Place

Question 1

Channels of Distribution

Question 2

The Manufacturer

Answer 2

The company that makes the product

Question 3

Wholesaler

Answer 3

A business that buys products in bulk from the manufacturer who then sells on smaller quantities.

Question 4

Retailer

Answer 4

A business that sells smaller quantities of products directly to consumers. They can either buy products from the manufacturer or from a wholesaler.

Question 5

Consumers

Answer 5

Traditionally buy goods from retailers. However, consumers can also buy from wholesalers or the manufacturer through different channels of distribution.

Question 6

Reasons why businesses choose specific channels of distribution

Answer 6

• finance
• image
• legal restrictions
• product
• stage of the product life cycle
• size

Question 7

Finance

Answer 7

Companies may not have the money required to set up distribution directly to the consumer and would therefore be reliant on a wholesaler or retailers to distribute their products.

Question 8

Image

Answer 8

Where a product is sold can influence how it is perceived. Premium products will only be sold at certain retailers that are able to maintain the quality image of the product.

Question 9

Legal Restrictions

Answer 9

Some products such as alcohol and medicines can only be sold through licensed premises.

Question 10

Product

Answer 10

The type of product being sold will affect which channel of distribution is chosen:
- A perishable product such as milk needs to get to the consumer quickly, so a shorter channel of distribution is required.
- A highly technical or consumer-specific product such as double-glazed windows or a computer system for a business will need to come directly from the manufacturer.

Question 11

Stage of Product Life Cycle

Answer 11

Products at the maturity stage of the
product life cycle need to be widely available through many retailers whereas a product at the introduction stage may only be available in a small number of retailers or direct from manufacturer.

Question 12

Size

Answer 12

If a product has a large market, such as popular brands of food or drink, the company will need to use wholesalers and retailers to ensure that demand for product is met.

Question 13

Direct Selling
(when the product goes directly from the manufacturer to the consumer)

Answer 13

COSTS:
- Increased costs due to advertising, storing stock and administration
- Time and cost incurred in organising product delivery
BENEFITS:
- Products can be tailored to the consumers specific requirements
- Cuts out the ‘middle men’ which increases profits for the manufacturer
- Manufacturer has more control over how the product is marketed

Question 14

Mail Order
(when goods are ordered through a catalogue)

Answer 14

COSTS:
- Catalogues and advertising can be expensive
- Can incur high levels of bad debt
- High level of returns
BENEFITS:
- Customers can use credit facilities
- Money is saved on shop rental
- Customers can shop from home

Question 15

E-commerce
(the buying and selling of products over the internet)

Answer 15

COSTS:
- Time delay between order and delivery
- Customers unable to try/see goods before purchase
- Can be time consuming and expensive to create an attractive web site
- Costs incurred on delivery and return
- Credit card security issues
BENEFITS:
- Customers can access goods 24/7
- Allows companies to access customers in different countries
- Money is saved on shop rental and overheads
- Customers can shop from home
- A wide range of goods can be shown on the company website

Question 16

Direct Mail
(when a company posts letters or advertising leaflets to consumers with details of their products)

Answer 16

COST:
- Very low response rate as many customers will perceive leaflets as junk mail
BENEFIT:
- Specific market segments can be targeted directly

Question 17

Personal Selling
(when a sales person comes to your door or sell to you over the phone)

Answer 17

COST:
- High staffing and administration costs
BENEFIT:
- Allows for the product to be demonstrated to the customer

Question 18

Costs of a Wholesaler

Answer 18

• Manufacturer will lose some profit to the wholesaler
• Manufacturer loses control of how the product is sold and marketed
• Wholesaler may damage reputation of the manufacturer if product is not sold correctly

Question 19

Benefits of a Wholesaler

Answer 19

• Reduces transport costs for manufacturer as wholesalers buy products in bulk
• Wholesaler takes on the risk and cost of storing the stock
• Wholesaler can repackage and label product in smaller quantities meaning less work/costs for the manufacturer

Question 20

Costs of a Retailer

Answer 20

• Manufacturer will lose some profit to the retailer
• Products in retailers are often displayed next to the competition
• Manufacturer loses control of how product is sold and marketed

Question 21

Benefits of a Retailer

Answer 21

• Convenience (retailers are located close to customers)
• The retailer displays and markets the goods for the manufacturer and offers after sales service
• Retailers can provide customers with information about the product