Distribution Management

For

Bachelor of Business Administration

Unit 2

Marketing Channels
© 2005 John Wiley & Sons

Resource person

Dr. Sana-ur-Rehman

PPT 1-1
 Management Paradigm
• One of the most significant paradigm shifts
of modern business management is that
individual businesses no longer compete
as solely autonomous entities, but rather
as supply chains

Distribution Management PPT 1-2

 Marketing Channels
• Marketing channels are defined as the internal
(own sales force) or external (contractual)
organizations that management operates to
achieve in distribution objectives.

Distribution Management PPT 1-3

 Channel Levels
Zero level One level Two level

Producer Producer Producer

Wholesaler

Retailer Retailer

Customer / Customer/ Customer/

consumer Consumer Consumer

Distribution Management
 Prominent Channel Systems
• Vertical Marketing Systems
– Channel entities bond together to deliver
service to the customer.
• Corporate
• Administered
• Contractual
• Horizontal Marketing System
– Two or more unrelated companies work
together using the marketing channel to benefit
both.
Distribution Management PPT 1-5
 Vertical Marketing Systems
• Vertical marketing system (VMS)
Planned channel system designed to improve
distribution efficiency and cost effectiveness by
integrating various functions throughout the
distribution channel
• Rely on forward or backward integration
– Forward integration―Firm attempts to control
downstream distribution
– Backward integration―Manufacturer attempts to
gain greater control over inputs to production process

12-6
 Corporate VMS
• Successive stages of production and distribution
are handled by one entity.
• Ownership of different distribution channel might
be with one entity.
• High degree on control over channel
• Example
– Precious Medical Diagnostic equipment
– Large retailers Food World and Shoppers’ Stop

Distribution Management PPT 1-7

 Administered VMS
• One channel leader (dominent) in the channel
network influences and controls the other
channel partners.
• Most manufacturer of large size like Nestlѐ
dictate the terms to retailers.
– For example about price, stock levels, shelf space
allocation and prominence of displays

Distribution Management PPT 1-8

 Contractual VMS
• Convenient arraignments made b/w channel members to
exploit favorable opportunites and economies of scale.
• Some times called value-added partners.
– E.g. Franchisees, retailer co-operatives
– Manufacturer sponsored wholesale franchise like soft drink
bottlers who buy the concentrate from Pepsi or Coca Cola.
– Service firm sponsored retailer franchise like
Starbucks, Coffee Day, McDonalds and Pizza Hut

Distribution Management PPT 1-9

Conventional
Vertical Marketing System

PRODUCER

PRODUCER

WHOLESALER
WHOLESALER

RETAILER
RETAILER

CONSUMER CONSUMER

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

 Horizontal Marketing System
• A horizontal marketing system is a distribution channel
arrangement whereby two or more organizations at the
same level join together for marketing purposes to
capitalize on a new opportunity
– Partner may exploit the marketing opportunity better by this tie-
up.
– This opportunistic arrangement could be short or ling term.
– May benefit from the strength of each other.
– E.g. ATMs on Petrol pumps or Café shops or Airports

Distribution Management PPT 1-11

 Strategic Alliance
• A strategic alliance is an agreement
between two or more partners to share
knowledge or resources which could be
beneficial to all parties involved.
• Intra-industry alliance
• Inter-industry alliance

Distribution Management PPT 1-12

 • Why VMSs and HMSs ?

Distribution Management PPT 1-13