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The place relates to the distribution of the product.  The firm must get the product to the consumer at the right place and at the right time.  The consumer must be able to purchase the good easily.


The channel of distribution is the route taken by the producer to the consumer.  The diagram below shows some of the most popular channels of distribution.



It is possible that the channel of distribution is a very simple one.  For example a bakery; the bread is produced in the same place that it is sold.  Consumers buy direct from the producer, this is shown as channel 1 in the diagram above.  The channel is becoming used more and more as companies sell their goods direct to the customer over the internet.


Many companies produce their goods in large central units so they can take advantage of economies of scale.  Their consumers may be located over a large geographical area, thus selling the product via channel 1 would be impossible.  It is therefore commonplace for companies to use intermediaries.




They are often used as the link between the producer and retailer.  They buy in bulk, then break it down into smaller quantities and then sell it onto retailers. 


Wholesalers offer benefits to the manufacturer:

  • Their channels of distribution are well established and they have strong links with retailers.
  • They allow the manufacturer to concentrate on producing the good, rather than worrying about the channels of distribution.
  • They will bear the cost of storage.


They also benefit the retailers:

  • They offer the choice of goods from many different manufacturers.
  • Small retailers can buy in smaller quantities from wholesalers than manufacturers.


Wholesalers will sometimes sell directly to customers, e.g., Makro and Netto.  Wholesalers are sometimes criticised for not marketing goods in the manner the manufacturers would like, therefore using wholesalers can be a risky business.  Wholesalers also take profit away from the producer and retailer.



Because of the problems with retailers, a number of manufacturers choose to deal with the retailers direct.  Large retailers such as Sainsburys and Tesco buy produce straight from the producer.





Agents will sell on behalf of the seller, they will usually take a percentage commission.  Agents never buy stock, they simply sell stocks that the owner already possesses.  This frequently occurs in travel agencies and ticket brokers.


Modern Channels of Distribution

Nowadays we look at three main channels of distribution, these are shown in the diagram below.



We can look at an example of the channels of distribution for a bank:




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