Conventional channels:

The manufacturer, wholesaler and retailer are

each independently owned.
Characteristics of conventional
channels:
 Most common.
 Decisions regarding strategy based on
negotiations..
 Least formalized.
 Least permanent.
 Autonomous behavior.
 Conflict and bargaining.
Vertical marketing
systems:
Characterized by alliances or networks in which
a producer, distributor and a retailer act as a
unified team.
Major assumption
underlying VMS:
The combined performance of all channel
members as a coordinated unit is greater
than the sum of independent channel
members in a conventional channel.
Advantages of VMS to manufacturer:
 Better inventory planning.
 Increased reseller trust.
 Improved co-ordination of marketing efforts
within channel.
Benefits of VMS to distributors:
 Association with a product or a company that
has image.
 Improved marketing, management, financial
troubleshooting assistance from manufacturer.
 Limited competition.
Disadvantages of VMS:
Constrained decision making.
Methods for achieving VMS:
 Corporate VMS.
 Administered VMS.
 Contractual VMS.
Corporate VMS:
All production and distribution activities are
controlled by one firm through common
ownership.
Two strategies for achieving a
corporate VMS:
 Forward VMI.
 Backward VMI.
Forward Vertical
Integration:
Manufacturers acquire or build retail channels,
or wholesaler acquire or build up retail
channels.
Advantages of Forward Integration:
 Control of the ways in which merchandise is
displayed, promoted, sold, delivered installed
and repaired.
 Quickly determine market trends.
 Refine marketing strategy.
Backward Vertical
Integration:
Retailers acquire or build wholesale
operations, wholesale acquire or develop
manufacturing operations, or retailers
purchase or develop manufacturing
operations.
Administered Marketing systems:
 The dominant firm in the channel allocates
and coordinates the responsibilities of each
seller.
 One channel member recognized as leader
and others yield to his influence.
Forms of Channel Power:
 Coercive power.
 Reward power.
 Referent power.
 Expertise power.
 Persuasion power.
 Legitimate power.
 Information power.
Advantages of Administrative VMS:
 High co-ordination among impendent channel
members.
 Focus on a common goal.
 Increased sharing of information.
Disadvantages of AVMS:
Potential conflict owing to a lack of acceptance
of a channel’s member power.
Contractual Marketing
Systems:
Achieve co-ordination among independent
resellers through legal agreements.
Forms of contractual marketing
systems:
 Retailer-owned co-operative systems.
 Wholesaler-sponsored voluntary chains.
 franchise Systems.
Retailer-owned Co-operative
systems:
 Independent retailers form associations that
purchase, lease, or build wholesale facilities.
 Purchase a minimum level of merchandise
from the co-operative.
 Buy shares in the co-operative.
Advantages of RCS:
 Performing wholesale functions.
 Receive quantity discounts.
 Have access to private brands.
Disadvantages of RCS.
 Restrictive covenants for members.
 Reactions of former suppliers.
 Potential conflict among members.
Wholesaler-sponsored
voluntary chains:
Independent retailers affiliate with an existing
wholesaler to use a unified name, format, and
purchase system.
Similarities between the two
systems:
 Members are required to buy a given portion
of merchandise from group.
 Having standardized operating formats.
 Use common identification, signage and
advertising.
Franchise systems:
Involve contractual agreement between a
franchisor and a franchisee, which allows the
franchisee to conduct a given form of business
under an established name and according to a
given pattern of business.
Types of franchises:
 Organizational format.
 Type of agreement.
 Form of expansion.
Methods of coordination and control
in franchising:
 Legal control.
 Economic control.
 Administrative control.
 Secondary linkages.
Advantages and disadvantages to
franchisor:
 Resource scarcity and administrative
efficiency.
 Secure rapid market penetration and
economies of scale.
 Control and potential conflict.
 Image may suffer if service or product not to
standards.
Advantages and disadvantages to
franchisee:
 Uniform image.
 Economies of scale.
 Management assistance.
 Use of a proven operating format.
 Conflict.
 Constrained decision making.