Price and promotion decisions

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24.1 Introduction to place

The word 'place' is unhelpful because it suggests that manufacturers can place their products where they like. The real world is not like that. Obtaining distribution at stores like Tesco, is a dream for most small producers, and is a hard dream to turn into reality. For new firms in particular, place is the hardest of the 7P's.

Pursuading retailers to stock a product is never easy. For the retailer, the key issues are opportunity cost and risk. As shelf space is limited, stocking a particular product probably means scrapping another. 

24.2 Choosing appropriate distributors

When a new business wants to launch its first product, a key question to consider is the distribution channel; in other words, how the product passes from producer to consumer. This decision will affect every aspect of the business in the future, especially its profit. 

Manufacturers must decide on the right outlets for their own product. If Chanel launched a new product they would want it in Selfridges, not Superdrug. 

Yet the control is often not in the hands of the producer, but of the retailer. If you came up with a new ice cream, how would you get distribution for it? The freezers in corner shops are usually owned by Walls and Mars, so they frown upon independent products being stocked in 'their' space. To the retailer, every foot of shop floor space has an actual cost (the rental value) and an opportunity cost (the cost of missing out on the profits that could be generated by selling other goods). In effect you have to give up on the ice cream flavour because the barriers to entry are too high.

24.3 Multi-channel distribution

There are three main types of distribution:

Traditional physical channnel:

Small producers find it hard to achieve distribution in big chains such as B&Q  or Sainsbury's, so they sell to wholesalers who sell to small independent shops. The profit mark-up applied by the middleman adds to the final retail price, but a small producer cannot afford to deliver individually to lots of small shops. 

Larger producer cut out the…

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