An Essential Guide to Understand the “Place” on the Marketing Mix

The marketing mix is a framework used by businesses to craft successful marketing strategies. One crucial element of this mix is Place, which encompasses more than just physical locations. It refers to the entire distribution channel, the path a product takes to reach its target customers. Choosing the right distribution strategy directly impacts customer satisfaction and business success. This guide will equip businesses with the knowledge to navigate the world of “Place” within the marketing mix.

What the “place” in the marketing mix means

Place in the marketing mix refers not only to the location where the product is sold but also to how and how fast the product gets to the customer. In other words, it also concerns distribution channels.

The selected distribution channel determines the following:

• Speed for the product to reach the customer
• Costs involved are, therefore, profits
• Control during delivery

The right strategy and decisions are the keys to marketing success. Customers are happy when they get products when they need them at their favorite places. Thus, companies must ensure their products reach customers in the right quantity, at the right place, at the right time, and under the right conditions.

Factors affecting distribution channel choice

Several key considerations influence a company’s decision regarding its distribution channel. These factors include:

• Marketing objective. For example, the company targets increasing market share from 5% to 10% in three years. This requires the company to secure the broadest possible distribution to increase sales volume.
• Corporate image and competitive strategy. For example, a cost leadership strategy relies on mass channels to reach as many consumers as possible. In contrast, a differentiation strategy relies on dedicated channels. And if a company with a differentiation strategy relies on mass channels, it can damage the image.
• Product characteristics. These can relate to the product type (perishable or not), shelf life, and useful economic life. For example, perishable goods require special distribution channels. Meanwhile, non-durable goods with short, useful economic lives require prompt delivery.
• Market coverage. For example, a company develops broad distribution channels to reach geographically dispersed consumers. In contrast, a small business with a local market focus does not require extensive distribution channels.
• Cost considerations. Distribution channels expose costs. For example, a more extended distribution channel requires higher costs because it involves more intermediaries.
• Control degree. The company has complete control if it relies on direct distribution. On the other hand, control is lower if using a longer channel relying on one or more intermediate levels.
• Legal limitations. Some products may only be sold in certain places. For example, the Indonesian government banned selling alcoholic beverages in mini-markets and other small shops.
• Product life cycle. For example, a company needs to expand its distribution channels during the growth stage to cope with growing demand. Conversely, they may reduce outlets during the decline stage to reduce costs.

Distribution channels and their types

Understanding the influencing factors allows businesses to delve into the different distribution channel types:

• Direct distribution: This involves selling directly to customers through a company’s website, stores, or salesforce. It offers the most control but requires significant investment.
• Indirect distribution: This utilizes intermediaries like wholesalers and retailers who buy a product in bulk and distribute it further. It’s cost-effective but reduces control over pricing and brand image.
• Hybrid distribution: This combines elements of direct and indirect channels. For example, a company might sell directly online while also partnering with retailers for physical distribution. This offers a wider reach while maintaining some control.
• Omnichannel distribution: This emerging strategy integrates all available channels – online stores, physical stores, social media, and mobile apps – to create a seamless customer experience. Regardless of the channel they choose, customers encounter a consistent brand message and buying process.

Direct distribution

Direct distribution, also known as zero-level distribution (producers -> consumers), is a strategy where businesses sell their products directly to consumers, eliminating intermediaries like wholesalers and retailers. This approach offers several advantages but also comes with its own set of challenges.

Advantages:

• Cost savings: Direct distribution eliminates the need to pay intermediaries like wholesalers and retailers, leading to lower overall costs.
• Higher profits: By cutting out intermediaries and potentially capturing their markup (the difference between their buying and selling prices), companies can increase their profit margins. This can lead to more competitive prices for consumers or higher profits for the company.
• Direct customer relationships: Direct sales allow companies to gather valuable customer feedback and build stronger relationships with their target audience. This can help them tailor products and services more effectively.
• Control over brand and product: Producers have complete control over how their product is presented, priced, and delivered to the customer. This ensures brand consistency and allows for quicker adjustments to meet changing market conditions.
• Faster delivery: Direct distribution can lead to faster delivery times for consumers because there are fewer steps in the process.

