MODULE 8.

PLACE AND THE DEVELOPMENT OF CHANNEL SYSTEMS

OVERVIEW

The P for PLACE in the marketing mix is to make the goods or

services available in the right quantities and locations - where
the customers want them and expect to see them.

LEARNING OUTCOMES

1.Understand place in the marketing mix.

2.Explain how place decisions are guided by ideal place
objectives.
3.Explain the reasons for direct or indirect channel systems.
4.Explain how the functions of channel specialists improve
customer utility.
5.Explain why vertical channel systems may improve customer
service.
6.Evaluate the different forms of market exposure to deliver
optimum place intensity.
7.Understand why dual systems and reverse channels may be
necessary.

TASK 1

1.Define Channel System and cite a simple illustration.

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 ASSIGNED READINGS and/or ENRICHMENT

STRATEGIC DECISION AREAS FOR PLACE

Place for Objective

Types of Channel Customer Service Level

Desired

Direct Indirect Types of Physical

Distribution Facilities

Degree of market Middlemen/Facilitators How to Manage Channel

exposure desired Needed

Source: Perreault & McCarthy, 2012: 305

The marketing manager must make many strategy decisions

concerning Place. The type of channel of distribution refers to
any series of firms or individuals who participate in the flow of
products from producer to final user or consumer. Just how these
goods flow through this channel depends on the level of service
desired by the customer and the objectives of the marketer.

CONSUMER PRODUCT CLASSES AND PLACE OBJECTIVES

The ideal place objective is guided by the different needs of the
customer with respect to time, place and possession utility.
Consumers divide product classes on how they go shopping.
Convenience goods are regularly bought, shopping goods need
comparisons, specialty products will need extensive consumer
searches and unsought products will have to be brought to the
attention of the consumer if they are to sell.

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Suggested place exposure
Convenience products
Staple Available everywhere Widespread exposure
Impulse Unplanned point of Widespread exposure
Emergency purchase At likely Widespread exposure
place of emergency
Shopping Products
Homogenous Need price Near similar products
Heterogonous comparisons Near similar products
Need more sales
activity
Specialty Products

Product at most Widespread exposure

likely place

Unsought products
New unsought Needs exposure for Near similar
sales
Regular Need more sales Maximum exposure
activity

Place will also need revision during the product life cycle. The
product category may be less known. This may mean that few
dealers wish to stock it until more consumers demand it. It may
take time for a small niche market to grow into a larger target
market. A new product may still have limited supply, production
capacity may be low. A product may start at selected dealers,
move to a more intense exposure and then drawback to only those
dealers who still show demand for the product.
CHANNEL SYSTEMS – DIRECT OR INDIRECT
Direct Most control – product still new-middlemen may not be
interested - may need personal selling – not enough profit for
intermediaries – intermediaries may already carry similar
products and therefore display less interest - producer may feel
he is the best person to distribute the product - Shortest route
Indirect Less control - middlemen may be able to offer extra
services - middlemen may have unique distribution resources –
producers may be separated by long distance geographically from

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retailers or end consumers – middlemen may give credit or hold
significant stock levels - longer route.
Many business or industrial products are sold direct because of
the special nature of manufactured goods. End user may need
specialized support. End users may be concentrated in one
geographical area and therefore can easily be contacted or the
end user may need installations or after sales service.
In business-to-business transactions personal selling is the norm
as orders are large and it would be important to establish an
ongoing relationship. In business-to-business markets the first
order may be quite complex while later orders may be simple re-
buys.
THINK POINT

Explain the difference between direct

TASK 2 marketing and direct distribution?

Direct marketing is a form of promotion, other than personal

selling, using communication by TV, mail or website, or other
direct means to gather sales for a company. Some Southern Africa
companies use this form of marketing if they host a home shopping
type channel and then also deliver to homes.
FUNCTIONS OF CHANNEL SPECIALISTS
Channel specialists may reduce the discrepancies and separations
that exist between producers and consumers. Because specialist
middlemen are closer to the end user and the buying environment
than the producer, these specialists can often provide most
needed information.
Channel specialists adjust discrepancies of quantity and
assortment. By buying in bulk and then breaking down into smaller
pack sizes the final consumer has a greater choice. By changing
packs to including a variety of lines of products the final
consumer has now both choice in quantity and assortment.
Regrouping Activities

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Discrepancies of quantity Accumulating Collecting products from
many small producers Bulk Breaking Dividing large quantities into
smaller quantities.
Discrepancies of assortment Sorting Separating products into
standard sizes, or quality Assorting Putting together, in one
pack, a variety of products to suit the target market A chain of
supply is the complete set of firms, facilitators such as
insurance and banking, logistics such as transportation and
various channel specialists that are involved in procuring
materials, transporting them into finished products, adjusting
discrepancies of quantity and assortment, and distributing them
to retailer or final user. Along the way the product is adjusted
to suit the needs of the target market and in this way these
marketing activities add value. Because of these marketing
activities the chain is also known as a value-added chain.

