2.6 Place and Channels
The marketing channels available to a business and how to choose among them.
Part 1 of 3 What Place Means
Place describes where and how customers get hold of a product: retail stores, company-owned stores, club memberships, online. Place is set by the business's marketing channels, also called distribution channels. A channel is the final stage of the supply chain: every person and business needed to deliver a finished product to the final customer.
The running example of this unit is a teenager who rebuilds used bikes and sells them at a Saturday market with a signed inspection tag. A bike sold from his own rack has a channel with two parties: the teenager and the buyer. The brake pads on that bike travelled through a longer channel: a factory, a distributor and a parts shop. The earlier stages of the supply chain make the product. The channel moves the finished product the final step to the buyer.
| Business-to-consumer (B2C) | Business-to-business (B2B) | |
|---|---|---|
| Sells to | Consumers | Other businesses |
| Typical channels | Websites, retail stores | Industrial distributors |
| The bike refurbisher | Selling a commuter bike to a parent | Buying brake pads that become inputs to the bikes he sells |
Whether a channel is B2C or B2B depends on whether the final customer is a consumer or a business. The size of the buyer does not change the answer.
Part 2 of 3 Direct and Indirect
| Direct channel | Indirect channel | |
|---|---|---|
| Between you and the customer | Nobody; a marketplace that only hosts the listing leaves the channel direct | Intermediaries such as wholesalers and retailers, or a vendor who sells on your behalf |
| Why choose it | Control over pricing and the customer experience | A partner's expertise and network cut costs and reach more customers |
| The cost | Expensive to set up, limited reach, and the business may need to learn to sell and distribute | Distributors and shelf space may already belong to rivals |
| At the market | Your own Saturday rack | A retired vendor sells your bikes from her established stall for 15% of each sale |
Some channels are set by law. Prescription medicines reach patients through licensed pharmacies. Products with health or safety risks also have required channels. In many places, fireworks reach buyers only through licensed dealers. Where no rule applies, the choice stays with the seller.
Part 3 of 3 Choosing a Channel
Businesses compare channels on three measures: cost and potential profit, the customer experience inside the channel, and whether it reaches the target customers. The rack cost a display and $20 a Saturday. The teenager sold almost nothing in the first two weekends. His sales rose after he learned to put the child on the bike before quoting a price. A direct channel may force a business to learn to sell.
| Channel | Channel cost | Conversion | Profit per bike |
|---|---|---|---|
| Online marketplace | Free to list | 12% of inquiries | $42.00 |
| Own Saturday stall | $20 per Saturday | 45% of test rides | $38.00 |
| Consignment stall | 15% of each sale | The vendor sells it | $27.75 |
By profit per bike, the online marketplace is best. On experience, the target parent wants a test ride, and only a stall offers one. On reach, a marketplace listing reaches every shopper in the county. The teenager's own stall reaches whoever walks past. The consignment stall reaches the retired vendor's regular customers. The answer is a channel mix: sell road bikes on the online marketplace, commuter bikes at his own stall, and kids' bikes at the consignment stall.
Different target customers shop in different places. Put each product where its buyer already is.
Worked Examples
Profit per bike in three channels
Compute what a business keeps per unit in a direct channel, an owned outlet, and an indirect channel, then weigh the result against experience and reach.
One ninety five dollar commuter bike costs thirty five dollars to buy and eighteen dollars in parts. Theo can sell it three ways. A marketplace listing is free to post and he completes the sale himself. His own Saturday stall costs twenty dollars and a good Saturday sells five bikes. Dee's consignment stall costs nothing to set up and takes fifteen percent of the sale price. Compute what he keeps in each channel.
- Selling price
- $95
- Frame purchase price
- $35
- Parts
- $18
- Saturday stall fee
- $20
- Bikes sold on a good Saturday
- 5
- Consignment cut
- 15%
1. Find the cost incurred before any channel fee
The frame and parts are spent no matter which door the bike leaves through. Thirty five plus eighteen is fifty three dollars.
2. Compute the marketplace result
Listing is free, so the only subtraction is the fifty three dollars already spent. Ninety five minus fifty three is forty two dollars, the largest per bike figure of the three.
3. Allocate the stall fee, then compute the stall result
Twenty dollars across five bikes is four dollars per bike. Ninety five minus fifty three minus four is thirty eight dollars, which matches the unit economics from Topic 2.5.
4. Compute the consignment fee, then the consignment result
Fifteen percent of ninety five dollars is fourteen dollars and twenty five cents. Ninety five minus fifty three minus fourteen twenty five is twenty seven dollars and seventy five cents.
