Channel Organisation
Category: Marketing
Historically, distribution channels have been loose collections of independent companies, each showing little concern for overall channel performance. These conventional distribution channels have lacked strong leadership and have been troubled by damaging conflict and poor performance.
One of the most important recent channel developments has been the vertical marketing systems which have emerged to challenge conventional marketing channels.
Conventional distribution channel consists of one or more independent producers, wholesalers, and retailers. Each is a separate business seeking to maximise its own profits, even at the expense of profits for the system as a whole. No channel member has much control over the other members, and no formal means exist for assigning roles and resolving channel conflict.
Vertical distribution channel. By contrast, a vertical marketing system (VMS) consists of producers, wholesalers, and retailers acting as a unified system. Either one channel member owns the others, has contracts with them, or wields so much power that they all cooperate. The vertical marketing system can be dominated by the producer, wholesaler, or retailer. VMS’s came into being in order to control channel behaviour and manage channel conflict. They achieve economies through size, bargaining power, and elimination of duplicated services. VMS’s have become dominant in consumer marketing, serving as much as 64 percent of the total market.
Franchise organisations. A channel member called a franchiser links several stages in the production-distribution process. Franchising has been the fastest-growing retailing form in recent years. Almost every kind of business can be franchised — from motels and fast-food restaurants to dentists and dating services, from wedding consultants and maid services to funeral homes and tub and tile refinishers.
Horizontal marketing system. Another channel of development is horizontal marketing systems, in which two or more companies at one level join together to follow a new marketing opportunity. By working together, companies can combine their capital, production capabilities, or marketing resources to accomplish more than any company working alone. Companies might join forces with competitors or non-competitors. They might work with each other on a temporary or permanent basis, or they may create a separate company.
