Home » Distribution Channels » Explain different types of channels (Vertical, Conventional and Multiple) and channel strategies (Exclusive, Selective and Intensive). Show
Types of channels- Vertical marketing channel has the manufacturer, wholesaler and retailer working as one system. They formally agree to cooperate with each other. The responsibility of functioning of each channel member in owned by one member. This arrangement is done through contractual agreement. The member which has authority over all the member can be the manufacturer, wholesaler or the retailer. They work in cohesion, and conflicts between channel members don’t exist. This type of channel came into existence to avoid disagreements and conflicts among channel member. As independent members try to force their influence to meet their objectives, there is always a possibility of conflict and powerful channel member influencing the other. Once the channel operates as a one system and managed by one member, there is much clarity and coordination among channel members to achieve the channel objectives. In Multiple marketing channel, the
manufacturer utilises two or more marketing channels in the target market. This channel can be planned and implemented for various reasons. A manufacturer gains more market coverage through additional channel by targeting additional segments. For example, introduction of ecommerce serves a segment of consumers that are tech savvy and like home delivery and research of products on internet. It can also lower the costs. For example, a manufacturer can open a company store in the target market.
Customers would prefer a company store rather than an intermediary because of reasons like brand image, etc. here the firm saves on the margins that it shares with the channel members. If the firm is a market leader, an additional channel often brings competition among the intermediaries who strive to promote and sell the products more enthusiastically. An additional channel like a sales force also helps getting directly in contact with the customer. This provides proper education, and service
for complex products to the customer and a reliable feedback to the organisation. Advertisements Channel Strategies – Organisations, depending on their marketing strategy, decide on the number of channel members. There are three channel strategies that organisations chose from – Exclusive distribution, Intensive distribution, and Selective distribution- • Exclusive distribution – In exclusive distribution, a firm selects only one or few intermediaries for product distribution. This leads to a strong relationship between the manufacturer and the intermediary. This system demands high level of support between the manufacturer and distributer. They both become highly dependent on each other. Manufacturer requires the knowledge and distribution expertise of the intermediary. The intermediary is asked to promote the product, and they generally do this enthusiastically as they get the benefits of higher sales. The intermediary being the sole distributor benefits from the product’s success in the market. In case the manufacturer alters the contract or gives additional selling rights to other intermediary, the relationship between intermediary and the manufacturer hits a low. Intermediaries may block the sale of products at its outlet. Many TV series sign exclusive contracts with networks for exclusive premier on certain TV channels. Manufacturers of electronic items and automobiles also sign exclusive distribution contracts. In India, Motorola, gave exclusive rights to Amazon India to launch and sell its Moto G4 model of its mobile phone. • Intensive distribution – In intensive distribution, a firm sells products through as many outlets as possible. The products which can be easily accessed by customers without much shopping effort are sold through intensive distribution. For example, newspapers, milk, soaps, etc. These products do not require much additional services from intermediaries apart
from handling and assigning shelf space. A customer can walk into any retail store or supermarket or a shopping mall and choose or ask for the product needed. The consumers can get these products when and where they are needed. These for mostly the FMCG products. This strategy provides great brand exposure and consumer convenience is given high priority. Advertisements • Selective distribution – In selective distribution, the manufacturer opts to distribute products at select outlets and in select regions. This distribution lies between Selective distribution and Intensive distribution. Selective distribution gives more market coverage than Exclusive distribution and better control on the marketing channel than Intensive distribution. The intermediary may be required to add value in some way like outlet ambience, customer education before and after the sale of the product, etc. This channel strategy is also less costly as compared to Intensive distribution. For example, Cannon cameras can be found in many outlets but not all the models at all these outlets. The manufacturer sells its select models at select outlets appealing to different customers in the target markets. For expensive products organisations usually go for exclusive distribution over selective and intensive distribution. This way the firm controls the prices as well as the brand image. A vertical marketing system is the type of cooperation between the members of a distribution channel. It includes a producer, a wholesaler, and a retailer collaborating to deliver necessary products to their customers and aims at achieving better efficiency and economies of scale. In this article, we’ll review the benefits of a vertical marketing system and its types and grab some inspiration from our example. Advantages of Vertical Marketing SystemCompanies preferred a conventional marketing system earlier. It can be described as one where retailers, wholesalers, and producers operate independently to earn better profits, even at the expense of one another. The system caused a lot of conflicts between business partners and reduced ROI. To avoid such consequences, some companies decided to switch to a vertical marketing system. In a vertical marketing system, manufacturers, wholesalers, and retailers participate together in the production and distribution process. Therefore, business owners can manage their businesses efficiently and obtain a more significant market share. A vertical marketing system tries to eliminate competition and conflict that often arise between companies. As a result, there’s better efficiency and a reduction in product costs. In this system, producers, wholesalers, and retailers cooperate to reach their business objectives and gain increased profits for all parties involved. Besides, each member has the power to control channel activities. This cooperation allows businesses to control all aspects of a company, helps solve problems, and boosts efficiency. However, to achieve success, the system requires good communication and coordination skills. Different types of businesses can use vertical marketing systems. Whether it’s a small firm or an enterprise, the system helps create a strong bond with suppliers, distributors, and retailers. Now that you know the pros, let’s proceed to the types of this marketing system. Types of Vertical Marketing SystemThe system can be divided into three main types. Let’s review each of them in detail and with examples.
Now that you know a lot about this system, it’s time to explore an example. Example of Vertical Marketing SystemYou can find a lot of examples among modern companies. This is because the system allows firms to manage the costs and logistics of a distribution channel to improve their efficiency and reduce product costs. Let’s take Zara, for example. The brand has complete control over all activities of the supply chain. This prevents the company from having any conflicts. Zara owns all stores, so they follow the same marketing strategy. Complete integration of all activities removes reasons for conflict between channels and stimulates maximum efficiency. Simply put, a vertical marketing system is an alternative to a traditional marketing system. It ensures the cooperation between several companies and helps them meet customers’ needs, gain more profits, and reduce costs. Resources:
Last Updated: 12.07.2022 Rate this article about "Vertical marketing system" What is the main difference between the conventional marketing system and the vertical marketing system?Retailers focus efforts on selling products to customers, while manufacturers focus on making products and wholesalers worry about getting the products from one to the other. In vertical marketing systems, the majority of responsibility tends to fall on one channel member.
What is a conventional marketing system?Companies preferred a conventional marketing system earlier. It can be described as one where retailers, wholesalers, and producers operate independently to earn better profits, even at the expense of one another.
What is the difference between vertical and horizontal marketing?A vertical market is a market in which vendors offer goods and services specific to an industry, trade, profession, or other group of customers with specialized needs. A horizontal market is a market in which a product or service meets a need of a wide range of buyers across different sectors of an economy.
What is vertical marketing system?A vertical marketing system is when producers, wholesalers and retailers work in unison to meet their customers' needs. It allows one company to have control over the entire process of producing and selling a product.
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What is the difference between conventional marketing system and vertical marketing system?
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