A distribution choice is the decision about how the product reaches the customer: directly from the business, or through a retailer or other middleman. To evaluate it, compare what each route costs the business and how well it gives the target customers access to the product.
Check your Cambridge syllabus page for the channel terms your course uses, because Business Studies 0450 and Business 0264 may word them differently. The comparison method does not change. This lesson belongs to marketing choices and builds on the promotion choice in linking promotion to objective and audience.
How do you evaluate a distribution choice?
Work through cost first, then access, then timing of payment.
- Cost: find the profit per unit for each channel after the extra costs of using it.
- Access: say how many of the target customers each channel can reach, using the case.
- Timing: note when the money arrives. A retailer may pay later than a customer who pays at checkout.
Then give a judgement that depends on the business’s size, cash position and aims.
Worked example
Pusaka Teh is a tea producer from the Cameron Highlands. Each box of tea costs RM9 to make. The owner is comparing two channels:
| Own website, direct | Supermarket chain | |
|---|---|---|
| Price received per box | RM20 | RM14 (the price the supermarket pays) |
| Extra cost per box | RM6 for packing and delivery | none |
| Estimated boxes a month | 300 | 800 |
| Payment | at order | after 60 days |
Step 1, profit per box. Direct: RM20 − RM9 − RM6 = RM5. Supermarket: RM14 − RM9 = RM5.
Step 2, total monthly profit. Direct: RM5 × 300 = RM1,500. Supermarket: RM5 × 800 = RM4,000.
Step 3, compare access. The profit per box is the same, so the difference is reach. The supermarket places the tea in front of far more shoppers, 800 boxes against 300. The website gives the owner control of the brand and the customer relationship.
Step 4, consider timing. The supermarket pays after 60 days, but the owner must pay RM9 × 800 = RM7,200 for production first. That is a cash strain for a small firm. The cash versus profit bridge shows how a sale can raise profit while cash is still missing.
Step 5, judge. The supermarket looks stronger on profit and reach, but only if the owner can fund the wait. A sensible conclusion is to use the supermarket if the business can cover the 60 days, and keep the website for loyal customers.
Notice that the estimated sales figures are given in the case. They are not facts about the real market.
The mistake to watch for
A common slip is to judge a channel only on the profit per unit, or to assume online is cheaper.
Mistaken answer: “Both channels earn RM5 a box, so they are equally good.”
The student ignored the sales volume, the reach and the 60-day wait.
The correction is to compare total profit and reach, then say what the timing does to cash. “The supermarket gives RM4,000 a month against RM1,500, but the owner must pay RM7,200 in costs before being paid, so cash must be planned.”
Check yourself
Try each on paper first.
1. A baker sells a cake for RM30 at her own stall and it costs RM12 to make. A delivery app charges 20% of the price. Find the profit per cake through the app.
Show answer
20% of RM30 = RM6. Profit = RM30 − RM12 − RM6 = RM12 per cake. The app takes a share, but may give access to more customers than the stall.
2. Soap costs RM6 a bar. Sold direct at a market stall for RM15, with a stall cost of RM400 a month, the owner sells 120 bars. Find the monthly profit.
Show answer
Profit per bar before the stall = RM15 − RM6 = RM9. 120 × RM9 = RM1,080. Subtract the stall cost: RM1,080 − RM400 = RM680.
3. Name two points, other than profit per unit, that an answer should weigh when comparing channels.
Show answer
Examples: access to the target customers, total volume each channel can sell, timing of payment, and how much control the business keeps over its brand and customers. Any two with a case link are acceptable.
Where this leads next
You have now covered the five choices in this module. Work through the marketing choices practice set to mix them, then return to the weakest lesson. The marketing choices overview lists the study order.
If you can compare channels in class but your written evaluations stay thin, our teachers can work on that with you in online one-to-one Business tuition.