Page 182 - Cambridge IGCSE Business Studies

Cambridge IGCSE Business Studies Section 3 Marketing

In the four channels of distribution shown in Figure 13.1 the agent, wholesaler and
KEY TERMS
retailer are known as middlemen.

Wholesaler: a business that Th e first channel of distribution is where the producer sells the product directly
buys products in bulk from to the consumer. This is known as direct selling.

producers and then sells them to In the second channel of distribution the producer sells the product to retailers.
retailers.

The retailers then sell the goods in their shops to the fi nal consumer.
Retailer: shops and other outlets The third channel of distribution uses two middlemen – wholesalers and

that sell goods and services to the retailers. The producer sells large quantities of the product to the wholesaler. Th e

final consumer.
wholesaler then sells the product in smaller quantities to retailers, who then sell the
Middlemen: these are the
intermediaries in the channels product to the fi nal consumer.

of distribution, for example Th e final channel of distribution uses an agent. This is most commonly used

wholesalers and retailers. when a business enters a foreign market for the first time. The agent has specialist
Direct selling: the product is knowledge about the country and its markets and can help the producer to place

sold by the producer directly to their product with wholesalers and retailers. This saves the producer a lot of time
the final consumer without the and expense, but it does mean that another middleman enters the channel of
need for any middlemen.
distribution and this could reduce the amount of profit earned by the producer.

Each of the channels of distribution has advantages and disadvantages for the

producer and the consumer. These are shown in Table 13.1, page 181.
Choosing a method of distribution
TOP TIP There are a number of factors that will influence the best method for the

It is important you learn the distribution of a business’s goods such as:
difference between wholesaler

and retailer. ■ Cost – the cost of transporting goods to the customer needs to be considered. Does
180 a business buy their own delivery vehicles and employ their own drivers to deliver
the goods, or do they employ another firm to do this for them? Some methods of
distribution are cheaper than others, but it is important that the goods arrive on
time and in perfect condition. Cheaper alternatives might delay delivery or damage
Costs of holding inventories: goods in transit.
see Chapter 15, page 205.
■ Nature of the product – some goods will need special delivery conditions; for
example frozen foods and fresh fruit and vegetables will need special transport
vehicles to maintain the correct temperature. Fragile items, such as televisions,
need to be handled as few times as possible to reduce the risk of damage.
Perishable goods, such as milk, need to get to the final consumer as quickly as
possible so a long channel of distribution might not be appropriate.
■ The market – markets that cover a wide geographical area are best served through
wholesalers who can buy the product in bulk from the producer and then break this
down into smaller units for retailers.

ACTIVITY 13.1

■ Good4U Foods plc is a large manufacturer of breakfast cereals in Country Y.
■ Compton is a sole trader in Country Y. He owns a poultry farm. His chickens produce an average of 500 eggs per week.
■ Sunshine Holidays Ltd. supplies overseas package holidays to consumers in Country Y.

1 One of the above businesses uses only direct selling to get its products to the final consumer.
a Which business do you think this is likely to be and why?
b Explain one advantage to the owner(s) of this business of using direct selling.
c If this business grows, do you think direct selling will still be the best channel of distribution for its products?