VERTICAL CHANNEL SYSTEMS MAY IMPROVE CUSTOMER SERVICE

Ideally all the members of the channel should have a shared
commitment to the final target market. In a traditional channel
system, the various channel members make very little effort to
co-operate with each other. This lack of vertical co-operation
occurs because the producer wishes to sell only his product while
wholesalers or retailers usually carry a range of products from
many producers.
Vertical channel conflict may occur when the producer and the
retailers disagree about how much shelf space or promotional
effort the retailers should give the product. Horizontal conflict
may occur when firms at the same level of distribution find
themselves buying from the same producer, or selling to the same
end user, at a very different price or stock levels.
In Southern Africa the leading food chains would like to be
assured that the price they pay for stock is the same regardless
of which group is buying. Most customers do not appreciate wide
discrepancies in price for the same item at different stores.
It is up to the producer to make sure that this type of conflict
is avoided, if the final customer does not buy the product the
whole channel suffers. In Southern Africa, many producers and
retailers share co-operative advertising ventures. Newspapers
carry broadsheet advertising containing adverts for many

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different products available at the same store. In this way, the
producer gets the product known and the retailer offer price and
availability utility.
Many companies decide to vertically integrate. Backward
integration will occur when a retailer buys the producer or buys
shares in the manufacturing concern. Pick n Pay bought into the
Aim Company to bring electrical goods into their stores. Forward
integration will occur when a company such as Mr. Price Clothing
owns a factory to make the garments sold in the stores.

IDEAL MARKET EXPOSURE TO DELIVER OPTIMUM PLACE INTENSITY

The ideal market exposure makes a product available widely enough

to satisfy the target markets needs. Because exposure means
placing the product in any place where it may sell, cost of
distribution may become very high. The producers must have enough
production capacity and distribution capabilities to get the
product into every possible store.
Degrees of exposure Intensive distribution exposure Sell it where
they buy it - put the product into every available store – best
for convenience products such as staple or impulse items -
Selective distribution exposure Sell it where it the middleman
will give it special attention – put it where it sells best -
middlemen may have better capabilities to offer the product –
target market may shop here in preference to other places
Exclusive distribution exposure Sell to only one middleman per
geographic area – best for speciality products or products
requiring high stock costs
REVERSE CHANNELS MAY BE NEEDED
A marketing manager must plan how to get the product back if it
does not sell. In the case of newspapers or magazines, the store
in Southern Africa will expect the out of date products to be
sent back to the printers. In food retail stores many products
get damaged and must be replaced by the producers’ merchandisers.
A customer who returns a damaged product to the store will need a
refund or a replacement product. These goods must be returned to

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the producer. A product that has been seen to be defective and
possibly dangerous, such as car tyres, must also be sent back.
Many producers plan this reverse process as part of their
strategy. Some may simply pay the retailer to replace the product
while others will need to see the product before making a credit
available. In the case of recycled products such as aluminum
cans, used car engine oil, glass bottles or ink cartridges, each
manufacturer will plan the return of recycled products.

South Africa is the world’s leading recycler of aluminum cans and

this provides work and an income for many people. Ink cartridges
can be sent to charities that sell them back to a recycling
company. Old newspapers, magazines or printer paper can be sent
back to a recycling firm and this could provide an income for
someone.

ETHICAL CONSIDERATIONS
The Internet provides a quick and efficient way for a producer to
sell direct to the final consumer. Companies, who sell this way,
and through wholesalers and retailers, now find themselves in a
difficult situation, conflict must be kept to a minimum. place
and the development of channel systems.

TASK 3. REVIEW QUESTIONS

1. Explain why different market segments may require separate

place arrangements.

2. Explain why a producer may prefer to use a direct to customer

channel system for its products.

3. Differentiate between direct selling and a direct

distribution channel.

4. Explain how the functions of channel specialists and

middlemen improve customer utility.

5. Distinguish between discrepancies and assortments.

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6. Explain why vertical channel systems and integration may
improve customer service.

7. Evaluate the different forms of market exposure to deliver

optimum place intensity.

8. Explain why a company may use more than one kind of

distribution channel.

9. Explain the difficulties experienced by a company which moves

from selling through a
distribution channel and now wishes to use a website to sell
direct to the final user.

SUMMARY

Place and development system must be selected carefully if the

marketer is really serious in achieving his objective. There are
various steps in the channel system. The factors that influence
the selection of a channel consist of the nature of the product,
market and the nature of the company.

REFERENCE
Marketing Management 512 ( Business Administration, Management
and Commercial Science, Richfield Graduate Institute of
Technology Learner Guide.

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