The Role of Place in Marketing
#marketing
#promotions
#distribution
The next key element in the marketing mix is Place, or Distribution, as it is more commonly referred to today. Simply defined, it is the process of placing the product within reach of the consumer. Yet this simple concept is not so simple in the real world. Distribution is a very complicated process and involves multiple stages between the point where a factory spits out the product and the point where a consumer picks it up.
Let’s start with the simple and easy. Let us say you operate a business, a bakeshop, to be exact. All the products that you churn out of your oven somewhere in the back of the store is brought up to the front of the store where a consumer can view it, and hopefully, purchase it. In this example, distribution involves only determining which glass display case you will place the croissants as opposed to the danish pastries, the scones and the dinner rolls – you get the idea. Nothing could be simpler. Now imagine you have become successful because you churn out really great products and there are now several retail shops, convenience stores, and restaurants in your city that are asking you to supply them with your products on a regular basis. In other words, you now have institutional customers, also called accounts. Things start to get complicated. You will now need trucks to deliver the goods, packaging to pack the goods in, employees to do the packing, deliveries, and order-taking. You now need an entire department dedicated to handling only this part of your business operations.
Whatever you decide to call this department, you will need to direct it to develop systems, procedures, and schedules for how to go about getting your products from where they are being made to where they are going to be bought by your end-users/consumers. Let us say your bestseller is your sliced bread, and it accounts for half of your volume… when do you bake the sliced bread? and when do you bake all the others? Which of your institutional customers can you make deliveries to on the same trips? Maybe your two biggest accounts are located next to each other but their combined orders cannot be made to fit into your truck, or they want their deliveries to be made on different days. You will have to schedule separate deliveries to the two of them, and hopefully, maybe, you can also carry the orders from the other, smaller accounts, in order to minimize the number of trips your delivery truck will make every week, or every day, as the case may be. Some of the bigger accounts may require several deliveries per week. The situation now requires full time staff just to figure out the schedules, not to mention the investments required for a bigger space to house the stocks temporarily as they await deliveries, and the trucks and service vehicles for the sales team.
Now let us scale that scenario up to the level of a major manufacturer like Nestle, Unilever, Colgate or Procter & Gamble. Imagine scheduling deliveries for companies in the FMCG, or a Fast-Moving Consumer Good business, like a pack of hotdogs or a box of cereal – where factories are running three shifts a day, seven days a week churning out millions of products to be distributed to thousands of retailers across the country. If you can picture that in your head, then you can understand why there are sooooo many trucks on the road all over America.
There are very many companies that concentrate on doing just that – distribute products manufactured by someone else. This sub-sector is an industry in itself, and actually has its own sub-groups or sub-sectors. There are companies that focus only on one part of the distribution process, while other companies focus on the other parts. Just to mention a few: there are independent trucking companies who provide transportation services to one or more manufacturers, they bring the goods to warehousing complexes that are also independently owned (by a second set of companies) where goods from other manufacturers are similarly stored among the different individual warehouses, and from these warehouses another group – a third set of companies – would distribute the goods to retailers in a given area. Geographical considerations even come into play. You may find that warehousing costs are much cheaper in New Jersey compared to New York, but then you have to pay toll fees every time you cross the river. For very large-scale operations, items such as duties and taxes become part of the consideration if you will have trucks crossing international borders every day – like most of the products that are brought into the U.S. from Mexico and countries farther south. Avocados, for example, can come from as far south as Peru.
For these large-scale operations, there may be more than one set of warehouses where the goods are temporarily stored before they reach the retail outlet. For example, some products may require shipment by rail, and because trains follow their own set of schedules, goods riding on them may need to be stored for a while near the station while they wait for their train. Goods that require being transported by ship also go through this process. That explains why you have very large areas by the ports where shipping containers are piled up. All of those metal boxes are loaded with goods waiting for their turn to be loaded onto a ship. And on the other side of the ocean, they get offloaded and wait again for their turn to be hauled away by trucks. They are taken to a first set of warehouses where their contents are unloaded and sorted. After that they get transported by trucks again to another set of warehouses where different goods destined for the same retailers are grouped together, and from there they will finally be distributed to their respective retailers. At the retailer’s own warehouse, someone will pluck the products out of their palettes and put them on display shelves inside the store. Once the product hits the shelves, it has reached the end-point of its travel from the factory. This is also where the first three sections of marketing ends: product, price, and distribution. Three out of the four P’s are achieved at this point.
This is the traditional way manufactured goods are distributed all around the world. From a single source somewhere nobody really knows or cares to know about – the manufacturing plant – they get distributed to thousands of retail shops where they are within reach of consumers. An opposite network operates on the other side of the manufacturing plant. Inputs come together like in a funnel, and they get fused into a single product at the other side of the manufacturing plant. To get an idea of how this works, let us look at an automobile assembly plant. There are hundreds of parts that go into each car, and they come from many different places. They are all brought together at the plant (or very close to it), at the right time and in the right quantities, if they are to become part of the finished product. There is a lot to talk about with regard to this concept of the assembly line and the “just-in-time” approach that maximizes efficiency at these levels but that is the subject for a different book altogether.
