VERTICAL AND HORIZONTAL

MARKETING SYSTEM

Submitted by : Deepak Kumar

MBA - 1st Sem

Distribution channels

• Distribution channels are intermediaries used by the producers to bring their products to the market.

• For example :- sells its car to

customer through dealer .

• So , Here dealer act as intermediate between producer and customer .

WHY ??

• Intermediaries bring greater efficiency in making goods available to target markets.

• In other words, they matches the supply with the demand.

• Most important benefit of using intermediaries is that they provide economies. They reduce the amount of work that must be done by both producers and consumers.

Number of Channel Levels :

a direct marketing channel ;

Has no intermediary levels.

Here, the producer sells directly to consumers

For e.g. sells its products door to

door or through home parties.

An indirect marketing channel ;

contains 1 (retailer) ,2 (wholesaler +

retailer)

or

3 (wholesaler + jobber + retailer)

intermediary levels.

Channel Behavior

• All channel firms should work together to be successful.

• Each channel member is dependent on others.

• a Ford dealer (retailer) depends on the Ford Motor Company to design cars that meet consumer needs.

cont.....

• In turn, Ford depends on the dealer to

attract consumers, persuade them to buy

Ford cars, and service cars after the sale.

• The Ford dealer also depends on the other

dealers to create a good overall reputation

for the entire distribution channel.

Conflicts …

• Although channel members are dependent

on one another, they often concentrate on

their short-term benefits.

• Channel conflict occurs when disagreement

among channel members on goals and roles

.

– Horizontal conflict; occurs among firms at the same level of the channel. In other words, one dealer may complain about the other.

– Vertical conflict; occurs among different levels of the same channel. In other words, the producer may complain about its dealers or vise versa.

– Eg : Between wholesaler and Retailer .

So there are conflicts at all levels ……

To eradicate conflicts , Modern channel management has evolved to develop

vertical marketing systems (VMS)

Vertical Marketing Systems

• Vertical Marketing Systems (VMS) consists of producers, wholesalers, and retailers acting as a unified system - that seek to maximize profits for whole channel.

• Here, one channel members-

owns the others,

has contracts with them or

use so much power that they all cooperate.

• Such systems occur to control channel behaviorand manage channel conflict.

A conventional marketing channel versus a vertical marketing system

Types of Vertical Marketing Systems

Corporate

VMS

Wholesaler-

sponsored

voluntary

chains

Retailer

cooperatives

Franchise

organizations

Contractual

VMS

Administered

VMS

Vertical

marketing

systems (VMS)

Corporate VMS

Combines successive stages of production and

distribution under single ownership.

Breweries and petrol stations are examples.

Contractual VMS

• Independent firms join contractually at different

levels to create efficiencies and economies .

• 3 types :• Wholesaler-sponsored voluntary chains of

independent retailers organised to compete against

large organisations.

Eg: Coca-Cola bottler is a manufacturer-sponsored

wholesaler.

• Retailer co-operatives

• Franchisee

– retailer cooperatives; are contractual marketing

systems in which ;

– retailers organize a new or

– jointly owned business to carry on wholesaling and

possibly production.

– Eg ; Indian Coffee House , Mother Dairy , Karnataka

Milk Federation (KMF).

– franchise organizations; are contractual marketing

systems in which a channel member, called a franchiser,

links several stages in the production-distribution process.

There are three forms of franchisees;

• manufacturer-sponsored retailer franchisee system e.g.

Ford licenses dealers to sell its cars. The dealers are

independent business people who got sponsered by

manufacturer.

• manufacturer-sponsored wholesaler franchisee system e.g.

Coca-Cola licenses bottlers (wholesalers) in various markets

who buy Coca-Cola syrup concentrate and then carbonate,

bottle and sell the finished product to retailers in local markets.

• service-firm-sponsored retailer franchisee

system in which a service firm licenses the

retailers to bring its service to consumers.

• Example;

Administered VMS

• One member of the channel is large and

powerful enough to coordinate the

activities of the other members without an

ownership stake.

• Examples ;

Vertical Advantages…

• High operating Efficiency .

• Each layers has clearly defined functions

and responsibilities.

• Closely monitor and control .

Horizontal Marketing Systems

• Horizontal marketing systems is a channel

arrangement in which two or more

companies at one level join together to

follow a new marketing opportunity.

• The major benefit is that companies

combine their capital, production

capabilities, marketing resources and

therefore accomplish more.

• E.g. Coca-Cola and Nestle formed a joint

venture to market ready-to-drink coffee

and tea worldwide.

Horizontal Advantages

• Greater satisfaction due to greater

freedom and autonomy .

• Provides streamline due to absence of

multiple structured layers .

THANK YOU