Place and Channels

Place and marketing channels

Place is determined by a business's marketing channels, also called distribution channels. A marketing channel consists of all the individuals and businesses required to deliver a finished product to the final customer. It is the final stage of a supply chain (see 1.8 Supply Chains): the materials have been bought and the product has been made, and now it has to reach the final customer.

Bluebird's bars travel three channels at once. Some go from its factory to a wholesaler, which sells them to grocery stores, which sell them to shoppers. Some go to the warehouse club, which sells them to its members. The rest ship from Bluebird's own warehouse to customers who order on its website.

Direct or indirect, B2C or B2B

Two questions describe any channel. The first is whether anyone stands between the business and its customer. A direct channel connects a business directly to its customers with no intermediaries, the way Bluebird's website does. An indirect channel includes intermediaries such as wholesalers and retailers. A wholesaler buys products in bulk and resells them to retailers, and a retailer sells to the final customer, so Bluebird's grocery channel has two intermediaries and its warehouse club channel has one.

The second question is what kind of product the channel carries. Businesses that sell consumer products use business-to-consumer (B2C) channels, such as websites and retail stores. Businesses that sell business products use business-to-business (B2B) channels, such as industrial distributors, which supply factories and other businesses. A maker of fasteners might sell small boxes of screws to homeowners through hardware stores and sell bolts by the ton to builders through an industrial distributor.

The two questions are separate, and the product decides the second one. Cereal is a consumer product, so its channel is B2C even though a supermarket buys the boxes before any shopper does. Ovens built for restaurants are business products, so an oven maker that sells to restaurant chains with its own sales team uses a direct B2B channel.

When the law picks the channel

Most businesses choose their channels. For some products the law does the choosing: specific distribution channels are legally required for products such as prescription medications and products that pose health or safety risks. A prescription medicine reaches a patient through a pharmacy that fills a prescription, not off an open store shelf. For products like these, the legal channel comes first, and the business plans everything else around it.

Choosing a channel

When the law leaves the choice open, businesses compare channels on three things: the costs and potential profitability of each channel, the customer experience in each, and the ability of each to deliver the product to the target customers.

Direct channels, such as a business's own website or company-owned retail stores, let it keep more control over pricing and the customer experience. It sets the price, decides how the product is presented and handles every complaint itself. That control has costs. Direct channels may be more costly to establish and more limited in reach, and the business may need to acquire expertise in sales and distribution that it does not have yet.

Indirect channels make sense when a business expects the expertise and networks of distribution partners to reduce its costs and provide access to more customers. A national retailer already has stores and shoppers; a new brand has neither. The catch is getting in. Distributors and retail space may already be dominated by rivals, and a store has only so much shelf space.