Distribution Channel Dynamics

Sun, 08/07/2011 - 02:55 -- Umar Farooq

Conventional Marketing System

Conventional Marketing System comprises of an independent producer, wholesalers and retailers (2level).  Each is a separate business, seeking to maximize its own profits, even if it reduces profit for the system as a whole.  No channel member has complete or substantial control over others.

Vertical Marketing System (VMS)

It is co-ordination of successive levels of production and distribution. Producer, wholesaler and retailer act as a unified whole.  One channel member, the channel caption, owns the others or franchises them or has so much power that they all co-operate.  The channel captain can be the producer, the wholesaler or the retailer.

Types of  Vertical Marketing System 

CORPORATE Vertical Marketing System: It combines successive levels of production and distribution under single ownership.  Vertical integration is favored by those companies that desire a high level of control over the channels.

ADMINISTERED Vertical Marketing System:  It co-ordinates successive level of production and distribution through the power of one of the member, the channel captain, usually the producer.

CONTRACTUAL Vertical Marketing System:  It consists of independent firms at different levels of production and distribution integrating their programs on contractual basis to obtain more economies or sales impact (synergy effect).  These are also called Value-adding partnerships (VAPs).  Cont

TYPES OF CONTRACTUAL VMS

a.       Wholesaler sponsored voluntary chains.

b.       Retailer co-operatives.

c.       Franchise organizations: Franchisor might like revival successive stages in production distribution process. Fastest growing

Horizontal Marketing Systems

Resources of two are more unrelated companies are pooled to exploit an emerging market opportunity.  AYS Fridgeco & BOK

Advantages

1.       More coverage

2.       More economy

3.       More customized selling.

Disadvantages

1.       Conflicts and control problems.

Types of org. conflict

1.       Vertical

2.       Horizontal

Reasons

1.       Goal incompatibility

2.       Differences in perception.

3.       Dependence of intermediaries on producers.