Challenges:

• Increased workload: Managing direct distribution requires significant effort as the company handles everything from marketing and sales to logistics and customer service.
• Limited reach: Without the established networks of wholesalers and retailers, companies might struggle to reach a broad customer base, especially in geographic markets outside their direct reach.
• Cost considerations: Direct distribution can incur significant costs in areas like building an online store, managing a salesforce, and establishing efficient warehousing and logistics operations.
• Consumer perception: Some consumers might be hesitant to purchase directly from a company, especially if the brand is not well-known. Building trust and brand awareness is crucial for success.
• Economies of scale: Direct distribution might not offer the same economies of scale as indirect channels, where intermediaries handle large volumes of products and negotiate lower prices with suppliers.

Direct distribution can be achieved through various methods:

• Personal selling: This involves a salesforce directly interacting with customers to promote and sell products.
• E-commerce: Companies can establish their online store to sell directly to consumers through the internet.
• Mail order: Customers can place orders through mail catalogs or online forms, and the company ships the products directly to them.

Indirect distribution

Indirect distribution is a business strategy where companies utilize intermediaries like wholesalers, retailers, and agents to reach their target market. This approach allows companies to focus on production while leveraging the established networks and expertise of intermediaries.

Benefits:

• Focus on core competency: By outsourcing distribution, companies can dedicate resources to production, research, and development.
• Wider market reach: Intermediaries have established relationships with retailers and distribution channels, allowing companies to access a broader customer base more efficiently.
• Economies of scale: Wholesalers buy products in bulk, negotiating lower prices from manufacturers, which can benefit both the company and the retailer.
• Reduced risk: Retailers typically buy in bulk, offering a more predictable revenue stream for the company compared to direct sales.
• Retailer expertise: Intermediaries often possess expertise in areas like marketing, merchandising, and logistics, which can benefit the company.

Challenges:

• Reduced control: Companies have less control over pricing, brand image, and product presentation in retail stores.
• Lower profit margins: Intermediaries add markups to products, resulting in lower profit margins for the company.
• Limited customer interaction: Indirect distribution limits direct interaction with customers, making it harder to gather feedback and build brand loyalty.
• Competition for shelf space: Retailers might prioritize products from well-known brands or those offering higher profit margins, limiting shelf space for lesser-known companies.
• Slower delivery times: With more intermediaries involved, products might take longer to reach consumers.

Indirect distribution provides an alternative approach, allowing companies to leverage established networks of intermediaries like wholesalers and retailers. This frees up resources for companies to focus on core competencies like production and product development. Here, we’ll explore two prominent models: 

• One-level distribution: This involves retailers as the sole intermediary. Companies sell products directly to retailers, who then sell to consumers. This model offers faster delivery and potentially lower costs compared to models with more intermediaries.
• Two-level distribution: Wholesalers act as an additional intermediary between producers and retailers. Companies sell bulk quantities to wholesalers, who then distribute them to smaller retailers. This model offers wider reach and economies of scale but with even less control and potentially higher costs for the producer.

One-level distribution

This model utilizes retailers as the sole intermediary between the producer and the consumer. Companies sell their products directly to retailers, who handle marketing, merchandising, and sales to end consumers. This can involve collaborating with independent stores, chain stores, supermarkets, or even online retailers.

Advantages:

• Faster delivery: With only one intermediary, products can reach consumers quicker compared to models with multiple levels. This can be crucial for perishable goods or products with a high demand for immediate availability.
• Potentially lower costs: Companies might save on distribution costs associated with managing wholesalers and additional logistics. This can be particularly beneficial for companies with established production processes and high-volume output.
• Some control over brand image: Companies can collaborate with retailers to ensure products are presented in a way that aligns with their brand image. This might involve influencing product placement, signage, or even in-store promotions.

