Page 183 - Cambridge IGCSE Business Studies

13: Marketing mix: place and promotion

2 Another of the businesses above uses the longest channel of distribution for its products.
a Which business is this likely to be and why?
b Explain one advantage and one disadvantage to the management of the business of using this channel
of distribution.
3 The other business uses two different channels of distribution.

a Identify this business.
b Outline which two channels of distribution you think it uses.
c Explain the benefits to the business of using more than one channel of distribution.

Channel of distribution Advantages Disadvantages
Producer → consumer ■ All of the profit is earned by the producer. ■ Consumers are not always able to see
■ The producer controls all parts of the or try the product before they buy, for
marketing mix. example if purchased online.
■ It is the quickest method of getting the product ■ Delivery costs may be high if there are
to the consumer. This might be important for many customers over a wide area.
goods that need to be consumed as soon aft er ■ All storage costs must be paid for by the
production as possible, for example fresh fruit producer.
and vegetables. ■ All promotional activities must be
■ The producer has direct contact with the carried out and financed by the
consumer and this could provide useful market producer.
research opportunities. 181
Producer → retailer → ■ Consumers can see and try the product before ■ The retailer takes some of the profit
consumer they buy. away from the producer.
■ The cost of holding inventories of the product ■ Producers lose some control of the
is paid, in part, by the retailer. marketing mix.
■ The retailer will pay for advertising and other ■ The producer must pay delivery costs
promotional activities. to the retailers.
■ Retailers are usually more conveniently ■ Retailers usually sell competitors’
located for consumers. products as well.
Producer → wholesaler → ■ The wholesaler buys in bulk from the producer ■ Another middleman – the wholesaler –
retailer → consumer and then breaks this down into smaller takes part of the profit from the
quantities for retailers. producer.
■ Wholesalers will advertise and promote the ■ The producer loses even more control
product to retailers. over the marketing mix.
■ The transport cost to the retailer is paid for by
the wholesaler.
■ Wholesalers will pay for the storage costs of
the products purchased from the producer.
■ Distribution of goods through wholesalers
helps the producer to sell its goods to a larger
market.
Producer → agent → ■ The agent has specialist knowledge of the ■ Another middleman is added to the
wholesaler → retailer → market – especially a foreign market. They find channel of distribution which reduces
consumer wholesalers and retailers who are prepared to the profit to the producer.
buy the product from the producer.

Table 13.1 Advantages and disadvantages of channels of distribution