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OLevel

Business Studies - 7115

Place

Paper 1 & 2

Place

Place – Distribution Channels

When a product or service is ready to deliver after setting the price, it is tried to deliver the product at the place where it is convenient for the consumers. It is important to keep in mind the convenience of the consumer as it significantly affects the sales. 

It is tried to provide every product or service at the doorstep of the consumer. For this purpose, it is essential to choose any channel that is commonly known as a distribution channel.  It is important to remember that wrong placing or distribution strategy or wrong channel selection may result in the failure of the product in the market.

Advantages and Disadvantages Of Different Channels 

A distribution channel is basically the way that is used to carry the product from the place of production to the place of the consumer. 

Business organizations decide where to sell their products and how to get there. To reach their target consumers, business organizations choose some distribution channels. The distribution channels may vary according to the nature of the product or service. Some examples of the distribution channels are discussed below:

There are four basic models of distribution channels. 

Distribution Channel 1


Producer ---------------------------------------------------------------------Consumer

Advantages


It is a very simple model where manufacturers sell their products directly to the consumer without any agent or wholesaler.
Although it is suitable for only a few products like some agricultural products that are sold directly from the farms. 
As there is no role of wholesaler and retailer so that there is less price to be paid by the consumer.
Selling products by mail orders or via the internet/e-mail is also possible.

Disadvantages


This method is not suitable for most of the products as most of the people don’t live near farms or factories etc. 
Most of the time, it is not useful for mail orders or orders through e-mail/internet as it is not easy to send most of the products through the mail.
It is expensive to use the mail system to distribute products so it is not a cost-effective system.

Distribution Channel 2


Producer------------------------------Retailer------------------------------Consumer

This channel is used by the producers when they want to sell their products to retailers. These products may include some expensive products like jewelry or furniture products etc. Besides that, some consumer goods producers also use this channel when the retailer has more sales volume like supermarkets and superstores. 

Advantages


There is less distribution cost as compared to distribution channel 1.
By using this channel, the producers can sell their products in more quantity.

Disadvantages


In this channel, there is no direct contact with consumers.

Distribution Channel 3


Producer---------------Wholesaler----------------Retailer---------------Consumer

In this channel, there is a key role of wholesalers as they perform breaking bulk functions. The term breaking bulk is used for bulk buying by the wholesalers and then divided into small quantities for the convenience of the retailers. 

Advantages


Wholesalers have space to store the products that are purchased in bulk quantities so that it saves the storage cost of retailers. 
It is a benefit for the consumers to purchase the products in small quantities as most of their products have a short shelf life.
Retailers may avail the credit facility from the wholesalers.
There is also a benefit to the retailers that wholesalers deliver at their shops or stores that saves their transportation expenses. 

Disadvantages


Wholesalers deal in specific products so that there is no complete range available as per retailers’ requirements. 
It is expensive to buy from the wholesaler as compared to buy from the producer directly.
Sometimes wholesalers are a long way from small retailers.

Distribution Channel 4


Producer-----------Agent----------Wholesaler----------Retailer--------Consumer

In this distribution channel, there is an additional role of the agent is added. The agent is the business that offers sales in other markets. Producers hire agents to enter other markets. Most of the time agents take a commission from the sales while it is also possible to charge for their services from the producers or manufacturers.

Advantages


When manufacturers don’t know the markets then agents help them to enter the new markets.
Agents have knowledge of the local markets so that they can sell their products effectively.

Disadvantages


The manufacturer has less control over the products that are sold in the other markets.

Recommend And Justify An Appropriate Distribution Channel In Given Circumstances

If the products are related to agricultural farms, it is better to sell directly to the consumers.
If the products are very expensive like jewelry or furniture, it is better to sell directly to the retailers without using wholesalers. 
If the products have a short shelf life, it is better to use wholesalers to manage the sales. 
If the products are sold in another market, it is better to hire an agent for that specific market.

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