Disadvantages:

• Limited reach: Reaching a broad customer base can be challenging, especially for companies targeting geographically dispersed markets or those with niche products. Retailers might prioritize established brands or those offering higher margins, limiting shelf space for new entrants.
• Dependence on retailer expertise: Companies rely on the retailer’s marketing and sales capabilities to reach their target audience effectively. If a retailer lacks the expertise or focus on a particular product category, sales might suffer.
• Negotiation power: Retailers have significant bargaining power when negotiating prices, which can potentially impact a company’s profit margins. This is especially true for companies with limited brand recognition or those selling non-essential products.

Two-level distribution

This model involves an additional intermediary, the wholesaler, between the producer and the retailer. Companies sell products in bulk quantities to wholesalers, who then distribute them to smaller retailers. Wholesalers play a crucial role in managing inventory, breaking down bulk orders, and providing logistical support to retailers. They often specialize in specific product categories and have established relationships with a network of retailers.

Advantages:

• Wider market reach: Wholesalers have established relationships with a network of retailers, allowing companies to access a broader customer base more efficiently. This can be particularly beneficial for companies with limited resources or those targeting geographically dispersed markets.
• Economies of scale: Wholesalers buy in bulk, negotiating lower prices from manufacturers. This benefits both the company (through lower production costs) and the retailer (through lower purchase prices). This can lead to a more competitive final price for the consumer.
• Reduced risk: Selling to wholesalers in bulk provides companies with a more predictable revenue stream compared to direct sales to individual retailers. This allows for better production planning and financial forecasting.

Disadvantages:

• Even less control: With an extra layer of intermediaries, companies have even less control over pricing, brand image, and product presentation. Wholesalers might prioritize products with higher profit margins or from established brands, potentially limiting visibility for new companies.
• Lower profit margins: Wholesalers add markups to products before selling them to retailers, resulting in potentially lower profit margins for the company compared to the one-level model. This can be a significant factor for companies with tight profit margins.
• Slower delivery times: With more intermediaries involved, products can take longer to reach consumers. This can be a disadvantage for companies selling time-sensitive products or those requiring immediate availability.

Hybrid distribution

While both direct and indirect distribution offer distinct advantages, companies can leverage a hybrid distribution strategy to reap the benefits of both approaches. This model combines direct sales channels, such as company websites or e-commerce platforms, with indirect channels involving intermediaries like retailers and wholesalers. Also known as a multichannel system, it allows companies to reach a broad market, gather customer insights, and enhance brand control.

Reach a broad market: By utilizing both direct and indirect channels, companies can expand their customer base and cater to different buying preferences. Consumers who prefer the convenience of online shopping can be reached directly, while those who value the in-store experience can still find products through retail partners.

Gather customer insights: Direct interaction with consumers through online channels allows companies to collect valuable customer data. This includes purchase history, browsing behavior, and feedback, which can be used to understand consumer spending patterns, identify changing needs, and personalize marketing strategies. This level of customer insight is often limited when relying solely on indirect distribution channels.

Enhanced brand control: Hybrid distribution allows companies to maintain a consistent brand image across all channels. This can be achieved by controlling the online customer experience through a well-designed website and social media presence while also collaborating with retailers to ensure products are presented in a way that aligns with the brand identity.

However, implementing a multichannel system also comes with challenges:

• Increased complexity: Managing multiple distribution channels requires careful planning and coordination. Companies need to allocate resources effectively to ensure smooth operations across all channels, which can be more complex compared to a single-channel approach.
• Pricing consistency: Maintaining consistent pricing across all channels can be difficult, especially when dealing with markups added by intermediaries in indirect channels. Companies need to develop strategies to address these price discrepancies and ensure overall pricing remains competitive. This might involve offering exclusive discounts or promotions through direct channels to compensate for potentially higher prices in retail stores.
• Inventory management: Coordinating inventory across multiple channels can be a logistical challenge. Companies need to ensure sufficient stock is available to meet customer demand through both online and offline channels to avoid stockouts and customer dissatisfaction.

