April  2004

Supplier Know-How
Advice for your business

The Three Ps
Price, Product and Promotion
by Art Ramey

It’s a new world. Instead of three Ps, now it’s the five Ps: price, product, promotion, placement and partnership.

No longer can any company be successful without the five Ps in today’s complex marketing and sourcing environment. The days are gone when a company manufactured the product, sold it through multiple levels of distribution and finally the end user. 

The old-school marketing evaluation was based strongly on the product features, benefits, the price and some type of promotion, with less regard to the market placement and partnership arrangement. In many cases, this resulted in many millions of product obsolescent dollars sitting in warehouses and on dealers’ shelves. 

You have to think early in the process about those with whom you will do business and how you do business together and where the product is targeted to the market. You have to influence your ability to survive the various business swings developing each year strategically.

In a world where consolidation is a permanent buzzword, the five Ps become even more critical. Why? The old, three Ps are a given today. They are assumed in any new program sold in the millwork industry.

Product Placement
Let’s look at the fourth P: placement (i.e., distribution). 

In the industry today, products are becoming more straight-line from manufacturers to the end user. This assumes there is a huge cost benefit in eliminating two-step for one-step or manufacturers selling directly to builders or professional remodelers.

A very bright chief executive officer of a major building products company made a remarkable and lasting statement at a conference I attended when he said, “You can get rid of the distributor, but you can’t get rid of the cost of distribution.” 

Everybody wants this service and somebody pays for the cost of the service.

If you are a manufacturer, it is a critical, up-front decision deciding if the product will be sold direct, one-step or two-step. If you are a distributor or dealer, you want to understand how a manufacturer goes to market with its core products.

What Affects the Placement Decision?
The placement channel decision is a critical once the targeted final customer decision is made. An understanding of who services the channel and who owns the company and services the channel are good strategic questions that need to be answered. 

The placement cost to reach the market (more layers, more cost) and timing of introduction fits very well into the research process. 

Once you roll the analysis together, can you hit the product’s recommended sale price and give the manufacturer and distributor another important P word for both companies—profit?

In the millwork industry, due to consolidation, the major channels are very defined and highly visible within the major markets of new construction and re-modeling. The basic channels are:

• New Construction: (builder) via pro dealer, specialty distributor or fabricator/installer, or commercial contract accounts;
• Remodeling: do-it-yourselfer, pro remodeler (buy-it-yourself, installed by a pro) or the pro-selected-bought-it-and-installed-it (turnkey) for the customer; and 
• Renovation: sold through commercial or contract accounts.

The placement is a key decision for the manufacturer and the distributor, as this decision determines the strategy to write the marketing plan and has a big impact on the original three P assumptions.

Creating product awareness also is vital in selecting your promotion and placement, as well as branding. Where the product is placed and to whom and how the product goes to market are important factors as to whether there will be a corporate or private-label brand. Make this decision carefully, after five years; it is very expensive to reverse 

Now, let’s look at the fifth P: partnership. 

Market channel, product sourcing and terms of the arrangement are more complex today. The arrangements also are no longer old-school, traditional thinking. 

Sometimes in manufacturing of multiple products, your customer may also be your competitor (under private label) and your distributor also will market several competing products, either as branded items or under various generic product names with varying price points. Consider also, you may sell a product to one customer while sourcing a separate product from the same customer for another marketing channel, or all of the above.

Deciding on a Partner
When trying to decide with which companies you want to align yourself, it is essential to do your homework. Here are three ideas to keep in mind:

• Research: What is the strategic and financial value of the company or product? What is the customer offering presently and what will he offer in five years? Will the customer have increased growth and profitability for five years, as well as provide market and product differentiation? 
Is it possible to serve multiple channels? Does the partner you are considering have a workable culture with your company? Has the partner displayed a win-win attitude in the past with other companies?
• Trust: At the end of the day, you can write anything down; however, the reality is people make contracts and agreements. A good team captain makes the deal, supports the deal and keeps the spirit of understanding between all parties. After all, you have to be able to work together when issues arise and be fair in the conclusions. 

Follow Up and Celebrate
Everybody wants to know if they are doing good or bad jobs, and anyone of value wants to do the right thing and improve performance. Quarterly updates are a must, and annual overviews should never be missed. Celebrate what you have accomplished and make the relationship of doing business together fun. 

My doctor has a follow-up practice of celebrating with a cookie and a Diet Coke with his patients when a serious clinical test is returned with good news. This may sound simple, but it is fun when the news is good. 


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