Dr. Brian Monger
The importance of Placement
Place(ment) is one of the important ‘four P’s’. We need to consider how products can be brought to the ‘right’ place – where the customer wants them to be.
The objective of effective distribution is “to get the right product to the right market at the right time, at the right cost.
Distribution involves two basic elements:
- Logistics or Physical Distribution
- Channel or Chain Decisions
Channel or Value Chain Decisions
A channel provides a means of facilitating value creation and capture for all parties in the exchange and involves:
a direct or indirect approach to distribution
The degree of exposure needed
A distribution channel provides a means of facilitating value creation for both parties in the exchange. In order for a marketing channel to have a purpose, it must facilitate some exchange of value. Channels are developed to make it as easy as possible for our customers to acquire the organisations value offers.
Channel Intermediaries fall into three major categories.
- Merchants – These are customers as well as intermediaries who buy and sell the organisation’s products.
- Agents– These are intermediaries that arrange sales on behalf of an organisation. They do not buy or own the product.
- Facilitators/Specialist Intermediaries – These are parties that facilitate distribution without arranging sales or acquiring title.
Building relationships with customers, distributors and other partners
Marketers have moved away from a basic transactional approach to marketing channels, in which each transaction is assessed upon its merits. Instead they have moved towards an approach where the value of the relationship is included in any analysis. This is not just limited to relationships with customers, but also includes suppliers and distributors
Specialist intermediaries, facilitators and other partners in the distribution process
There are many facilitators that make exchanges happen, not just distributors. There are financial intermediaries such as banks and other financial institutions that handle funds transfers and credit transactions. There are also providers of communication services as well as transportation and storage.
A producer has the choice of dealing direct or of passing his value offers through other organisations, including agents, wholesalers and/or retailers (sometimes just referred to as resellers). The route(s) followed by the products (or at least their ownership) as they travel to the ultimate customers by way of these other organisations are usually called the channels of distribution.
The middleman function
Operating the channels of distribution are the intermediaries – middlemen – independent operators standing between the producer and the household consumer or industrial user.
The middleman’s function is to add value, through:
- collecting or concentrating the output of various producers,
- subdividing these quantities into the amounts desired by the customers; and
- dispersing this assortment to consumer or industrial buyers.
The interdependency of channels
Each channel member is dependent on the other and each performs a specific role. Though channel members depend on one another, they most often act independently of one another, in their own interests. As a result, conflict can arise.
There are two basic types of channel conflict.
1. Horizontal conflict. This is conflict between distributors undertaking the same role in the distribution chain.
2. Vertical conflict. This is conflict between operators at different levels of the channel.
- Channel Captain. This is the dominant operator in the distribution system.
- Long Channel. This is a distribution system that has many levels and intermediaries.
- Short Channel. This is a system where the producer is in close proximity to its market.
- Vertical Marketing System or Vertical Integration. This involves the producer or other channel member becoming directly involved in other levels of distribution. For example producer distribution retailing
- Horizontal Marketing. This involves two or more organisations combining to exploit a marketing opportunity. The combination operates to achieve a symbiosis. The combination of the two is greater than the sum of the two taken individually. Further, it splits the risk and reduces the total investment.
- Administered Channel Systems, Those where the various channel members informally agree to cooperate with one another.
To understand fully the reasons behind the way in which distribution channel decisions are made, it is important to be clear how the retail section of the marketing system is made up.
Modes of Distribution
Marketers can adopt three broad modes of distribution, offering varying degrees of market exposure for their products.
These seek maximum exposure by using diverse intermediaries and channels: that is distribute value offers by all practicable means to as many points of sale as possible. This mode is suitable for numerous low-unit prices, everyday consumption items. It is employed for many food and clothing items. Relatively high distribution costs and low levels of marketing control may be borne for the sake of wide market coverage and high sales volume.
This involves deliberately limiting distribution channels, middlemen and sales outlets by giving certain parties exclusive rights to distribute the firm’s products in specified areas. It can also involve direct but restrained distribution by the organisation itself, thereby accepting relatively low market coverage and brand exposure. Certain forms of ‘exclusivity’ in distribution are calculated to enhance the status and prestige of firm, product and brand.
The main bulk of contemporary product movement falls into this category, the midway approach between ‘intensive’ and ‘exclusive’ extremes. The marketer distributes, without ‘exclusive constraint’, through a carefully selected set of intermediaries and channels, to numbers of fairly closely related sales outlets. In general, selective modes of distribution are best suited to shopping products
Many brands target niche markets, that is, a narrow and specialised band of buyers. Producers of brands targeting a narrow spectrum of the market will target a narrow spectrum of outlets.
Quality positioning and premium pricing
In any product category, the strategy of a given brand may be to attempt to position it as high quality.
Operationally, this means conveying an image that the brand has superior ability to perform its functions, or, more simply, that it is so superior as to be excellent.
This position, typically accompanied by a premium price, is difficult to achieve. To do so, the producer must pay particular attention to the image or reputation of the channel member representing the brand, because this image will be imparted to everything the channel member sells.
The more restricted the target market, the more selective the distribution.
The nature of the value offer category
In deciding how much selectivity to grant to channel members in a market area, the producer should begin with features common to the value offers class.
Buyers will not expend much effort to purchase convenience products such as milk or copier paper. To fit buyer behaviour, these should be distributed as intensively as possible.
For shopping products such as a printer, buyers will do some comparison of brands and prices across outlets, suggesting an intermediate degree of selectivity is desirable.
For specialty products such as a stereo or production machinery, buyers will expend considerable effort to make the “right choice.” For this, they will make an effort to find outlets they can trust, suggesting that highly selective, even exclusive distribution is acceptable, even desirable, to the buyer. This generalisation applies to both industrial and consumer value offers and services.
To distribute specialty goods, and to a lesser degree, shopping goods, it is less important to have many outlets than it is to have the right outlets.
Factors which drive the design of a channel
Profitability – Will the channel design deliver sufficient profit? Too many members, all wanting larger shares of profit, could lead to excessive price, hence reduced perceived value in the eyes of the end customers.
Control – Will the firm have sufficient control over the offering? For example, will the manufacturer, who is working hard through all other aspects of the value planning process to create a certain image of their brand, be able to control the way in which the product is displayed, sold and serviced through its many retailers?
Flexibility – Can the offering be modified to meet changing customer needs? Is the “pipeline” so long that it may take weeks, months or even years for a new model to become available to end customers?
Dr. Brian Monger is the Executive Director of MAANZ International and a Principal Consultant with The Centre for Market Development. His profile can be found on LinkedIn.
He is available for consulting tasks and speaking engagements
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