Chapter 15 - Marketing Mix:Place (Factors affecting distribution channel…
Chapter 15 - Marketing Mix:Place
Threats of e-commerce
Many consumers are concerned about identity theft or fraudulent use of credit cards if they buy goods online. Security systems are improving but there are still some risks.
There is no face-to-face contact with sales staff so it is difficult to find out more info about the goods and services being sold than that which is provided on the website
Products cannot be seen. touched or tried on (eg. clothing) and sending products back because they are unsuitable ('returns') is often inconvenient
Computer systems failures or weak internet connections can result in frustrated consumers who cannot access websites and make their purchases
Consumers need access to the internet. Hard for low-income consumers that can't access internet
Threats of e-commerce
E-commerce is not suitable for businesses that sell personal services such as hairdressing or products for which consumers expect personal face-to-face service.
Although fewer shops may be needed, a large warehouse and efficient stock control system will be essential to meet customer's orders accurately and efficiently.
Consumers in most countries have the legal right to reject goods bought through e-commerce because they have not seen, touched or worn the actual good. 'Returns' can add to business cost.
There is no face-to-face contact with consumers, which can provide very useful market research feedback
Transport costs per product sold are likely to be higher than selling through traditional shops
Website design must be very clear, attractive and easy to operate. Website designs can be expensive and will often need to be updated and this will lead to further costs.
With so many businesses now offering e-commerce websites, competition between businesses is very high. If a business is charging high prices, consumers can easily find an alternative supplier
Opportunities of e-commerce
Consumers can buy some products for prices much lower than they would be without the competition of e-commerce
Consumers can now easily access products and services from businesses located abroad- would be difficult or expensive without e-commerce
Payment by credit or debit card is very easy
Comparisons between prices and products or services offered can be easily made by surfing from one website to another - or using 'price comparison' websites
No need to leave the house to go shop and this convenience is a major factor explaining the growth of e-commerce
Opportunities of e-commerce
Businesses can also easily make online purchases of supplies and materials from other businesses (B2B)
Consumers might be encouraged to purchase more products than they intended by attractive and easy to follow websites (giving links to other products that could be bought with ori price)
Orders can be taken over the computer and sent directly to the company warehouse for dispatch
Websites can be used to promote the company and its products worldwide much more cheaply than other forms of marketing (setting up shops in a diff country)
Factors affecting distribution channel
where are competitors' products sold?
location of customers?
sold to producer or consumer?
Methods of distribution
Internet / e-commerce (the buying and selling of goods and services using computer systems linked to the internet)
Not every product or service will be successful using e-commerce.
With e-commerce, companies can sell their products to countries they never sold before but selling products like handmade suits wouldn't work as they need to visit the store for sizing.
Instead of looking at a catalogue, consumers view the goods on the business's website and then order on the internet or possibly by telephone or mail. Businesses can sell through other specialist websites eg. eBay
Customers look through a catalogue or magazine and order via the post. Orders also often be placed by telephone or internet.
products are sold directly from the manufacturer to the consumer
retail grocery stores with dairy produce, fresh meat, packaged food and non-food departments
new very large out-of-town stores which sell a wide range of products
retail stores offering a wide range of products, many branded products at discount prices. Often product ranges are of similar types of products
two or more stores which have the same name and have the same characteristics
a large store, usually in centre of towns or cities, selling a w die variety of products from a wide range of suppliers
Distribution Channel 4: Producer to Agent to Wholesaler to Retailer to Consumer
(Agent: An independent person or business that is appointed to deal with the sales and distribution of a product or range of products)
Less control over the way the product is sold to customers
Agents will be aware of local conditions and will be in the best position to select the most effective places in which to sell
Manufacturer may not know the best way to sell the product in other markets
Distribution Channel 3: Producer to Wholesaler to Retailer to Consumer
(wholesaler performs the function of breaking bulk where wholesalers buy products from manufacturers in larger quantities and then divide the stock into much smaller quantities for retailers to buy)
Wholesaler may be a long way from the small shops
Takes longer for fresh produce to reach the shops and so it may not be as good quality
Wholesaler may not have the full range of products to sell
May be more expensive for the small shop to buy from a wholesaler than if they bought straight from the manufacturer
Wholesaler can give advice to small retailers about what is selling well. They can also advise the manufacturer what is selling well
Wholesaler may deliver to the small retailer thus saving on transport costs
May give credit to customers to they can take the goods straight away and pay at a later date
Small retailers can purchase products in small quantities from wholesaler because they have relatively short 'shelf life' before they deteriorate
Wholesaler saves storage space for small retailer and reduces storage costs
Distribution Channel 2: Producer to Retailer to Consumer
No direct contact with customers
Reduced distribution costs compared to distribution channel 1
Producer sells large quantities to retailers
Distribution Channel 1: Producer to Consumer
May be very expensive to send the products by post and therefore it will not be cost effective
Method may not be suitable for products which cannot easily be sent by post
Usually impractical for most products because consumers probably do not live near the factory and can't go there to buy products
Products can be sold by mail order catalogue or via the internet
There is a lower price if sold direct to customer
It is suitable for products such as certain types of agricultural products, straightly from the farm or cars
Distribution channel very simple
The means by which a product is passed from the place of production to the customer or retailer.
Businesses have to decide where to sell their products. They also have to decide how the product will reach the customer, that is, what
to use. Distribution channel can vary from being directly to the consumer to being via intermediary channels.