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ib business management hl notes
IB BUSINESS MANAGEMENT HL

Unit 4.5d - Place

UPDATED ON - 18 OCT 2019

Place

  • How a product reaches its end-user/customer from the manufacturer

Distribution channels

  • The different ways the product reaches the customers
  • Has different levels depending on how many steps are required before the product reaches the customer
  • Zero level distribution
    • The manufacturer sells directly to consumers
    • E-commerce makes this more simple, feasible, cost-effective and has a wider market coverage
    • e.g. restaurants, Apple, car manufacturers
    • Types of direct marketing
      • Telesales and marketing
      • More expensive
      • Direct to consumer, pitch and add more products
    • E-commerce
      • Cheaper, less cost
      • Wide market coverage
    •  Direct mail or email
      •  Cheapest (no specialized skill involved)
      • Usually ignored, low success rate
    • Vending machines
      • A physical product can be seen, attracts more customers
      • Cost of machinery
      • Prone to theft and vandalism
      • Advantage: business has control over price, how the product is sold, etc.
      • Disadvantage: more costly
    • One level distribution
      • Manufacturer to retailer to consumer
      • Advantage: product can reach more markets because of many retailers
      • Disadvantage: less control
    • Two-level distribution
      • Manufacturer to warehouse/wholesaler to retailer to consumer
      • Can be one level if consumers purchase directly from the warehouse

Intermediaries

  • Wholesalers – buy products in bulk, sell to retailers
  • Direct agents – independent businesses w/ exclusive right to trade a product in a territory; agents may act on behalf of buyer or seller
  • Retailers – outlets that sell directly to customers

Distribution Strategy

  • Most businesses will use multichannel distribution strategies
  • This is affected by
    • Cost and benefits of each level of distribution
      • Nature of products
        • Perishables are best at zero or one level
        • FMCG’s are best at bulk wholesalers
      • Type or size of the market
        • The urgency of use of the product
    • Firms must decide on the type of distribution that is most suitable
      • Intensive (mass-produced products)
      • Selective (positioning or branding)
      • Exclusive (for large investment or premium products)
    • Vertical integration is possible, but not usually feasible/cost-effective
    • Branding will give products leverage against the power of distribution channels
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