5. Weigh the other two criteria before deciding
Cost is only one of three criteria. The target customer values a test ride, which only a physical stall offers, and reach differs sharply: the marketplace reaches every browser in the county, the owned rack reaches passers by, and the consignment corner reaches a vendor's regulars who have never walked past the rack.
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Answer
$42.00, $38.00, and $27.75. Theo keeps forty two dollars through the marketplace, thirty eight dollars off his own stall, and twenty seven dollars and seventy five cents through consignment.
Why it matters
The most profitable channel per unit is rarely the right single answer, because per unit profit says nothing about how many units each channel moves or which customers it reaches. Assigning each product tier to the channel that suits its buyer, a channel mix, beats picking one winner.
Key Terms
Practice Questions
6 questions. Nothing here is recorded or scored.
- Question 12.6.A.1, 2.6.A.2, 2.6.A.4
Copper Fern
Priya Nandal, a high school junior, makes wire-wrapped earrings and pendants at her kitchen table and sells them under the name Copper Fern. Every sale so far has gone to classmates, and she wants a real channel before the holiday season. She is weighing three options. An online marketplace would list her pieces to shoppers nationwide for a 10 percent fee on each sale, with the marketplace deciding how listings rank in search. A monthly craft fair charges a 25-dollar booth fee and puts her face to face with shoppers for one Saturday a month. A boutique four blocks from her school offers consignment: the owner, who has run the shop for twenty years, would display Copper Fern pieces to her steady walk-in traffic and keep 30 percent of each sale, though two established jewelry lines already hold most of the shelf space.
Which of the following best identifies the channel type of Priya's craft fair option?
- A.An indirect channel, because Priya pays a booth fee to the organizer of the craft fair.
- B.A business-to-business channel, because the fair's organizer is itself a business.
- C.A direct channel, because Priya sells to her final customers herself.
- D.A legally required channel, because handmade jewelry must be sold face to face.
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Answer: C
- A.
- The bait is the booth fee. An intermediary takes part in delivering the product, the way a wholesaler or a retailer does, and the organizer rents Priya a table without ever handling an earring.
- B.
- Misreads the buyers. The shoppers at her table are consumers buying for themselves, which makes the fair a business-to-consumer channel.
- C.
- Correct. Place describes where and how customers access a product, and place is set by a business's marketing channels, also called distribution channels: the final stage of a supply chain, every individual and business needed to move the finished product to the final customer. A direct channel connects the business straight to its customers with no intermediaries, and at the fair Priya hands each piece to its buyer herself.
- D.
- No law assigns jewelry to any particular channel. Legal channel requirements cover products with health or safety risks, like prescription medications, and earrings sell legally online, on consignment, or face to face.
- Question 22.6.B.3
Which of the following best explains why Priya might select the boutique's consignment offer despite its 30 percent cut?
- A.The boutique's retail expertise and walk-in traffic open access to new customers.
- B.Consignment gives her more control over pricing and display than a craft fair booth does.
- C.Consignment produces higher profit per piece, because the boutique handles each sale itself.
- D.Indirect channels cost a small maker less than direct channels do, as a general rule.
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Answer: A
- A.
- Correct. Businesses select indirect channels when a distribution partner's expertise and network can reduce costs and open access to customers they could not reach on their own. The boutique brings twenty years of retail craft and daily walk-in traffic Priya cannot build herself. The stimulus also shows the known catch with indirect channels: distributors and retail space may already be dominated by rivals, and two established jewelry lines hold most of this shelf.
- B.
- A straight swap. Control over pricing and presentation is the signature advantage of a direct channel, and consignment hands the display decisions to the boutique.
- C.
- A partner improves reach, and profit per piece depends on the 30 percent cut set against the booth fee and the volumes each channel moves. The boutique handling the sale is the service Priya pays for rather than a profit advantage.
- D.
- Neither channel type is cheaper as a rule. The boutique takes 30 percent of each sale, the fair takes a 25-dollar booth fee, and which one costs less depends entirely on how much Copper Fern sells in each.
- Question 32.6.B.1, 2.6.B.2
Which of the following best describes the tradeoff Priya accepts if she chooses the craft fair?
- A.She hands control of her prices over to the fair's organizer in exchange for the booth space.
- B.She keeps control of pricing and experience, and pays with the fee, limited reach, and her own time.
- C.She avoids the channel's costs, because no intermediary takes a percentage of each fair sale she makes.
- D.She converts Copper Fern into a business-to-business seller by renting booth space from an organizer.
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Answer: B
- A.
- Points the control the wrong way. The organizer sets the booth fee and nothing more, and the price on each piece stays Priya's decision.
- B.
- Correct. A direct channel gives the business control over pricing and the customer experience, and it bills for that control: setup costs like the booth fee, reach capped at one Saturday of passersby each month, and the need to build her own selling skills.
