Channels Flashcards
Channel Behavior
_Distribution channels are more than simple collections of firms tied together by various flows. They are complex behavioural systems in which people and companies interact to accomplish individual, company, and channel goals. Some channel systems consist of only informal interactions among loosely organized firms. Others consist of formal interactions guided by strong organizational structures.
_A marketing channel consists of firms that have partnered for their common good.
-Each channel member depends on the others.
Each channel member plays a specialized role in the channel.
-Ideally, because the success of individual channel members depends on the overall channel’s
success, all channel firms should work together smoothly. They should understand and
accept their roles, coordinate their activities, and cooperate to attain overall channel goals.
Channel Conflicts ?
However, individual channel members rarely take such a broad view. Cooperating to achieve overall channel goals sometimes means giving up individual company goals.
Although channel members depend on one another, they often act alone in their own short run best interests. They often disagree on who should do what and for what rewards. Such disagreements over goals, roles, and rewards generate channel conflict.
Horizental Conflict
Horizontal conflict occurs among firms at the same level of the channel
For instance, some Ford dealers in Chicago might complain that other dealers in the city
steal sales from them by pricing too low or advertising outside their assigned territories.
Or Holiday Inn franchisees might complain about other Holiday Inn operators
overcharging guests or giving poor service, hurting the overall Holiday Inn image.
Vertical Conflict
Vertical conflict, a conflict between different levels of the same channel, is even more common.
[For example, Retail Food Group (RFG) Limited, an Australian franchiser,
has recently been embroiled in an escalating dispute with its franchisees:]
Healthy conflict
Some conflict in the channel takes the form of healthy competition. Such competition
can be good for the channel; without it, the channel could become passive and non-innovative.
What is Conventional distribution channel?
Conventional distribution channel:
A channel consisting of one or more independent producers, wholesalers, and retailers, each a separate business seeking to maximize its own profits, perhaps even at the expense of profits for the system as a whole.
Vertical Marketing System
Historically, conventional distribution channels have lacked such leadership and power, often resulting in damaging conflict and poor performance. One of the biggest channel developments over the years has been the emergence of vertical marketing systems that provide channel leadership.
_Vertical Marketing System (VMS):
A channel structure in which producers, wholesalers, and retailers act as a unified system. One channel member owns the others, has contracts with them, or has so much power that they all cooperate.
Vertical marketing system is simply a channel in which members at different levels (Producer, wholesaler,retail) work together in a unified way to accomplish the work of the channel.
Corporate VMS
A vertical marketing system that
combines successive stages of
production and distribution under
single ownership—channel leadership
is established through common
ownership.
Contractual VMS
A vertical marketing system in which
independent firms at different levels
of production and distribution join
together through contracts.
Franchise organization
A contractual vertical marketing
system in which a channel member,
called a franchisor, links several
stages in the production-distribution
process.
