Distribution Decisions (Place) (AQA A-Level Business): Revision Notes
Distribution Decisions (Place)
What is distribution?
Distribution involves all the activities needed to make a product available to customers. It's one of the four key elements of the marketing mix (often called "place"), and it covers how businesses get their products from the producer to the final consumer. This might involve multiple intermediaries or could be direct from producer to customer.
Understanding distribution is crucial because even the best product will fail if customers cannot access it easily. The right distribution strategy ensures products reach the target market at the right time and in the right place.
Choosing outlets and distributors
Selecting the right outlets (retail locations) and distributors (businesses that supply products to outlets) is a critical decision that must align with the other elements of the marketing mix. The distribution choice directly affects whether the business can deliver on its overall marketing strategy.
For example, if a business wants to sell products cheaply to increase market share, it needs to choose cost-effective retail outlets. This ensures the benefit of low prices can be passed on to the final customer. A luxury brand, on the other hand, would choose exclusive outlets that maintain its premium image.
Key factors to consider when choosing outlets and distributors
When deciding which outlets and distributors to work with, businesses evaluate several important factors:
Location
- Businesses seek outlets and distributors in areas where their target customers live and shop
- They also look for locations where there is less competition
- Being in the right geographical area increases the likelihood of reaching the intended market
Credit terms
- Newly established or financially struggling businesses may prefer outlets and distributors that don't require long payment periods
- Shorter credit terms mean the business receives payment more quickly
- This helps protect the business's cash flow, which is especially important for smaller companies
Willingness to display products in prominent positions
- For certain products like food and confectionery, a good position within the retail outlet is essential for successful distribution
- Premium shelf space and prominent displays increase product visibility
- This factor is particularly important for impulse purchase items
Types of distribution channels
A distribution channel is the path a product takes from the producer to the consumer. There are three main types of distribution channels, each with different characteristics and benefits.
The Three Main Distribution Channels:
Traditional Channel: Producer → Wholesaler → Retailer → Consumer
Used by smaller retailers who buy through wholesalers.
Modern Channel: Producer → Retailer → Consumer
Used by large retail chains that buy directly from manufacturers.
Direct Channel: Producer → Consumer
Growing rapidly due to internet sales, cutting out all intermediaries.
Traditional distribution channel
In a traditional channel, products pass through several intermediaries before reaching the consumer: Producer → Wholesaler → Retailer → Consumer
This channel is commonly used by smaller retailers who cannot afford to buy large quantities directly from producers. Wholesalers buy products in bulk from producers and then sell smaller quantities to multiple retailers.
Wholesalers offer several advantages beyond just smaller quantities. They can provide advice, arrange credit facilities, and handle delivery, although these services come at a cost. This makes the traditional channel more expensive, but it's practical for businesses that lack the resources to buy directly from manufacturers.
Modern distribution channel
In a modern channel, the wholesaler is removed from the chain: Producer → Retailer → Consumer
Large retail chains like Marks and Spencer use this approach. They purchase directly from manufacturers and manage their own distribution systems. They can do this because they buy huge quantities of products, which gives them negotiating power and allows them to secure better prices.
The benefits of eliminating the wholesaler mean these retailers can negotiate discounts that more than cover their distribution costs. As a result, they can offer lower prices to consumers, which strengthens their competitive position in the market.
Direct distribution channel
In a direct channel, producers sell straight to consumers: Producer → Consumer
This channel has grown rapidly, largely due to the internet. It's attractive to many businesses because it reduces prices by cutting out intermediaries. When there are fewer parties involved in the distribution chain, costs are lower and these savings can be passed directly to customers.
Many small businesses have embraced this approach, selling their products directly to consumers through websites and online marketplaces. This gives them greater control over the customer experience and higher profit margins.
Factors influencing distribution channel choice
The decision about which distribution channel to use depends on several key factors. Businesses must carefully evaluate their specific circumstances before choosing the most appropriate method.
