The place element of the marketing mix: the main channels of distribution (direct, retailer, wholesaler), the growth of e-commerce and direct selling, and the factors affecting the choice of channel.

What this key area is asking

Place is the third element of the marketing mix: how the product gets from the producer to the customer. The SQA wants you to know the main channels of distribution, explain the role of wholesalers and retailers, understand the growth of e-commerce and direct selling, and identify the factors that affect a firm's choice of channel. Higher rewards you for weighing the benefits and drawbacks of each channel.

Channels of distribution

The main channels are:

• Direct (manufacturer to consumer). The maker sells straight to the customer through its own website, shops or mail order. No middleman means more profit and full control of the customer relationship and brand, but the firm must handle storage, delivery and selling.
• Through a retailer (manufacturer to retailer to consumer). The maker sells to shops, which sell to consumers. This reaches many customers through established outlets, but the retailer takes a share of the profit and the maker has less control over how the product is displayed and sold.
• Through a wholesaler (manufacturer to wholesaler to retailer to consumer). The maker sells in bulk to a wholesaler, who breaks bulk and supplies smaller quantities to retailers. This suits small retailers, reduces the maker's storage and distribution costs, but adds more middlemen, each taking a margin, so the final price is higher.

The role of wholesalers and retailers

A wholesaler is useful because it breaks bulk (buys large quantities and sells small ones), stores stock, and reaches many small retailers the manufacturer could not serve directly. A retailer provides the final point of sale, convenient locations, customer service and after-sales support. Each adds value but also takes a margin, which is why some firms cut them out by selling direct.

The growth of e-commerce

Factors affecting the choice of channel

A firm chooses its channel based on: the type of product (perishable, fragile, bulky or digital); the market (local, national or global; mass or niche); the cost of each channel; the level of control the firm wants over how the product is sold; and the finance and resources available to run its own distribution.

Examples in context

Example 1. A drinks manufacturer using wholesalers. A drinks maker sells in bulk to wholesalers, who supply thousands of small corner shops, pubs and cafes the maker could never serve directly. The wholesaler breaks bulk, stores stock and handles many small orders, reducing the maker's costs, but each middleman's margin raises the price the customer pays. This shows why a manufacturer with many small retail customers values wholesalers.

Example 2. A clothing brand selling both direct and through retailers. A clothing brand sells direct through its own website and flagship stores (keeping profit and controlling the brand) and through retailers such as department stores (reaching more customers). Using more than one channel (multi-channel distribution) widens its reach while keeping some direct control, illustrating how firms mix channels rather than relying on one.

Try this

Q1. Describe the direct channel of distribution. [2 marks]

• Cue. The manufacturer sells straight to the consumer with no middleman, for example through its own website, shops or mail order, keeping more profit and full control of the customer relationship but handling storage and delivery itself.

Q2. Explain two factors a business would consider when choosing a channel of distribution. [4 marks]

• Cue. The type of product (perishable, fragile, bulky or digital); the market (local, national or global; mass or niche); the cost of each channel; the level of control the firm wants over how the product is sold; and the finance available to run its own distribution (any two, developed).