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CONVENTIONAL CONVENTIONAL

MARKETING CHANNELS MARKETING CHANNELS The network consists of isolated and autonomousThe network consists of isolated and autonomous

units, each performing a traditionally defined setunits, each performing a traditionally defined setof functions.of functions.Each unit is driven by its personal profit motives.Each unit is driven by its personal profit motives.

CoCo--ordination in the channel is achieved throughordination in the channel is achieved through bargaining and negotiation bargaining and negotiationThe channel relies heavily on unrestricted marketThe channel relies heavily on unrestricted marketforces.forces.


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D EMERITS OF CONVENTIONAL D EMERITS OF CONVENTIONAL

CHANNELS CHANNELS Given that conventional channels rely heavily onGiven that conventional channels rely heavily onunrestricted market forces, they may lose their unrestricted market forces, they may lose their

viability due to environmental changes.viability due to environmental changes.The channel may face severe problems due toThe channel may face severe problems due tohuman failingshuman failings

Effort to maximize profits by one unit may come atEffort to maximize profits by one unit may come atthe expense of another member, due to whichthe expense of another member, due to whichconflicts may ariseconflicts may arise

It is characterized by low loyalty of members.It is characterized by low loyalty of members.


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VERTICAL MARKETING VERTICAL MARKETING

SYSTEM SYSTEM Organized, structured & unified distributionOrganized, structured & unified distributionchannel system in which producer & intermediarieschannel system in which producer & intermediarieswork together to facilitate smooth flow of goods &work together to facilitate smooth flow of goods &services from producer to endservices from producer to end- -user.user.There is effective control over all elements of There is effective control over all elements of

producing and selling. producing and selling.Increased efficiency as problems can be anticipatedIncreased efficiency as problems can be anticipatedand resolvedand resolved

Conflicts in the channel may be minimizedConflicts in the channel may be minimized


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MERITS OF VERTICAL MERITS OF VERTICAL

MARKETING SYSTEM MARKETING SYSTEM Each unit participates to achieve systemEach unit participates to achieve system- -wide economies.wide economies.CoCo--ordination is achieved through detailed plans and comprehensiveordination is achieved through detailed plans and comprehensive

programs. programs.Tasks are routinized [Bucklin].Tasks are routinized [Bucklin].VMS can capitalize on programmed organization, economies of VMS can capitalize on programmed organization, economies of scale.scale.VMS can achieve higher degree of controlVMS can achieve higher degree of controlThe strength of the system lies in capitalization on role specificationThe strength of the system lies in capitalization on role specificationthrough shifting and allocating marketing flows.through shifting and allocating marketing flows.Overall better performance ( through centralization, roleOverall better performance ( through centralization, rolespecification and conflict management)specification and conflict management)


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TYPES OF VERTICAL TYPES OF VERTICAL

MARKETING SYSTEMS MARKETING SYSTEMS

VERTICAL MARKETING

SYSTEMS

ADMINISTEREDVMS

CONTRACTUALVMS

CORPORATEVMS


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A D MINISTERE D SYSTEMS A coordinated system of distribution channelA coordinated system of distribution channel

organizationorganization

F low of products from producer to endF low of products from producer to end- -user is controlleduser is controlled by the power and size of one member. by the power and size of one member.Locus of control lies with the administratorLocus of control lies with the administratorChannel members must be convinced that theChannel members must be convinced that theadministrator is (a) trustworthy (b) knows the situationadministrator is (a) trustworthy (b) knows the situation

better than them. better than them.Decision making is done by virtue of effective interactionDecision making is done by virtue of effective interactionof membersof members


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CONTRACTUAL SYSTEM This is a form of VMS in which independent firms atThis is a form of VMS in which independent firms atdifferent levels of distribution are tied together by contractdifferent levels of distribution are tied together by contractto achieve economies of scale and greater sales impactto achieve economies of scale and greater sales impact

Partners have disparate goals but there exists some formalPartners have disparate goals but there exists some formalorganization for inclusive goals.organization for inclusive goals.

Decision making is done at the top of inclusive structureDecision making is done at the top of inclusive structure but subject to ratification of members but subject to ratification of members ..


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CONTRACTUALSYSYTEM

VOLUNTEER GROUPS

RETAILER CO-OPERATIVE

F RANCHISEORGANIZATION

TYPES OF CONTRACTUAL SYSTEMS


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CORPORATE SYSTEMS

A system in which the orderly flow of productsfrom producer to end-user

Controlled by common ownership at different levels of theControlled by common ownership at different levels of thesystem.system.Corporate forward integration occurs when a manufacturingCorporate forward integration occurs when a manufacturing

firm decides to establish its own sales branches, distributionfirm decides to establish its own sales branches, distributioncenters or wholesale outlets.centers or wholesale outlets.Corporate backward integration occurs when retailers or Corporate backward integration occurs when retailers or wholesalers assume ownership of institutions that normallywholesalers assume ownership of institutions that normally

precede them in the marketing flow of goods and services. precede them in the marketing flow of goods and services.


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COMPARISION AMONG VARIOUS

MARKETING SYSTEMS D IMENSION CONVENTIONAL A D MINISTERE D CONTRACTUAL CORPORATERelation to theRelation to thegoalsgoals

No inclusive goals No inclusive goals Disparate goals butDisparate goals butinformal collaborationinformal collaboration

for inclusive goalsfor inclusive goals

Disparate goals butDisparate goals butsome organization for some organization for

inclusive goalsinclusive goals

Units organized for Units organized for inclusive goalsinclusive goals

Locus of decisionLocus of decisionmakingmaking

Within unitsWithin units With interaction of With interaction of unitsunits

At top structure,At top structure,subject to unitsubject to unitratificationratification

At top of inclusiveAt top of inclusivestructurestructure

Locus of authorityLocus of authority At unit levelAt unit level At unit levelAt unit level Primarily at unit levelPrimarily at unit level

Commitment levelCommitment levelto leadershipto leadershipsubsystemsubsystem

Only to unit leadersOnly to unit leaders Only to unit leadersOnly to unit leaders Moderate commitmentModerate commitment Norms of high Norms of highcommitmentcommitment

structure for structure for division of labor division of labor

no formal structureno formal structure Units structuredUnits structuredautonomously mayautonomously mayagree to division of agree to division of

labor, without anylabor, without anyrestructuringrestructuring

Units may agree toUnits may agree todivision of labor,division of labor,which may affect their which may affect their

structurestructure

Units structured for Units structured for division of labor division of labor


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COROLLARY COROLLARY Conventional marketing channels are composed of Conventional marketing channels are composed of independently owned units, where conflicts may ariseindependently owned units, where conflicts may arisefrequently.frequently.Vertical marketing systems routinize activities, reduceVertical marketing systems routinize activities, reduce

conflicts and achieve higher performance.conflicts and achieve higher performance.Contractual VMS has independent firms at different levelsContractual VMS has independent firms at different levelsof distribution tied together by contract to achieveof distribution tied together by contract to achieveeconomies of scale and greater sales impacteconomies of scale and greater sales impactIn administered VMS, flow of products from producer toIn administered VMS, flow of products from producer toendend--user is controlled by the power and size of oneuser is controlled by the power and size of onemember, called the administrator.member, called the administrator.Corporate VMS is a system that is controlled by commonCorporate VMS is a system that is controlled by commonownership at different levels of the system.ownership at different levels of the system.


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Q UESTIONS??? Q UESTIONS???

Market Ting Channels

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