Type of product
The physical characteristics of a product significantly influence distribution decisions. Products that are bulky, fragile, or perishable are more difficult and expensive to transport. In these cases, businesses often choose direct distribution to avoid the additional costs of storing and handling the product multiple times.
Products that are relatively low-priced and sold in large quantities may be better suited to wholesalers. This is because storing these products can be expensive, and wholesalers have the facilities to handle large volumes efficiently.
Nature of the market
The way a market is structured affects distribution choices. Businesses selling in dispersed markets (where customers are spread out across different geographical areas) usually need wholesalers. Wholesalers have the resources and infrastructure to supply products across these scattered locations, which would be difficult and costly for a single business to manage alone.
Technical complexity of the product
Technically complex products, such as laptops and other electronic devices, are often better distributed through channels that allow direct contact between the producer and customer. This is because customers and retailers may need technical support, advice on installation, or guidance on how to operate the product. Direct distribution or modern channels make it easier for customers to access expert help when needed.
Multi-channel distribution
Today's consumers expect flexibility in how they access products. They want to be able to shop in physical stores, order online, or use click and collect services. To meet these expectations, many businesses now use multi-channel distribution, which means they use more than one type of distribution channel simultaneously.
Multi-channel distribution – where firms use more than one type of distribution channel.
For instance, a retailer might sell products through their physical stores, their website, and through third-party online marketplaces. This approach maximises the business's reach and ensures customers can purchase products in whichever way they find most convenient.
Multi-channel distribution has become increasingly important as consumer shopping habits evolve and customers expect greater flexibility in how they shop.
Exam tip: Distribution is sometimes called "the forgotten P" because students often focus more on product, price, and promotion. However, examiners do set questions on distribution, so make sure you understand the different distribution methods and can explain which approach is appropriate in different circumstances.
Other elements of the extended marketing mix
For service-based businesses and modern marketing strategies, three additional elements extend the traditional marketing mix. These are known as the 7Ps and include people, process, and physical environment alongside product, price, promotion, and place.
People
The people involved in selling a service or product play a crucial role in whether a sale succeeds or fails. A customer's first impression of a business often comes from their interaction with employees. It's essential that staff members offering advice or delivering the service are well-trained, helpful, and polite.
Good customer service can significantly enhance a business's reputation and sometimes provides a unique selling point (USP) that differentiates it from competitors. Well-motivated and professional employees can also increase brand loyalty, encouraging customers to return and recommend the business to others.
Process
The process covers the entire customer journey when buying a product or service. This includes everything from when a customer first enters the business premises or visits the website, through to the delivery of the product or service, and the after-sales service provided.
For online sales, businesses must consider whether their website is easy to use and whether products are delivered on time. For a fast food restaurant, the process includes whether customers have to queue for a long time and how quickly they receive their food. An efficient and smooth process can have a significant impact on sales levels and customer satisfaction.
Physical environment
The physical environment refers to the premises where a business operates and the impression it creates. It's important that a business gives the right impression to consumers that matches its brand positioning.
For example, the premises of a business selling luxury products should be located in an upmarket area and have a high-quality, sophisticated appearance. The physical environment communicates the brand's values and positioning, influencing how customers perceive the business and its products.
Key Points to Remember:
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Distribution involves all activities needed to make products available to customers – it's a crucial part of the marketing mix that's sometimes overlooked by students in exams.
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There are three main distribution channels: traditional (producer → wholesaler → retailer → consumer), modern (producer → retailer → consumer), and direct (producer → consumer), each suitable for different business situations.
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Channel choice depends on product characteristics, market structure, and technical complexity – businesses must evaluate factors like product bulk, market dispersion, and customer support needs.
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Multi-channel distribution is increasingly important as consumers expect to access products through various methods including physical stores, websites, and click and collect services.
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The extended marketing mix adds people, process, and physical environment to the traditional 4Ps, recognising that customer experience, employee quality, and business premises all impact marketing success.