Despite these challenges, a well-designed hybrid distribution strategy can offer significant advantages for businesses. By carefully assessing their needs and resources, companies can create a multichannel approach that optimizes market reach, brand control, and customer engagement.

Omnichannel distribution

While hybrid distribution combines direct and indirect channels, omnichannel distribution takes this concept a step further. It’s an emerging strategy that integrates all available channels – online stores, physical stores, social media platforms, mobile apps, and even customer service interactions – into a cohesive system. The goal is to create a seamless customer experience regardless of the touchpoint a customer interacts with.

Imagine this: A customer sees a pair of shoes advertised on social media. They click the ad and are taken directly to the company’s website, where they can learn more about the shoes and browse similar styles. They then decide to visit a physical store to try the shoes on before purchasing. In the store, a salesperson assists them and checks inventory levels to ensure the desired size is available. Finally, the customer decides to complete the purchase online and have the shoes delivered to their home for free.

This is the power of omnichannel distribution. Here’s what makes it unique:

• Seamless experience: Customers can seamlessly switch between channels without encountering disruptions. Information like product availability, shopping carts, and wishlists should be consistent across all platforms. This allows customers to begin their journey on one channel and complete it on another, enhancing convenience and flexibility.
• Personalized touch: Data collected through various channels can be used to personalize the customer experience. For example, a customer’s browsing history on the company website can be used to recommend similar products on social media or in physical stores.
• Enhanced brand storytelling: Omnichannel distribution allows companies to weave a consistent brand story across all touchpoints. This can be achieved through consistent messaging, visuals, and brand voice across online platforms, physical stores, and even customer service interactions. This reinforces brand identity and strengthens customer relationships.
• Data-driven decisions: By collecting data from all customer interactions across channels, companies gain valuable insights into customer behavior and preferences. This data can be used to improve product offerings, personalize marketing campaigns, and optimize the overall customer experience.

While omnichannel distribution offers significant advantages, implementing it requires careful planning and execution:

• Technological integration: A robust technological infrastructure is necessary to connect all channels and ensure seamless data exchange. This might involve investments in customer relationship management (CRM) systems, marketing automation tools, and data analytics platforms.
• Organizational alignment: Omnichannel success requires collaboration across different departments within a company, including marketing, sales, customer service, and logistics. Everyone needs to be working towards the same goal of delivering a consistent and positive customer experience.
• Meeting customer expectations: As customers become accustomed to a seamless omnichannel experience, their expectations rise. Companies need to be prepared to invest in resources and talent to meet these expectations across all touchpoints.

Despite the challenges, omnichannel distribution is the future of retail. By creating a unified customer journey across all channels, companies can build stronger brand loyalty, increase customer satisfaction, and ultimately drive sales growth.

Intermediaries in distribution channels

Within indirect distribution channels, intermediaries play specific roles:

• Retailers: These businesses sell directly to consumers and come in various forms like independent stores, chain stores, supermarkets, department stores, and discount stores. Each offers different advantages and reaches.
• Wholesalers: These intermediaries buy products in bulk from manufacturers and resell them to retailers or other wholesalers. They offer economies of scale and handle logistics for smaller retailers.
• Agents: These independent specialists have exclusive rights to sell a company’s products in a specific territory. They are valuable for entering new markets and navigating local regulations.
• Distributors: Similar to wholesalers, they buy and resell products but typically focus on a specific product category and work with a limited number of manufacturers.

The impact of technology on distribution channels

The landscape of distribution channels has undergone a dramatic transformation fueled by advancements in technology. Here’s a closer look at how several key trends are influencing how companies get products to consumers:

E-commerce marketplaces: The rise of online giants like Amazon has created a new distribution channel with massive reach and convenience. These marketplaces offer third-party sellers access to a vast customer base, while consumers benefit from a wide selection of products and competitive pricing. This has forced traditional retailers to adapt their strategies and integrate online shopping experiences.