Marketing vs Sales
So far we have only talked about the actual physical distribution of the product. There is more to Place than just physical distribution. The process described above presumes that that there are already retailers waiting for the product to be delivered to them. We need to take a few steps back and see where the process starts. How does a convenience store get to the point where they are expecting the delivery? If we are talking about a new product, that is a difficult process. This is where the manufacturer’s sales department comes in. A sales team is needed to actively push the product to the retailers. They will be armed with samples, brochures, and selling skills to convince the retail shop owners that their product is worth carrying in their stores. After the initial orders, the sales team will be making regular sales calls to monitor the product’s movement out of the shelves, and make sure subsequent orders and deliveries are made to prevent any stock out situations. This part of the process is sometimes called account management, or account servicing.
In this scenario, the sales department appears to be a small subsection under the heading Distribution – which is just one section of Marketing – in the organizational structure of the company. This setup is how a marketing person would like to have it. It’s a dream scenario for most marketers because reality is usually quite different. A sales person would place his department on an equal footing with the marketing department, if not higher. This thinking is premised on the idea that it is the sales people who generate revenues, and the marketing people are there mainly as a support team to make sure there is a demand for the products coming from the other side of the shelf: the consumer. In this alternative scenario, the marketing department is confined to the task of communicating with the consumer and making sure they know about the product and that they will look for it and purchase it when they see it. In other words, marketing would be limited to Promotions. We can talk about that in the next article.
Since we mentioned organizational structure, we have to talk a bit about why some companies have an employee with the title “Sales and Marketing Director” – with two managers under him, one for sales and the other for marketing. In this setup, sales and marketing are of equal importance and they report to one supervisor, normally a Vice President level officer. In some older companies, you would have a Sales Director who would supervise a sales manager and a marketing manager. Typically, in these older structures, there was a sales manager long before there was a marketing department. Marketing in the modern scheme of things is a fairly recent innovation in business management. For the longest time, businesses only had sales departments. As new people are hired to form the marketing department, they are made to report to the most senior employee in that region of the company, where the sales manager – someone who has been around for the last 20 years – gets promoted to sales and/or marketing director and will now oversee both sales and marketing. This scenario is a great example of the how the Peter Principle happens. And then there are companies that have someone referred to as the “Chief Marketing Officer,” which means he is at the level of the other top chiefs in an organization. This level is called the C-Suite. The most prime real estate in an office is reserved for the C-level executives: Chief Executive Officer, Chief Operating Officer, and Chief Finance Officer. These are the top three, and are routinely referred to as the CEO, COO and CFO respectively. There have been additional entries to this suite recently: Chief Information Officer, or CIO, for anything and everything related to Information Technology, and Chief Marketing Officer (CMO) for everything under the marketing umbrella, including product development (research), sales, and distribution. In this setup, there is no chief sales officer, as the leadership of this type of organizations believe marketing has far greater scope and importance than sales. You can have a Vice President for sales, but he is just one of many other VP-level officers and he does not carry the “chief” title and therefore does not belong in the C-Suite. As seen in the examples above, there is more than one way to view the relationships between marketing and sales, and we should also consider how the other departments in a typical company relate to the marketing department. We will set that aside for now and take it up again in another article. There is enough material there for a separate discussion altogether.
The Push and Pull Sides of Marketing
These are actually two other P’s that are part of the marketing process. The PUSH side is mainly the Place or Distribution function, because it involves pushing the product forward from the factory to the store. Along the way it will run into hurdles and, depending on the hurdle, it is everyone’s job to keep moving it along past these hurdles until it reaches the point where it can be picked up by a customer. Let’s say a new law comes into effect that bans certain plastic packaging materials. Then whoever is in charge of that has to figure out a way to overcome that hurdle. Some disturbance, such as a strike, occurs in the Port of Baltimore, delaying cargo offloading by weeks. If the product is perishable, or needs to meet a certain delivery deadline, then whoever is in charge needs to get it out of that situation and move the product to the next nearest available port. Natural and man-made calamities and disasters often complicate the job of getting a product from point A to point B.
Sales people do most of the pushing figuratively, and the logistics people do the pushing literally. Salesmen, and increasingly saleswomen, sell the product to the retailers. They offer all sorts of incentives to convince shop owners to carry their products. These incentives often come in the form of additional discounts as their orders get bigger – enticing them with bigger profits if they sell more products. For example, if a 24-can case of Campbell soups costs $24, with $1 per can as its manufacturer’s suggested retail price (MSRP). The salesman could say he can give the store owner 2 free cases if he orders ten. This means that his $240 investment on the original ten cases is now $240 over twelve cases, bringing his cost down to $10 per case.
The PULL side is on the other side of the grocery shelf: from this point onwards, the product will no longer be moving because people involved in marketing and/or selling it are pushing it along. Instead, it will move off the shelf due to the pulling effect of all the marketing efforts that have been targeted at the consumer. Shelf off-take is the end result of all the pushing efforts from the manufacturer’s side of this equation and all the pulling effect generated by marketing communications on the consumer side of the equation. That entire section would fall under the next P: promotions. We will tackle that section in the next article.