- C.
- The booth fee, the table setup, and the Saturday she spends behind it are channel costs too. What the fair avoids is an intermediary's percentage, which is one cost among several.
- D.
- The buyers at a craft fair are consumers shopping for themselves, so selling there keeps Copper Fern a business-to-consumer seller. Renting a booth changes where she sells, not who buys.
- Question 42.6.A.3, 2.6.A.4
A company builds commercial espresso machines and sells them to coffee shops through an industrial distributor. Which of the following best identifies this marketing channel?
- A.A business-to-consumer channel, because people ultimately drink the espresso the machines pour.
- B.A direct channel, because the machines travel from the factory to working coffee shops.
- C.A business-to-business channel, because no intermediary stands between maker and coffee shop.
- D.A business-to-business channel run through an indirect route, because of the distributor.
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Answer: D
- A.
- The adjacent-transaction confusion. Someone eventually drinks the espresso, and that later sale is a different transaction in a different channel.
- B.
- Two errors in one. The machines pass through a distributor, so the route is indirect rather than direct, and a direct channel is defined by the absence of intermediaries rather than by the product eventually reaching a working business.
- C.
- Gets the B2B half right and miscounts the middle. With a distributor in the chain, the channel has an intermediary.
- D.
- Correct. Classify a channel by who buys in the transaction being described. Coffee shops are businesses buying equipment to run their operations, so this is a business-to-business channel, and industrial distributors are the classic B2B example. The distributor standing between the factory and the shops is an intermediary, which makes the route indirect.
- Question 52.6.B.1
Alder Bend Pottery
Sam Okafor owns Alder Bend Pottery and sells mugs through two channels. The table shows one month. The kitchenware store is an indirect channel.
Figure | Own website | Kitchenware store Margin per mug after production costs | $20 | $12 Monthly channel costs | $200 | $300 Mugs sold | 40 | 150 Which conclusion is supported by the table?
- A.The store channel earned more monthly profit, 1,500 dollars against the website's 600 dollars.
- B.The website is the more profitable channel, because it earns a higher margin on each mug.
- C.The website earned 800 dollars of monthly profit and the store earned 1,800 dollars.
- D.The store channel gives customers a better buying experience than the website gives.
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Answer: A
- A.
- Correct. Evaluating channels starts with comparing costs and potential profitability, so run each channel to a total. Website: 40 mugs at 20 dollars of margin is 800, minus 200 in channel costs leaves 600. Store: 150 mugs at 12 dollars is 1,800, minus 300 leaves 1,500. The store's thinner margin on almost four times the volume wins the month.
- B.
- The per-unit trap. The higher margin per mug loses once volume enters the math.
- C.
- The halfway calculation. 800 and 1,800 are the margin totals before channel costs, and profit subtracts them.
- D.
- Customer experience is a real factor in channel selection, and this table measures none of it. Margins, channel costs, and units sold say what each channel earned, not how buying felt in either place.
- Question 62.6.A.5
A company develops a new prescription migraine medication. Which of the following best explains why the company cannot sell the drug to patients through a checkout page on its own website?
- A.Its production costs are too high for a direct sales channel to be profitable to run.
- B.Prescription drugs count as business products, so business-to-business channels must carry them.
- C.The law requires products carrying health or safety risks to move through set channels.
- D.Online checkouts cannot collect the customer information an order of this kind requires.
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Answer: C
- A.
- Treats a legal requirement as a business calculation. Even a wildly profitable direct channel stays closed when the law closes it.
- B.
- Borrows vocabulary from the wrong bin. The patient buying the medication is a consumer, and the pharmacy is an intermediary inside a business-to-consumer chain.
- C.
- Correct. Channel selection is usually strategy, a comparison of cost, profitability, customer experience, and reach, and for a small set of products the law makes the choice instead. Prescription medications and other products carrying health or safety risks are legally required to travel through specified channels, which is why a prescription and a licensed pharmacist stand between this company and its patients.
- D.
- Online checkouts collect customer information constantly, and that is one of their strengths as a channel. The barrier here is legal rather than technical: a prescription and a licensed pharmacy stand in the path no matter how well the form is built.
In a class? These questions are not recorded.
Take the same questions as a scored quiz and your teacher will see that you have finished this section.
Take the scored quiz →8 Common Mistakes on 2.6
The wrong moves students actually make on these questions, why each one is wrong, and what to do instead. Part of the practice tier.
See what is includedCED Codes
2.6.A.1 · 2.6.A.2 · 2.6.A.3 · 2.6.A.4 · 2.6.A.5 · 2.6.B.1 · 2.6.B.2 · 2.6.B.3