The 3rd P of the Marketing Mix is PLACE. It refers to the distribution of the products and management of marketing channels.
Imagine everything you use in your daily life, you’d have to make yourself…
Clothes you wear, the food you eat, the entertainment you consume…
Your day would be spent mostly on self-maintenance.
We don’t do that, because it’s not efficient and not productive. Some of us are better at making clothes, others are better at making food, yet others are better at producing TV shows and writing books. The activities we are not good at or don’t want to perform ourselves, we outsource.
Companies do the same thing. Each individual business, no matter how big, does not exist in a vacuum. Businesses operate in partnership with other businesses (suppliers). Apple does not own a single factory. All iPhones and iPads and Apple watches are manufactured by contracted businesses. Some of these relationships are visible. For example, when Apple partnered with Hermes to introduce an expensive version of Apple Watch (with a leather band in Hermes’ signature orange color), the partnership was heavily advertised. Two stylish companies coming together to merge technology and fashion.
On the other hand, most other relationships Apple enjoys with suppliers are not as visible to consumers. Who made the iPhone you are using? Does it have the name of the manufacturer next to the Apple logo? No. It simply says: “Designed by Apple in California. Assembled in China.”
Let’s take a simpler example – a family-owned restaurant. Most likely they partner with suppliers of fresh produce, meat, fish, laundry services for uniforms and table linens, insurance, tax services, etc.
In marketing, a set of interdependent organizations that helps produce a product or a service to be consumed by customers or businesses is called Marketing Channel. It is the backstage operation that connects suppliers, producers, and customers.
There are three types of Marketing Channels:
Producer to Consumer (Direct Marketing) – think Geico or Mary Kay Cosmetics
Producer to Retailer to Consumer – think any retail chain – Nordstrom, Target, Amazon
Producer to Wholesaler to Retailer to Consumer
Ideally, every partner in the Marketing Channel works well with others, but sometimes this does not happen.
For example, if you own a car dealership, you rely on other dealers to sell their cars at market price (not much lower or much higher). If other dealers sell the same cars are you for less money, you will lose sales. If they price their cars higher, your customers may perceive that you offer less service (less value). This is an example of Horizontal Conflict.
Another example: Say you own a fast-food franchise, your location is booming and you are making a great profit. In fact, you wish you could raise prices to even out the demand. But the corporate franchisor is forcing you to lower your prices because they are involved in a market share battle with another fast-food chain (remember McDonald’s and Burger King?). You may disagree with their reasoning and their decisions and that’s called Vertical Conflict.
Designing and Managing Marketing Channels
A Marketing Channel must be conceived and executed with customer value in mind. If it delivers customer value, the business will be successful. Think about Uber.
What made the company such a tremendous success? Uber did not invent new cars or the idea of hiring a driver. The product is exactly the same as that of cab companies. It is the distribution of the product that’s different. Uber started with the customer in mind – people that wanted rides (and were even willing to pay more) didn’t get any during rush hour. By creating a technological platform (Uber App) to connect all available drivers with all available customers in real-time, Uber was able to deliver a transportation service that is responsive to the customer needs.
Supply Chain Management
Getting a product to a customer is much more complicated than simply selling it. Think about all the different ways you can purchase a pair of Nike shoes.
The most traditional way is to go to Nike Store, or to a retailer that carries Nike shoes such as Foot Locker (full price) or DSW (discount). You can also purchase them online at Nike.com, on Amazon, Zappos, or via numerous online retailers. Finally, you can find them on eBay (Consumer to Consumer market).
Nike manages all the relationships that are involved in placing their shoes in customers’ hands. Supply Chain Management involves suppliers, the company, resellers, and customers. Each participant must add value to achieve a competitive advantage.