One of the more famous marketing frameworks is the Marketing Mix, also known as “The Four P’s.” According to the framework there are four key components to a marketing plan:
- Product (what is actually sold)
- Price (how much the product is sold for)
- Promotion (how customers find out about the product)
- Place (where the product can be found)
Of these four the most difficult and expensive — and thus, the greatest barrier to entry (i.e. the biggest moat) — was place. Actually getting your product in front of customers required relationships with wholesales and retailers, not to mention significant investments in logistics. Indeed, the companies who controlled distribution were often the most profitable of all.
Consider the media industry: broadcast networks had rights to the airwaves, cable networks needed to get carriage (which itself was offered by private companies, earning them tremendous profits), newspapers owned printing presses and delivery trucks, music companies printed albums and got them into stores, publishers did the same with books. From a business-model perspective all of these companies were similar: by controlling distribution they collected rents on what was actually distributed.
It’s not just media, though. Selling anything — clothes, shoes, pots and pans — depended on actually getting your product on the shelves, which meant dealing with wholesalers, retailers, shippers, etc., all of whom extracted their chunk of flesh. Your typical manufacturer would be lucky to get 40% of the retail price of an item, and often far less — and that is if said manufacturer could get their item in a store in the first place.
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In short, starting a new business in any industry was really, really hard: simply getting your foot in the door required not just a great product but also a massive investment in getting that product in front of customers, and we haven’t even gotten to promotion (much less a price that pays for it all).
This ultimately benefited the largest players: Proctor & Gamble, for example, could leverage its relationships with retailers who already sold Tide laundry detergent and Pampers diapers to get shelf space for a new product line. Big department store chains could demand exclusivity for new apparel or drive down the price. Media companies could pick and choose who to feature, and on their terms.
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This is what the “good old days” looked like: pre-existing businesses at best competed with a known set of peer companies, or as was often the case, dominated individual markets, limited only by their ability to scale. Of course things weren’t so good for the folks who couldn’t manage to get distribution: at best they could throw their product over the wall and hope for whatever crumbs got tossed back for their trouble, while customers had to settle for products that tended to serve the lowest common denominator.
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This context is why I tend to roll my eyes at, for example, complaints about the 30% commission charged by app stores. It used to be that publishing a piece of software was only partially about creating said software: just as important, if not more, was getting said software onto shelves where customers could actually pick them up, and a publisher was lucky to keep 30% of the retail cost for the privilege.
App stores changed everything: now anyone with a developer account could publish an app on the exact same terms as anyone else; Apple and Google could afford to do that because the Internet made shelf space effectively infinite. The wall was gone!
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What does it mean to be differentiated? There’s no question it has something to do with that first ‘P’, product. A differentiated product is “better” in some way, but all too often putting your finger on exactly what is better is a frustrating exercise. It just “feels” better, or, to switch that around, it’s about how it makes you feel. I’ve written extensively about the importance of the user experience and this gets at the same point: delivering an experience is less about features than it is the entirety of the experience, including approachability, usability, and even things like status or fitting in.
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I think the model is broadly applicable. I wrote two weeks ago about how the future of publishing will not be about monetizing pure words but rather about using words to gain fans that can be monetized through other harder-to-discover media. Time and attention remain precious commodities and earning trust in one area gives you the right to make money from it in another. Similarly, as I wrote last week, software generally should be seen as a lever to solutions that are much more meaningful to customers, and much more difficult to copy. After all, as noted above, software is infinitely copyable: better to use that quality to your advantage than to base your business model on fighting gravity.
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[N]ow that distribution is free the time and money saved must instead be invested in getting even closer to customers and more finely attuned to exactly why they are spending their money on you. Any sort of software — or writing, or music, or video, or clothing, or anything else — has never been purchased for its intrinsic value but rather because of what it did for the buyer — how it made them feel (informed, happy, relaxed, etc.).
Link to the rest at Stratechery
PG thinks one of the reasons that many indie authors are successful is that they stay very close to their readers.