Business chap 13

Channels of distribution

how a product gets from the producer to the final consumer

wholesaler

a business that buys products in bulk from producers and then sells them to retailers

Retailer

shops and other outlets that sell goods and services to the final consumer

Middlemen

these are the intermediaries in the channels of distribution

direct selling

the product is sold by the producer directly to the final consumer without the need for any middlemen

Producer → consumer

pro:

• all of the profit is earned by the producer

• the producer controls all parts of the marketing mix

• it is the quickest method of getting the product to the consumer

• the producer has direct contact with the consumer and this could provide useful market research opportunities.

cons:

• consumers are not always able to see or try the product before they buy

• delivery costs may be high if there are many customers over a wide area

• all storage costs must be paid for by the producer all promotional activities must be carried out and financed by the producer

Producer → retailer → consumer

pro:

• consumers can see and try the product before they buy

• the cost of holding inventories of the product is paid, in part, by the retailer

• the retailer will pay for advertising and other promotional activities

• Retailers are usually more conveniently located for consumers

con:

• the retailer takes some of the profit away from the producer

• producers lose some control of the marketing mix

• the producer must pay delivery costs to the retailers

• retailers usually sell competitors’ products as well

Producer → wholesaler → retailer → consumer

pro:

• the wholesaler buys in bulk from the producer and then breaks this down into smaller quantities for retailers

• wholesaler will advertise and promote the product to retailers

• the transport cost to the retailer is paid for by the wholesaler

• wholesalers will pay for the storage costs of the products purchased from the producer

• distribution of goods through wholesalers helps the producer to sell its goods to a larger market

con:

• another middleman-the wholesaler- takes part of the profit from the producer

• the producer loses even more control over the marketing mix

Producer → agent → wholesaler → retailer → consumer

pro:

• the agent has specialist knowledge of target - especially foreign markets. They find wholesalers and retailers who are prepared to buy the product from the producer.

con:

• another middleman is added to the channel of distribution which reduces the profit to the producer

promotion

marketing activities used to communicate with customers and potential customers to inform and persuade them to buy a business’s products

Methods of promotion

• advertising

• sales promotion

• personal selling

• direct mail

• sponsorship

Advertising

paid-for communication with consumers which uses printed and visual media. The aim is to inform and persuade consumers to buy a product.

Informative advertising

information about the product communicated to consumers to create product awareness and attract their interest

Persuasive advertising

communication with consumers aimed at getting them to buy a firm’s product rather than a competitor’s product

Below-the-line promotion

promotion that is not paid for communication but uses incentives to encourage consumers to buy

Sales promotion

incentives used to encourage short-term increases in sales or repeat purchases

Sales promotion include:

• money-off coupons or vouchers

• point of sale displays in shops

• loyalty reward schemes

• competitions and games with cash or other prizes

E-commerce

use of the internet and other technologies by businesses to market and sell goods and services to customers

Opportunities and threats to e-commerce for businesses

Opportunities:

• Increased market

• Reduced costs

• Better information

Threats:

• Increased competition

• Unfamiliarity

Opportunities and threats of e-commerce for consumers

Opportunities:

• Convenience

• Wider choice

• Lower prices

• Better information

Threats:

• Fraud

• Hacking

• No personal service

• Inconvenient to return items