The last element of the marketing mix is Place. Also called placement or distribution, this is the process and methods used to bring the product or service to the consumer.
We will take a look at:
- An introduction of place
- Distribution channels and intermediaries
- Making channel decisions
- Managing distribution channels
- The impact of the marketing mix on place
Place
In the marketing mix, the process of moving products from the producer to the intended user is called place. In other words, it is how your product is bought and where it is bought.
This movement could be through a combination of intermediaries such as distributors, wholesalers and retailers. In addition, a newer method is the internet, which itself is a marketplace now.
Through the use of the right place, a company can increase sales and maintain these over a longer period of time. In turn, this would mean a greater share of the market and increased revenues and profits.
Correct placement is a vital activity that is focused on reaching the right target audience at the right time. It focuses on where the business is located, where the target market is placed, how best to connect these two, how to store goods in the interim, and how to eventually transport them.
Distribution Channels & Intermediaries
What is a Distribution Channel?
A distribution channel can be defined as the activities and processes required to move a product from the producer to the consumer.
Also included in the channel are the intermediaries that are involved in this movement in any capacity. These intermediaries are third-party companies that act as wholesalers, transporters, retailers and provide warehouse facilities.
Types of Distribution Channels
There are four main types of distribution channels. These are:
- Indirect Channel – In this channel, a company will use an intermediary to sell a product to the consumer. The company may sell to a wholesaler who further distributes to retail outlets. This may raise product costs since each intermediary will get their percentage of the profits. This channel may become necessary for large producers who sell through hundreds of small retailers.
- Direct Channel – (Missing in text but implied from sequence, kept consistent with numbering).
- Dual Distribution – In this type of channel, a company may use a combination of direct and indirect selling. The product may be sold directly to a consumer, while in other cases it may be sold through intermediaries. This type of channel may help reach more consumers but there may be the danger of channel conflict. The user experience may vary and an inconsistent image for the product and a related service may begin to take hold.
- Reverse Channels – The last, most non-traditional channel allows for the consumer to send a product to the producer. This reverse flow is what distinguishes this method from the others. An example of this is when a consumer recycles and makes money from this activity.
Types of Intermediaries
Distribution channel intermediaries are middlemen who play a crucial role in the distribution process. These middlemen facilitate the distribution process through their experience and expertise.
There are four main types of intermediaries:
1. Agents
- The agent is an independent entity who acts as an extension of the producer by representing them to the user.
- An agent never actually gains ownership of the product and usually makes money from commissions and fees paid for their services.
2. Wholesalers
- Wholesalers are also independent entities.
- They actually purchase goods from a producer in bulk and store them in warehouses.
- These goods are then resold in smaller amounts at a profit. Wholesalers seldom sell directly to an end user. Their customers are usually another intermediary such as a retailer.
3. Distributors
- Similar to wholesalers, distributors differ in one regard.
- A wholesaler may carry a variety of competition brands and product types. A distributor however, will only carry products from a single brand or company.
- A distributor may have a close relationship with the producer.
4. Retailers
- Wholesalers and distributors will sell the products that they have acquired to the retailer at a profit.
- Retailers will then stock the goods and sell them to the ultimate end user at a profit.
Importance of Distribution Channels
It may seem simplistically possible and smarter for a company to directly distribute its own products without the help of a channel and intermediaries.
This is especially so because the internet allows sellers and buyers to interact in real time. But in actual practice it may not make business sense for a company to set up its own distribution operation.
Large-scale producers of consumer goods, for example, need to stock items of basic necessity such as soap, toilet paper and toothpaste in as many small and large stores in as many locations as possible.
These locations may be as close together as two on the same street. They may also be remote rural convenience stores, rest stops and petrol stations. It would be counterproductive and costly for the company to attempt to achieve this without a detailed distribution channel.
Even in cases where a company does sell directly, there remain activities that are performed by an outside company. A laptop may be sold from a company website to a consumer directly, but it will be sent out using an existing courier service.
This is why, in some form or the other, all producers must rely on a distribution channel.
