The Increasing Importance of the 4th P in the Marketing Mix will shorten the Supply Chain!

november 10th, 2013 · by John · Weblog EN

The key to the success of any business is customer satisfaction. How can organizations achieve this? The answer is the marketing mix, also known as the 4 P’s. The variables in this mix can be adapted in order to generate and sustain customer satisfaction. Traditionally, the emphasis in the marketing mix was on product strategy, with pricing and promotion in a strong supporting role. Here we will discuss some trends and developments which explain the increasing importance of the fourth P (place), the marketing channel distribution strategy.

Search for Competitive Advantage
Due to a number of trends, it has become far more difficult for companies to attain a sustainable advantage through product, price and promotion strategies.

• Rapid technology transfer and global competition have made it easier for competitors to achieve parity in product design, features and quality.
• The ability to operate production facilities all over the world has created fierce price competition in many product categories.
• The daily bombardment of advertising and other forms of promotion has reduced the effectiveness of promotional messages.

A marketing channel strategy offers potential for gaining a competitive advantage, because it is more difficult to copy. Developing and realizing a channel strategy is a long term enterprise; it depends on relationships and people and requires inter-organizational management.

Growing power of retailers
Strong competition among retailers is an important factor in keeping prices low. Often as a consequence of that, concentration in the retailing sector has increased, which contributed to the rising buyer power of retailers. As a result, manufacturers and brand owners are losing negotiating clout.

• A lower number of independent retailers will weaken the threat of a supplier switching to another retailer.
• Large retailing companies will account for a large share of the revenue of a supplier. Once the revenue from a particular retailer exceeds a crucial level, the supplier cannot afford loosing this key customer.
• A large retailer can distribute the fixed costs of searching for an alternative over a greater range of output, effectively reducing the cost of switching to another supplier.

Reduce distribution costs
Distribution costs account for a significant percentage of the final price of products; they are sometimes higher than the manufacturing costs. Cost reduction efforts are therefore being extended to the channels that firms use to reach their customers. Terms like restructuring and downsizing also apply to marketing channels. The latest term here is disintermediation. In other words: Kill the Middleman.

Increasing Role of Technology
Corporations are rethinking their businesses in terms of the Internet and its new culture and capabilities. Technology has the power to enhance the effectiveness and efficiency of marketing channels and could potentially change the entire structure of distribution around the world. Firms that make effective use of these technologies can gain a substantial competitive advantage.

Relationship Marketing
The focus of channel relationship management is shifting away from vertical market systems and authoritative control toward relationships that involve contactual and normative control mechanisms in the form of alliances and partnerships. The traditional ‘us-against-them’ mentality is replaced with a cooperative perception of ‘us’ in an effective channel partnership.

Who will survive?
There are four parties in a traditional marketing channel. The supply chain moves from Manufacturers to Wholesalers, to Retailers and to Consumers. You will always need someone who can produce the products and someone who can consume them, but what will happen to the parties in between?

John Greijmans

 

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