Author: Jim Riley Last updated: Sunday 23 September, 2012
Place (or its more common name “distribution”) is about how a business gets its products to the customers.
It is one thing having a great product, sold at an attractive price. But what if:
Customers are not near a retailer that is selling the product?
A competing product is stocked by a much wider range of outlets?
A competitor is winning because it has a team of trained distributors or sales agents who are out there meeting customers and closing the sale?
Distribution matters for a business of any size – it is a crucial part of the marketing mix.
The objective of distribution is clear. It is to:
To make products available in the right place at the right time in the right quantities
Distribution is achieved by using one or more distribution channels, including:
Distributors / Sales Agents
Direct (e.g. via e-commerce)
A distribution channel can be defined as:
"all the organisations through which a product must pass between its point of production and consumption"
Looking at that definition, you can see that a product might pass through several stages before it finally reaches the consumer. The organisations involved in each stage of distribution are commonly referred to as “intermediaries”.
Why does a business give the job of selling its products to intermediaries? After all, using an intermediary means giving up some control over how products are sold and who they are sold to. An intermediary will also want to make a profit by getting involved.
The answer lies in efficiency of distribution costs. Intermediaries are specialists in selling. They have the contacts, experience and scale of operation which means that greater sales can be achieved than if the producing business tried to run a sales operation itself.
The main function of a distribution channel is to provide a link between production and consumption. Organisations that form any particular distribution channel perform many key functions:
Gathering and distributing market research and intelligence - important for marketing planning
Developing and spreading communications about offers
Finding and communicating with prospective buyers
Adjusting the offer to fit a buyer's needs, including grading, assembling and packaging
Reaching agreement on price and other terms of the offer
Transporting and storing goods
Acquiring and using funds to cover the costs of the distribution channel
Assuming some commercial risks by operating the channel (e.g. holding stock)
All of the above functions need to be undertaken in any market. The question is - who performs them and how many levels there need to be in the distribution channel in order to make it cost effective?