Discuss the four broad marketing channel systems.

1. Conventional distribution/marketing channel.
Consists of an independent producer, wholesaler(s) and retailer(s). Each is a separate business entity seeking to maximize its own profits, even if it reduces profits for the system as a whole. No member has absolute or substantial control over the other channel members. Individual members performed their own functions. It represents highly “fragmented networks in which loosely aligned manufacturers, wholesalers and retailers have bargained with each other at arm’s length, negotiated aggressively over terms of sale and otherwise behaved automonsly”. Some of the limitations of these channels include lack of strong leadership, damaging channel conflicts, poor performance

2. Horizontal Marketing System (HMS)
Is a marketing system where members of the same level of operation integrate. For instance, producers can integrate with other producers or wholesalers with other retailers i.e. it refers to the development of distribution system by two or more firms to market their products e.g. two or more nonrelated companies may “put together resources or programs to exploit an emerging opportunity . They work together either on temporary or permanent basis or create a separate company

3. Vertical Marketing System (VMS)
This a distribution channel/ marketing channel structure in which producers, wholesalers, and retailers act
as a unified system. One channel member owns and coordinates the others, has contracts with them, or has so much power that they all co-operate. The channel member manages channel activities to achieve efficient, low cost distribution aimed at satisfying the target market customers.
There are three types of Vertical Marketing Systems, Corporate, Administered and Contractual.
a) Corporate VMS: A vertical marketing system exists where members of the production – distribution chain combine or operate under a single ownership . The channel leadership is established through a common ownership. This means that a firm owns and operates other levels in the channel and the dominant organization may be the producer , wholesaler or retailer . More than one stage of the production and distribution channel are under one ownership and leadership e.g. supermarket chains that own processing plants and large retailers that purchase wholesaling and production facilities. There are basically two forms of corporate VMS:
1. Forward integration: means that the producer operates at retail or wholesale level . Examples: oil companies and tire manufacturers.
2. Backward integration- occurs when the retailer owns and operates at wholesale or manufacturing level. Example: McDonalds chain Restaurant owns and operates the own supplies.
Advantages:-
• Creation of a channel that is tailored to the owner’s product and marketing objectives.
• Those objectives are shared throughout the channel.
• The owner has ultimate control over the activities of the channel and its members
Disadvantage:-
• Leads to collusions which might result in biased consumer advice and/or product sales.
b) Administered VMS : Coordination and control is achieved through the power of one of the channel members i.e it is in realty a conventional channel in which a dominant channel has emerged. Channel members are independent with a high level of inter organizational management by informal coordination. Agree to adopt uniform accounting policies etc., and promotional activities. One Channel member dominates, has a channel leader. Examples: Pepsi, Coke , general electric company
Channel Leader-Effectiveness of channel hinges on channel leadership. Leader must possess channel power. Power can come in the following forms:
• Reward--provide financial benefits
• Expert--be the expert compared with other members
• Referent--strongly identify with leader
• Coercive--punish members
c) Contractual VMS : vertical marketing system in which independent firms at different levels of
production and distribution join together through contracts to obtain more economies or sales impact than they could achieve alone. Most popular VMS, inter organizational relationships formalized through contracts that spell out each members rights and obligations. I.e.. members of the channel retain their independence but negotiate contractual agreements that satisfy their terms covering such issues as stock levels and pricing policies. There are three types of Contractual VMS:
1. Retail cooperatives – exist where groups of retailers agree to work together and to combine and increase their purchasing power by supporting their own whole operations i.e. Retailer sponsored cooperatives which set up, own and operate their own wholesalers
2. Wholesaler Voluntary chains : exist where wholesaler sponsored and independent retailers band together under contractual leadership of a wholesaler on purchasing , inventory and merchandising programs.. E.g. large food wholesalers in Kenya that offers a broad package of services independent food retailers that voluntarily enter into a buying contract.
3. Franchise systems- an ongoing contractual relationship between a franchisor who owns the product concept and a franchisee who is allowed to operate a business within an agreed territory , in line with the methods , procedures and overall blueprint provided by the franchisor. Managerial support , training , merchandising and access to finance are effectively exchanged for conformity and a specified fee and/or royalties on sales.

4. Multichannel marketing systems
It refers to the use by a company two or more marketing channels to reach one or more customer segments
The purpose of this is-:
1. Increased market coverage e.g. to reach a market segment not served by existing channels.
2. Lower channel costs e.g. use of telemarketing rather than personal selling to small customers
3. Providing more customized selling e.g. adding features to fit customer requirements

---

Lellah answered the question on November 8, 2021 at 05:29