PART 2 Question 7-2012 Business In Action

Part 2

Enterprise

Business in Action

Question 7– 2012

(A) Outline the factors a business should consider when choosing a suitable Channel of

Distribution. Provide examples to illustrate your answer.

A Channel of Distribution is the series of trading links by which a product moves from the producer to the consumer, e.g. Producer → Wholesaler → Retailer → Consumer. Producers choose the Channel of Distribution that ensures that the product reaches as many consumers as possible, as efficiently as possible.
When choosing a suitable Channel of Distribution, a business should consider the following factors:

  1. The nature of the product: This has an important bearing on the choice of distribution channel. For example, non-standard products usually pass through short channels due to the need for direct contact between the producer and consumer (Producer → Consumer), e.g. a fitted kitchen. Similarly, perishable products like vegetables, fruits, milk and eggs have relatively short channels as they cannot withstand repeated handling.
    On the contrary, standardised and mass-made goods can be distributed through middlemen and have a longer distribution channel, e.g. laundry detergent.
  1. The nature of the market: When the number of potential customers is small or the market is geographically located in a limited area, direct selling to the consumer is easy and economical. In the case of a large number of customers and widely scattered markets, use of wholesalers and retailers becomes necessary. For example, manufacturers of household goods (e.g. cleaning products) use wholesalers to distribute their products to retailers, who in turn, sell to consumers.
  1. The nature of the business: Business resources and the competence and experience of management influence the channel decision. If the management of the business has sufficient resources and knowledge of distribution, it may prefer direct selling to the consumer. For example, C&C Group Ireland plc is a manufacturer, marketer and distributor of branded alcoholic drinks.
  1. Availability of middlemen: If there is network of wholesalers and retailers with experience of selling similar products, a producer may choose a ‘Wholesaler → Retailer → Consumer’ channel of distribution. This will enable producers to reach as many consumers as possible, as efficiently as possible. For example, many household food items are sold in this manner

(B) Within the product element of the Marketing Mix, evaluate “product design” and

“product packaging”.

The product element of the marketing mix is what the consumer buys to satisfy certain needs. When developing products, firms must identify a need and develop a product to satisfy that need.

Product design is the process of designing a product, from an idea to a product that can be produced and marketed commercially. There are two main aspects to product design:

  1. Function: The product must be designed to do reliably what it is supposed to do, e.g. a car should drive.
  2. Form: The product must also satisfy the target market’s requirements in terms of shape, style, colour and image.

A good design will be economical to produce, attract attention and give the product a strong competitive advantage in the market.
Product packaging is the process of designing, producing and costing the protection and presentation of a product. The function of packaging is to provide:

  1. Protection – so the product is not damaged before it reaches the consumer.
  2. Presentation – an eye-catching design can encourage consumers to purchase the product.
  3. Information – to inform the consumer of the product’s uses and contents.

Good packaging should be attractive, practical and contain all information required. Producers bear these factors in mind when developing a package as part of the product element of the marketing mix.

(C) Read the information supplied below and answer the question which follows:

(D)

SuperToys Ltd, a large retail chain with 45 shops throughout Ireland, had sales of €100 million in 2011. It has just commissioned a firm to design and manufacture a new range of soft toys for babies.

These will be available for sale in its shops from Summer 2013. SuperToys Ltd plans to open its first shop in the UK in 2014.

Discuss the possible reasons for business expansion and growth at SuperToys Ltd.

Possible reasons for business expansion and growth at SuperToys Ltd:

  1. Diversification: SuperToys Ltd may expand into the UK market to reduce the risk of having ‘all its eggs in the same basket’ in the Irish market. Also, they may choose to expand their range of products for the same reason, i.e. the new range of soft toys for babies.
  2. Economies of scale: As the size and output of SuperToys Ltd increases, there is a reduction in the costs of production and distribution of their products. This contributes to increased profit.
  3. Limited size of Irish market: SuperToys Ltd may have grown as much as they can in the Irish market. For this reason they may have decided to expand into the UK market.
  4. Elimination of competition: By extending their product range to include soft toys for babies, they may be attempting to compete directly with, and eliminate, their competition.
  5. Psychological reasons: SuperToys Ltd’s management may be ambitious, like challenges and continuously strive to expand their business.

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