Social commerce platforms: Social media platforms like Instagram and Facebook have evolved into powerful social commerce tools. Companies can leverage these platforms to showcase products, engage with customers, and even facilitate direct purchases through integrated shopping features. This allows businesses to target specific demographics and create a more interactive shopping experience.

Mobile shopping: The increasing use of smartphones and tablets has fueled the growth of mobile shopping. Consumers can now browse products, compare prices, and make purchases on the go. To cater to this ever-growing segment of online shoppers, mobile-friendly website design and the development of user-friendly mobile apps have necessitated.

These technological advancements have empowered customers, giving them more control over their buying journeys. Companies need to adapt their distribution strategies to this evolving landscape by:

Omnichannel integration: As discussed earlier, creating a seamless omnichannel experience that integrates online and offline channels is crucial. This allows customers to switch between channels effortlessly and provides a more convenient shopping experience.

Data-driven decisions: The vast amount of customer data generated through online interactions can be used to personalize marketing campaigns, optimize product offerings, and tailor distribution strategies to meet specific customer needs and preferences.

Investing in technology: Companies need to invest in the necessary technology infrastructure to support their chosen distribution channels. This might involve building a robust e-commerce platform, implementing social commerce tools, and developing mobile apps to cater to on-the-go shopping.

Case studies in innovation and adaptation

Understanding how companies choose their distribution channels is key to success. In this section, we’ll explore two insightful case studies that showcase the impact of distribution strategies on businesses. First, we’ll delve into Warby Parker, a company that revolutionized the eyewear industry by leveraging direct-to-consumer e-commerce. Then, we’ll examine Coca-Cola, a global beverage giant navigating the complexities of international distribution. These contrasting examples highlight the importance of both innovation and adaptation when selecting distribution channels.

Warby Parker: disrupting eyewear through direct-to-consumer e-commerce

Warby Parker is a leading online eyewear company that disrupted the traditional retail model. Prior to their emergence, the eyewear industry was dominated by a few large brands with high markups. Warby Parker challenged this status quo by leveraging e-commerce to sell high-quality, trendy glasses directly to consumers. This approach allowed them to cut out intermediaries and offer significant cost savings, passing those savings on to customers with more affordable prices.

Beyond cost savings, Warby Parker’s innovative approach included a user-friendly website with a virtual try-on tool, allowing customers to see how different frames would look on their faces before purchasing. They also offered a home try-on program, where customers could receive multiple frames at home to try on at their convenience and return any unwanted pairs for free. This combination of affordability, convenience, and a strong brand image has positioned Warby Parker as a leader in the eyewear industry.

Coca-Cola: mastering the complexities of global distribution

Coca-Cola, a household name synonymous with beverages, exemplifies the intricate world of global distribution. Unlike Warby Parker’s direct-to-consumer approach, Coca-Cola relies on a multi-layered network that combines direct sales, bottlers, and distributors to reach a vast global audience. 

Catering to diverse consumer preferences across different regions necessitates a flexible distribution strategy. Coca-Cola achieves this by adapting its approach to local market conditions. They partner with established regional distributors who understand the specific needs and preferences of their markets. This allows Coca-Cola to ensure product availability, cultural relevance, and efficient distribution across the globe.

One challenge associated with such a complex network is maintaining consistent product quality. Coca-Cola addresses this by establishing strict quality control measures throughout the supply chain, ensuring that consumers around the world experience the same refreshing taste they expect.

These contrasting case studies illustrate the critical role distribution channels play in a company’s success. Warby Parker’s innovative direct-to-consumer approach revolutionized the industry, while Coca-Cola’s mastery of complex global distribution networks ensures its iconic beverage reaches consumers worldwide. By carefully considering their target market, product type, and business goals, companies can choose the distribution strategy that best positions them for long-term success.