efficient movement of products from manufacturer to consumer.

The transportation mode a business selects depends on:

• Product type (perishable, fragile, bulky, valuable)
• Speed of delivery required
• Cost considerations
• Distance to be covered
• Customer service expectations

The four most common transportation methods are:

• Rail - cost-effective for bulk goods over long distances
• Road - flexible and door-to-door service
• Sea - economical for international shipping of large volumes
• Air - fast but expensive; suitable for urgent, high-value, or perishable goods

Warehousing

Warehousing involves receiving, storing, and dispatching goods. A warehouse serves as a central organizing point where products are held before efficient distribution to customers.

Small businesses might use a spare room or garage for storage, while larger operations require purpose-built facilities. Key warehousing considerations include:

• Shelving systems - must maximize storage capacity while allowing easy access to products
• Inventory control software - tracks quantities and locations of all products in the warehouse
• Material handling equipment - forklifts, conveyor belts, and automated systems move products efficiently
• Security measures - protect valuable inventory from theft and damage
• Transportation access - loading docks and vehicle access for receiving and dispatching goods
• Climate control - temperature and humidity regulation for sensitive products (e.g., food, pharmaceuticals)

Inventory control

Effective inventory control maintains appropriate quantities and varieties of products to meet target market demand. Finding the right balance is critical:

• Too much inventory creates high storage costs, ties up capital, and risks products becoming obsolete or expiring
• Too little inventory leads to 'stock-outs', frustrating customers and resulting in lost sales and potentially lost market share

Real-world example: Woolworths warehouse automation

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