What is a distribution channel? what are Conventional Distribution Channel and Vertical Marketing System? Compare them.

bring of Distribution

        In the uncertain fluctuating market of today, it is inhering for a comp whatever to hold on and face those uncertainties in aver to survive. Consumers female genitals be an aid for a companys survival, thereby it is essential for consumers to get the goods of a company whenever and however they need them. hither is where dispersion bestows come in and give hand. Channels of dispersion ar the different paths that goods passed by in piteous from the producer to the consumer, (Meyer et al, 1988). With the help of dissemination leads, companies are able to bruise the time, place and possession gaps that separate goods and services from the consumers. As state by Aaker (1984), access to an effective and efficacious trade stock is often a key success factor. However, in this combative era, an understanding of the alternative dispersion lends and the trends in their relation back importance wad be of strategical importance for any company. For example, the branch and importance can be of a self-importance service retail gasoline stations and the comparison growth in the importance of convenience stores such as the 7/11 chain in gasoline retailing has strategic significance to petroleum companies and distributors as well as to firms in food retailing (example adapted from Aaker, 1984). Addition tout ensembley, because of competition, gaining diffusion in nearly industries can be extremely difficult and costly. Nowadays, even large, open firms prepare trouble obtaining space on the supermarkets shelves for products with substantial selling budgets.

        As said by Kotler and Armstrong (2001), members of the market or dissemination perform several functions such as providing information for the company, promotes their goods and services, have contacts with buyers, matching buyers needs, as well as negotiate prices so that goods can be transferred. Some opposite functions include fleshly distribution, financing and risk taking.

        There are devil types of merchandising brasss. They are conventional distribution shifts and plumb merchandise corpse.

formal Distribution Channel

        According to Kotler and Armstrong (2001), a conventional distribution channel is a channel consisting of ane or more individual producers, wholesalers, and retailers, severally a separate business seeking to maximize its stimulate loot even at the expense of profits for the system as a whole. In this case, intermediaries operate on an individual basis or enter into some form of arrangements with suppliers and differentwise intermediaries. Moreover, a conventional channel network tends to be fragmented because manufacturers, wholesalers and retailers mint aggressively with each other over the prices and others.

Since channel members are separated and acts singly, none of them has much take in over the other members. For example, in a conventional distribution channel, manufacturers, distributors and retailers act independently so the manufacturers as the producer of the goods, cant decide anything for the other members, lets say, on what price should the distributors and retailers sell, where should they sell, etc. the manufacturers or the other members has no formal authority over each other. Moreover, in a conventional distribution channel, many conflicts may occur since there is the absence of a formal contract and also in most cases, their goals and aims differ. Another weakness of a conventional distribution system is that each and every member tries to reap a lot of profits in order to pursue their own corporate objectives. This may cause drawbacks for the system as each independent firm shows little concern for overall channel performance.

Vertical Marketing System

        According to Evangelista, et al (1984), an emendment over the conventional trade system, is the incorporate selling system which may be vertical or horizontal. A vertical merchandising system is a network of two or more levels of channel members as in the case of arrangement amidst manufacturers and wholesalers, wholesalers and retailers or between a manufacturer and a number of wholesalers and retailers (Evangelista et al, 1984). So here, all the members act as a single incorporated system.

        To illustrate the statement higher up, lets take an example of a generator. This writer writes his own books, owns the publishing company that publishes the book, creates a website that promotes his books, has a market company that advertise and markets his books and he also handles the distribution and raptus of the final product. Here it is clear that the author is aware of all the processes of producing the book and is able to control all the elements. This can be beneficial for the company because if in case a caper occurs in any area, he can quickly face it. He knows when the books are going to be printed, when and where it is to be shipped, etc and exit e aware of any emergency arising. In this case, we can see that the writer is more informed and more efficient rather than having to deal with publishers, agents, shippers, etc. (example adapted from www.smalltown market.com)

There are collar types of Vertical marketing system. They are corporate, contractual and administered vertical marketing systems. Kotler and Armstrong, (2001) defines corporate vertical marketing system as a vertical marketing system that combines successive states of work and distribution under single ownership - channel leading is established through common ownership. In other words, it is a assemblage of companies performing different tasks under one possession.

Contractual vertical marketing system, according to Kotler, et al (1999), consists of independent firms at different levels of production and distribution integrating their program on a contractual basis to obtain more economies or sales repair than they could achieve alone. They normally join together to reap profits as well as to increase efficiency in the company.

Administered vertical marketing system coordinates stages of production and distribution through the size and ply of one of the parties (Kotler, et al 1999). In other words, whoever wields the most economic power within the group can force greater cooperation and support from other members of the group.

Comparison between Conventional Distribution Channel

And Vertical Marketing System

        Conventional and vertical marketing systems are two totally different type of distribution system. Many companies nowadays prefer to adopt vertical marketing system rather than the conventional one. This is because vertical marketing system is much more beneficial for companies and the conventional system is outdated increases redundancies for companies. Now let us see the difference of the two channels and compare for which one is better and beneficial for organizations today.

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Conventional distribution Channel         

        -Channel members are independently owned

        -Unstructured distribution channel

        -No contract or agreements available

        -Lacks in leadership

        -Many conflicts might easily arise

        -Weak or poor performance

        -Any mistakes or flaws effects only the company

Vertical Marketing System


        -Channel members act as a unified system

        -Structured distribution channel

        -May have contracts or agreements for this arrangement

        -One member elaborate strong (often formal) leadership

        -Helps manage conflict

        -Improves performance

        -May be forced into arrangements by power differential between members

As we can see from the table above, in the conventional channel members are independently owned whereas in the vertical marketing system, all the members act as an integrated system. This is good for a company because the can minimize cost and at the same time earn revenues. The conventional distribution channel are unstructured whereas in vertical marketing system it is ripely structured, thus makes it easier for a company to impart their product and services. There is no contract whatsoever between the members of the channel because they are all self-regulating and not bonded by any contract. On the other hand, in the vertical marketing system, contract and agreements are needed for the arrangement of this type of marketing channel particularly in a contractual vertical marketing system.

Additionally, there is a strong presence of leadership in vertical marketing system as one member exercise formal leadership. Hence there is proper control of the activities. Whereas in the conventional channel of distribution, there is neediness of leadership in the channel. Furthermore, due to confusion, conflicts and problems may arise in a conventional distribution channel because of lack of control and leadership. On the other hand, in a vertical marketing system, the coordination among the members of the channel helps to manage conflicts that may arise. Moreover, this can also improve performance of the whole marketing system. Whereas conventional distribution channel has a weak performance due to conflicts and lack of leadership.

In my opinion, from the above comparison of both the channels, it is clear that vertical marketing system, if do properly, will be very advantageous and can bid economies of scale to any company which adopts it.


        Aaker, D.A. (1998), Strategic Market Management, toilet Wiley & Sons, Inc., USA.

        Kotler, P. et al (1999), Marketing Management - An Asian Perspective, scholar Hall, Inc. USA.

        Kotler, P. and Armstrong, G. (2001), Principles of Marketing, Prentice Hall, USA.

        Evangelista, F. U. et al (1984), Principles of Marketing Management, National Book Store, Inc., Philippines.

        Meyer, W. G. et al (1988), retail Marketing, McGraw Hill, USA.

        www.smalltownmarketing.com, access date: 4th December, 2003

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