Packaging
Going back to the push side, one other major element of place/distribution is packaging. This part of the marketing process straddles the fence between Product and Place. Why? Because, with few exceptions, a product is normally sold encased in some kind of packaging. Even the simplest example, such as a plastic bag of fresh vegetables bought from a grocery store will invariably carry the name of the grocery store. The more complicated the product, the more important the role that packaging will play in its life cycle from manufacture to consumption – generally speaking. A good illustration would be tech products. Notice how complicated boxes are for things like cellphones and similar devices. The parts that come apart are wrapped in individual plastic bags and/or boxes, and then all of these elements are packed together in one box with separate compartments for each of the items – main phone component (with protection materials for the front screen to guard against scratches and breakage), battery, back cover, charger, charging cable, earphones, adapters, and more than one printed manual, user’s guide, and warranty card. A more current example would be vaccines. The Pfizer vaccine against Covid-19 has to be kept at temperatures well below the freezing point. Imagine the complicated process involved in providing the packaging for that product.
Large items are also tricky. For television screens that are as big as 80+ inches wide, they will need special cardboard boxes with handles at both ends so that two persons can carry them safely. This also applies to furniture, and other large products that go into the home, like refrigerators. Packaging is mostly ignored by consumers because they are typically discarded after purchase. In fact some people view them as a nuisance because they can be so cumbersome and difficult to get rid of. There is data that says the biggest part of trash collected in any city is from paper and paper products, particularly packaging materials. But packaging IS important. It is an integral part of the total marketing spectrum. For many smart marketers, packaging is exploited as an advertising medium. One great example is the retailer Marshall’s – they sell large reusable tarpaulin bags with various artistic designs and prominent Marshall’s brand logos on the side. Most retailers use this simple yet effective advertising technique. Like many retailers, Marshall’s saw the benefit of having their customers carry bags that display their brand and/or logo. Many retailers purposefully use extra large bags even if their merchandise is rather small precisely because they want to have a bigger canvas for advertising their brands. The free exposure that their brand gets from the people carrying them around all over the city more than pays for the cost of providing their customers with those bags. Marshall’s is smart enough to sell the bags, so they even make money while their customers are advertising their brand for free.
Is packaging part of the Product, or is it part of Distribution? The correct answer is Distribution, because technically, a product exists before it needs packaging, and it will only need packaging once you need to move it. To illustrate: a cake (or any baked good like doughnuts and sliced bread) is a good example of a product that can be produced and even sold without packaging, but after a customer pays for it, it will need to go into a box or a bag if the customer is going to take it out of the store. It cannot travel by itself. Most other products would require packaging before they are offered to the consumer, and they are actually referred to as “consumer packaged goods.” Let us look at another example: dairy products. Milk, eggs, butter, and cheese are normally sold in some kind of container. The point we are making here is that packaging is what makes branding possible for these products. You cannot stamp your brand on a stick of butter. You wrap that stick of butter in some kind of wax paper and you have your brand printed on that paper. That is how you sell butter. Similarly, you cannot place your brand on a liquid product, like milk or cooking oil for example. You use the bottle to package your product and you use that same bottle to put your brand on your product.
Packaging, like the supply chain portion of distribution, is also an industry unto itself. Specialty companies do a brisk business of designing packaging for other companies. Packaging products companies manufacture those packaging products and supply them to their customers who are manufacturers of consumer products that need to be put into some kind of packaging material before they can leave their factories.
There is an interesting story about San Miguel Corporation in the Philippines about packaging and how it can play some unexpected roles in marketing. Sometime in the mid-nineties, bottled water was a rapidly growing space in the FMCG arena. One of the major players was Wilkins, a brand of manufactured bottled water. It is not a natural spring water like most of the bottled water in the US. Instead, it is municipal water that has been processed or purified to such an extent that it can be labeled “distilled drinking water” through a process known as reverse osmosis. Theoretically, distilled water would be the purest form of water, and should therefore be the gold standard for water quality. The thinking behind this is, water is chemically known as H2O, and therefore anything other than those two molecules of hydrogen and one molecule of oxygen in the liquid would be an “impurity.” Following this line of thinking, Wilkins generated a huge following among consumers who bought into their advertising claims as being the purest, and sold itself at a slightly higher price than the other brands. They were particularly successful with mothers who were using bottled water for mixing their formula for their babies. If you could afford it, why wouldn’t you buy the purest water for your child?
San Miguel also had a brand of bottled water which was among the top brands – Viva mineral water. As could be expected, San Miguel fought hard to keep its market share, and as the war between the bottled water brands raged on, McCann-Erickson, the ad agency of San Miguel suddenly got a call to halt all campaigns directed against Wilkins. It turns out, San Miguel had a division called Packaging Products Division which supplied all the packaging materials – bottles, cardboard boxes, etc. – used by the Wilkins company. Given the size of the Wilkins account, San Miguel would lose more money of they won the bottled water war and lost the packaging products account.
Understanding Marketing 