Making Channel Decisions
Setting Goals and Direction
The first step to deciding the best distribution channel to use, a company needs to:
- Analyse the customer and understand their needs
- Discuss and finalize channel objectives
- Work out distribution tasks and processes
Some key questions to ask in finalizing these three areas include:
- Where do users seek to purchase the product?
- If it is a physical store, is it a supermarket or a specialist store? Is it an online store or a catalogue?
- What is the access available to the right distribution channels?
- What are competitors doing? Are they successful? Can best practices be used in making channel decisions?
Selecting Distribution Strategies
A company may need to use different strategies for different types of products. Three main strategies that can be used are:
- Intensive Distribution – This strategy may be used to distribute lower-priced products that may be impulse purchases. Items are stocked at a large number of outlets and may include things such as mints, gum or candy as well as basic supplies and necessities.
- Selective Distribution – In this strategy, a product may be sold at a selective number of outlets. These may include items such as computers or household appliances that are costly but need to be somewhat widely available to allow a consumer to compare.
- Exclusive Distribution – A higher-priced item may be sold at a single outlet. This is exclusive distribution. Cars may be an example of this type of strategy.
Assessing Benefits of Distribution Channels
While making channel decisions, a company may need to weigh the benefits of a partner with the associated costs. Some potential benefits to look out for include:
- Specialists – Intermediaries are experts at what they do, so they can perform the task better and more cost-effectively.
- Quick Exchange Time – Intermediaries ensure faster and timely deliveries.
- Variety for Consumers – Consumers can choose from a variety of products without visiting multiple stores.
- Small Quantities – Intermediaries allow for reduced transport costs, enabling consumers to buy smaller quantities.
- Sales Creation – Wholesalers and retailers may promote and advertise products, boosting sales.
- Payment Options – Retailers may create flexible payment plans for consumers.
- Information – Channels provide valuable data on product performance and consumer behavior.
Assessing Possible Channel Costs
With the benefits in mind, here are some costs that a producer may have to weigh:
- Lost Revenue – Because intermediaries need to be paid or resell at higher prices, companies may lose part of their revenue.
- Lost Communication Control – Information reaching the customer may be miscommunicated by intermediaries.
- Lost Product Importance – Intermediaries may prioritize other products over yours.
Managing Distribution Channels
Channel management is an essential activity for the manufacturer. Intermediaries need to be kept motivated and offered incentives to ensure timely and efficient delivery of products and services.
Clear messages regarding products and their functionalities need to be passed on to maintain consistent communication regarding a product or brand all the way to the end user.
Channel Segmentation
Just as a customer base is segmented and addressed according to their specific needs and requirements, distribution channels can also be segmented.
Not all intermediaries or markets they serve will be similar. There may be a need to foster stronger relationships with retailers in competitive markets.
Similarly, if a product is expensive and highly specialized, a retailer may need to be trained and given relevant information.
Benefits of Channel Segmentation
A company may achieve one or more of the following benefits through channel segmentation:
- Product Management – Relevant products may be provided to the right channel, reducing costs of irrelevant stock.
- Price Management – Local price differentiation may be possible.
- Promotion Management – More targeted promotional activities can be achieved.
- Efficiency in Operations – Wastage of time and resources can be reduced with targeted development per channel segment.
Impact of Marketing Mix on Place
No element of the marketing mix works in isolation. Information from each of them acts as input to the others.
When shaping a distribution strategy, input needs to be taken from all other elements of the mix. Product, price and promotion may have the following impacts on the distribution strategy:
Impact of Product Issues
The type of product being manufactured often decides distribution decisions. A delicate or perishable product will need special arrangements while sturdy or durable products will not require such handling.
Impact of Pricing Issues
An assessment of the right price for a product helps determine the type of distribution channel. If the price does not allow a high margin, then a company may choose fewer intermediaries to maintain profitability.
Impact of Promotion Issues
The nature of the product also has an impact on the type of promotions required to sell it. These promotion decisions will in turn directly affect the distribution decisions.
Disposable goods or those of everyday use do not require too many special channels. But for a car, there needs to be extensive salesperson and user interaction. For this type of product, a specialist channel may be needed.
