What good do distributors and retailers really serve?
Q: We hope you won’t mind if we say that your column last Friday sounded like it was commissioned by SM and not one of your more objective marketing diagnoses. We’re a group of graduating students majoring in marketing and avid readers of your column.
Every Friday, our marketing elective professor assigns your column to be debated upon next week. We’re a class of 30. Half the class takes the pro stand, siding with your column’s diagnosis and prescription, and the other half takes the opposite side. The two debating teams are each a “triad.” The rest of each half of the class consists of sources of support for their triad team.
Almost all of us do not have a favorable regard for distributors and retailers. Our elective professor refers to them as “thieving middlemen.” She says: “This would be a better marketing world without middlemen. They’re no better than usurers who live on the misery of others.” So please tell us what good do distributors and retailers really serve?
A: It’s unfortunate that you have an elective professor who is prejudiced against “middlemen.” We actually don’t mind a professor who is critical or even cynical about an important “actor” in the marketing performing art provided he/she acknowledges first the purposes and functions it is serving. This is what we propose to do as our answer to your question about what good do distributors and retailers serve.
Let’s start by putting distribution in the total context of the marketing mix. The mix’s lead variable is the “base P,” or the product. It’s the lead marketing mix variable because the three other variables out of these “4 Ps” are in the service of the base P. That service is to bring the product to its target market segments.
Of the three “support Ps,” Matsushita says it is “placement” or distribution that is most critical. Placement comes in two forms, namely, “physical distribution” also known as logistics and “sales distribution” or retailing. Why is distribution critical? As we already mentioned in last Friday’s column, according to Matsushita, “no product will move unless it is first in place.”
The key phrase is “in place.” When the product is absent in the store shelf, pricing (other support P) won’t matter to the buying consumer because what to price is nowhere to be found. Similarly with promotion, whether the “pull” variant, i.e. advertising, or the “push” form, i.e. consumer or trade promotion. When the product is unavailable, advertising or promotion is unproductive of sales. In fact, if the product is advertised or promoted when buyers can’t find it on shelf, advertising and promotion can be counterproductive. The consumer, persuaded by the product’s advertising or motivated by its promo, goes to the store to buy. A sense of frustration comes over the shopping consumer when she finds that the product is not only out of stock but is simply not around. Consumers have a way of generalizing that sense of frustration to the next and succeeding search and purchasing occasions.
That’s taking the side of the consumer. Now look at things from the side of the marketer. What good, what purposes and functions do distributors and retailers perform aside from what economists acknowledge as its “values” or “utilities?” Actually, economists give to each of the four Ps except distribution only one “utility” each. But to distribution, they give it two “utilities.” Those are “place utility” and “time utility.”
As practiced, physical and sales distribution serves two other practical and useful functions. The first of this is market intelligence especially at the local level. Why is the “local” important? As most practicing marketers know, marketing success begins, happens and ends with the local market.
Being “where the action is,” the smart distributors and retailers know on a daily and continuing basis where the local market has been, where it is at now, and where it is headed. They know the two market participants: (1) the shoppers and (2) the trade. This is why retailers in particular, do continuing neighborhood area intelligence to learn where the buyers are, what they are buying, when, how much and how often. They also do trade area intelligence to monitor competition and what they’re up to. Not all of them do these of course. But the more successful of them do so.
There’s a second and, just as significant if not more significant, function that distributors perform. They are financiers of operating capital for suppliers, big as well as small. This is why F.E. Zuellig has had for so long a highly profitable financing company. The “float” that a big distributor enjoys in its collected funds, for example, can be a huge source of interest income.
Many of our own MBA students, who are new to the distribution business, ask how a narrow commission-based business like a distributor or a retailer can make money. A quick answer is to say: “Just look at a commercial bank!”
Also, we point out how good a financial and cost control the large and successful distributor or retailer practices. The senior Rx-er recalled the then President of Zuellig, Paul Kleiner, whose car was an old model. When asked how come he goes around in such really old car, Mr. Kleiner told the senior Rx-er: “I’m a poor distributor. I practice what I tell my executives. Be very frugal. If I go around in an MB or a BMW, our principals will think we’re making so much money from our already narrow commission and therefore may only further squeeze it.”
Finally, ask yourself: “What will you do without the middlemen?” You’ll have to do the services they’re rendering. You’ll have to transport and store the products that distributors, wholesalers and jobbers are transporting and storing. You’ll have to do all the many things that store retailers are doing in lending time and place utility to shoppers. Can you be as productive and as efficient as an F.E. Zuellig, a Suiy Sing or an SM?