The 4 Ps – Place (1/2)

The 4 Ps – Place (1/2)

In this lesson, you’re expected to:
– understand the importance of place as a marketing mix component
– learn the difference between B2B and B2C distribution
– discover when to use a particular distribution strategy

Place, more commonly referred to as Distribution, is the process of making a product or service available for the consumer or business user that needs it.

Place is defined as the “direct or indirect channels to market, geographical distribution, territorial coverage, retail outlet, market location, catalogues, inventory, logistics and order fulfilment”.

It refers either to the physical location where a business carries out business or the distribution channels used to reach markets. Place may refer to a retail outlet, but increasingly refers to virtual stores such as “a mail order catalogue, a telephone call centre or a website.”

Why Distribution is Important

The distribution cost can vary widely from product to product, in some cases it represents more than 90% of the cost (for example: mineral water). Getting the right product to the right place at the right time involves a distribution method. The choice of this distribution system will depend on a variety of circumstances. Some manufacturers will choose to sell to intermediaries, for example wholesalers who then sell to retailers, while others will prefer to sell directly to retailers or customers.

Efficient and effective distribution is important if the organization is to meet its overall marketing objectives. If demand is underestimated, profitability will be affected.

Role of the Distribution of Goods

We can list four types of distribution activities that create value for customers:

1) Bring the product to the customer: Dispatching the product is the first obvious type of distribution. It allows less efforts since customers don’t have to go to the factory to get the product they want.

2) Aggregate Demand: brings value by lowering the cost (that allows a lower price to the customer). The role of resellers is to reduce the numbers of direct players for the producer, making things easier for him. On the other hand, the producer loses the direct contact with final customers.

3) Store and make the product accessible: The storage of a good allows to make it quickly accessible to a client. Example: newspaper kiosks, Ikea furniture.

4) Select products: One of the role of distribution is to customize the offer – which products or services make sense when offered at the same store? Reseller and supermarkets differentiate themselves from the competition by the selection of products they have.

Role of the Distribution of Services

1) Financing

2) Support and customer service: For example, inform/advise a client, deliver, install a product.

3) Communication: It is the task of distribution to inform about the product characteristics, display prices, conduct in-store advertising of products. Distributors have a lot of data about customer behavior that they can communicate to the producer.

What is a distribution channel?

The distribution function of marketing involves getting the goods from the producer to the consumer. A distribution channel in marketing refers to the path or route through which goods and services travel to get from the place of production or manufacture to the final users. It has, at its center, transportation and logistical considerations.

B2B vs. B2C Distribution

Business-to-business (B2B) distribution occurs between a producer and industrial users of raw materials needed for the manufacture of finished products. For example, a logging company needs a distribution system to connect it with the lumber manufacturer who makes wood for buildings and furniture.

Business-to-customer (B2C) distribution occurs between the producer and the final user. For instance, the lumber manufacturer sells lumber to the furniture maker, who then makes the furniture and sells it to retail stores, who then sell it to the final customer.

Brick-and-mortar stores and e-commerce are two main channels of business-to-consumer marketing.

In marketing, goods can be distributed using two main types of channels: direct distribution channels and indirect distribution channels.

(1) Direct Distribution (Selling Directly)

Direct selling can be a good starting point, especially if the product supply is limited or you only sell seasonal products. One advantage of selling your products directly is you get a more personal feel of the market because you interact directly with the customers so you can easily adapt to the changes.

Another advantage is that you control your product’s pricing and the methods on which it should be sold. Distribution methods may include, but are not limited to, door-to-door, retail, e-commerce, mail order, or on-site.

(2) Indirect Distribution (Selling Through a Reseller)

If you want to have wider distribution for your product, you can sell it through a third party, either a retailer or wholesaler, who will then resell the product to their customers. This distribution strategy reduces the pressure of running a distribution system. Reseller sales also reduce the storage space required for product stocks.

However, you will lose personal contact, and even company identity in some cases, with customers since they will be talking to your resellers. Some resellers may request that your product be sold under their own brand.

[Optional] Distribution Strategy – An Introduction
Watch this 10-minute video that provides an overview of some of the tools and theories available in connection with determining the Distribution Channel of a product or service.

Link to the video: https://www.youtube.com/watch?v=cuPnPJCWJwU
Market coverage refers to how wide or varied you want your products to be distributed. This applies to either direct sales or through intermediaries. There are three types of market coverage that you may want to adopt:

· Intensive Distribution
· Selective Distribution
· Exclusive Distribution

(1) Intensive Distribution

Also called Mass Distribution, this strategy ensures the widest distribution possible for your product or service. You sell your products in as many locations or markets as possible and oftentimes, you need to lower your prices. This is the method most commonly used by large businesses or manufacturers to reach customers nationwide or even globally.

Products effectively distributed using this strategy are convenience products or things we buy on a regular basis. 

Examples of  products which use intensive distribution are Coke, most major cigarettes brands (like Marlboro), and major brewing companies (like Budweiser).
(2) Selective Distribution

You may also want to sell only to a few select businesses or customers. This is called selective distribution and is the strategy commonly used for selling upscale products and is sold by resellers who deal only with high-quality products.

It’s easier to establish consumer relationships using this strategy as compared to intensive distribution.

An example would be high-end clothing such as Dolce and Gabbana products which are sold at luxury department stores.
(3) Exclusive Distribution

This strategy restricts your product distribution to only one reseller. The reseller will have exclusive rights to sell your product or service, and in return, you may also be the sole supplier. This works more effectively with specialty products that you can promote as prestigious because you are the sole supplier and the intermediary is the sole reseller.

For example, Rolls Royce vehicles are exclusively distributed. Rolls Royce has a limited number of exclusive dealerships in certain countries.
Other Factors to Consider

The product sales volume and its characteristics will influence what inventories you should maintain and also how the products should be transported. You may opt to ship in large volumes across countries or do it via retail to single individuals.

If you’re into manufacturing, you need to carefully monitor the total costs by considering every factor required in production like the acquisition of the materials and the distribution strategy you choose to use.

[Optional] How to Choose the Best Distribution Channel for Your Business
Jim Rohn