The Marketing Mix: Place (Leaving Cert Business): Revision Notes

The Marketing Mix: Place

What is place in the marketing mix?

In the marketing mix, place describes where customers can access and purchase products or services from a business. It's all about getting the right product to the right customer at the right location. Businesses need to work out the best way to deliver their products from where they're made to where customers want to buy them.

Channels of distribution

A distribution channel shows the path a product takes as it moves from the producer to the final customer. This journey might be direct or involve several intermediaries (middlemen) who help get products to market.

There are four main types of distribution channels that businesses can choose from:

Channel 1: traditional three-stage distribution

This is the most common traditional approach where products pass through multiple stages: Producer → Wholesaler → Retailer → Customer

In this system, wholesalers buy large quantities of products from producers and break them down into smaller amounts. They then sell these smaller quantities to retailers like Musgrave's, who finally sell individual items to customers.

Advantages of channel 1:

• Wider market reach: Producers can access much larger markets because wholesalers can distribute to retailers across broad geographical areas
• Simplified distribution: Wholesalers handle storage and break bulk operations, making distribution easier for producers
• Better value for consumers: Retailers can buy in larger quantities from wholesalers, making it more cost-effective, then sell smaller, more convenient quantities to customers

Disadvantages of channel 1:

• Higher costs: Each business in the chain needs to make a profit, so multiple mark-ups make the final product more expensive
• Reduced control: With two intermediaries between producer and customer, the producer has less control over how their product is presented and sold
• Smaller profit margins: The longer the distribution chain, the more competitive producers must be with their pricing to wholesalers

Channel 2: producer to retailer

This approach cuts out the wholesaler entirely: Producer → Retailer → Customer

Large retailers often prefer this method because they can buy directly from producers in large quantities and may negotiate better prices.

Advantages of channel 2:

• Streamlined process: Removing the wholesaler simplifies the distribution chain
• Larger target market: Big retailers typically have multiple branches, increasing market reach
• Lower prices: Consumers may benefit from reduced prices since there are fewer mark-ups in the chain

Disadvantages of channel 2:

• Discount pressure: Large retailers may demand significant discounts, reducing producer profits
• Loss of control: Producers still lose some control over how their products are marketed to consumers
• Risk of copying: Retailers might create their own cheaper versions of successful products

Channel 3: agent distribution

In this model, agents act as extended representatives of the producer: Producer → Agent → Customer

Agents work on behalf of producers, often specialising in particular product types. For example, Avon cosmetics are sold exclusively through agents.

Advantages of channel 3:

• Higher profit margins: Both wholesalers and retailers are eliminated, allowing producers to keep more profit
• Market expertise: Agents often have specialist knowledge of target markets and existing customer networks
• No retail premises needed: Producers don't need to establish physical shops, saving on rent and staffing costs

Disadvantages of channel 3:

• Finding effective agents: It can be challenging to find loyal agents who will dedicate sufficient time to individual products
• Communication problems: Producers lose direct contact with customers and must rely on agents to convey messages accurately
• Marketing responsibilities: If agents fail to market effectively, producers may face additional costs for transport and promotion

Channel 4: direct distribution

This is the shortest possible channel: Producer → Customer

Producers sell directly to customers through various methods including online sales, trade shows, markets, or their own shops. Dell computers, for example, are sold exclusively online.

Advantages of channel 4:

• Maximum convenience: Particularly for online services like Netflix, customers can access products instantly
• Highest profit margins: With no intermediaries, producers keep all the profit from sales
• Complete control: Producers can control exactly how their products are marketed and presented to customers

Disadvantages of channel 4:

• Increased workload: Producers must handle all aspects of selling, from marketing to order processing and customer service
• Higher operational costs: More staff may be needed to manage direct sales and customer relationships
• Limited reach: Producers cannot compete with the geographical coverage and business volume that major wholesalers and retailers provide

Using multiple channels

Many modern businesses choose to use several distribution channels simultaneously. For instance, a company might sell through its website while also making products available in retail stores.

Advantages of multiple channels:

• Meeting different preferences: Customers can choose their preferred shopping method - some like online convenience while others prefer in-store experiences
• Balancing profit and reach: Direct sales maximise profit margins, while wholesaler distribution increases brand awareness across wider markets

Disadvantages of multiple channels:

• Complex demand forecasting: It's difficult to predict how much stock will be needed for online versus in-store sales
• Additional training needs: Staff must learn to manage different sales routes and maintain relationships with various stakeholders

Factors affecting distribution channel choice

Several important factors influence which distribution channel a business should choose:

Cost considerations

The number of intermediaries directly affects the final price to consumers. Each stage adds costs, as every business in the chain needs to make a profit. This also impacts the producer's profit margins.

Nature of the product

Product characteristics are crucial in channel selection. Perishable items like flowers need the fastest possible route to market to reach consumers in perfect condition. Durable goods can withstand longer distribution chains.

Target market and size

Producers must consider their intended customers carefully. For large markets, using wholesalers to break bulk and distribute to multiple retailers may be the most economical approach. Cadbury, for example, uses wholesalers like Musgrave's to reach customers across Ireland.

E-business opportunities

Online platforms allow producers to advertise and sell directly through their own websites. Customers can place orders online and receive delivery by post or courier services.

Technological developments

Modern technology has revolutionised service distribution. Banking and insurance services can now be delivered directly to customers through phone and online services, eliminating the need for agents or physical visits to offices.

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