home Magazine Horizontal and vertical marketing systems. Vertical Marketing

Horizontal and vertical marketing systems. Vertical Marketing

Vertical Marketing Systems (VMS)

Vertical marketing system (VMS) - a combination of a manufacturer, one or more wholesalers and one or more retailers operating as a single system in which one of the channel members either owns the others, or provides them with trading privileges, or has the power to provide them full cooperation.

A BMC-managed vertical marketing system that coordinates the activities of successive stages of production and distribution due not to the common ownership of one owner, but to the size and power of one of its participants.

Channels of product distribution (distribution, sales), its concept, main types. Levels of distribution channels. Direct and indirect channels. The problem of efficiency and optimality of channels at various levels. Advantages and disadvantages of direct connections. Channel length and width. Horizons of the buyer and seller. Features of the formation of distribution channels for industrial products. Criteria for choosing a distribution channel. The problem of integration management of the distribution channel. Conventional channel and vertical marketing system (corporate, administrative and contractual). Competition is intra-channel and between channels. Horizontal marketing systems. Multichannel marketing systems.

The term includes both a purchase and sale transaction and an agreement to sell. A strict distinction must be made between them. An agreement to sell, sometimes called an executory contract of sale, is a contract in its purest form, whereas a deed of sale, sometimes called an executory contract, is more than a transaction because it involves a deed of transfer of title. CONTRACTUAL VERTICAL MARKETING SYSTEM - a set of independent firms bound by contractual relations and coordinating their activity programs to jointly achieve greater savings and/or greater commercial results than in the case of independent actions.

Where does information appear? Apparently, information about a product begins its journey from production, information about consumption, about the desires and views of the buyer - among consumers, etc. Information is collected among its carriers, i.e. legal entities and individuals who have certain information and are engaged in certain market activities (both active and passive). Who in the consumer market acts as a carrier, owner of information? Firstly, individual consumers (population), from whom information is collected characterizing their demand, behavior in the market, belonging to social and demographic groups, and other information necessary for marketing in - secondly, manufacturers who have information about the qualitative and quantitative characteristics of the product, production potential and scientific and technological progress capabilities, prospects for modernizing the product and creating qualitatively new samples, their cost, etc. thirdly, distributors (resellers) who have information about consumer demand, consumer market conditions, trade competitors, advertising effectiveness, etc. As a rule, participants in a distribution channel, especially a conventional one, or a vertical marketing system willingly exchange information of mutual interest. They often conduct joint marketing research.

The most progressive method of interaction between manufacturers and intermediaries is distribution planning. The manufacturer organizes a special department for planning work with distributors, which is engaged in identifying the needs of the intermediary, as well as developing trade promotion programs to help each individual seller work more efficiently. Together with distributors, the department outlines commercial goals, determines the required level of inventory, develops plans for the use of trade payments and their execution for better sales of goods, develops requirements for, draws up plans for advertising campaigns and sales promotion activities. The goal of this work is to change the perception of distributors that they make money by buying goods from the manufacturer (albeit after negotiations with him), to that they make money by selling them (as part of a complex vertical marketing system).

A vertical marketing system (VMS), on the other hand, consists of a manufacturer and one or more wholesalers and retailers operating as a single unit. One of the channel members either owns the others, grants them the right to franchise, or has the power to ensure their full cooperation. A vertical marketing system can be dominated by either a manufacturer, a wholesaler, or a retailer. The emergence of the Navy is associated with attempts by more powerful participants to control the behavior of the channel and prevent conflicts between its individual members pursuing their own goals. IUDs are economical in size, have great bargaining power, and eliminate duplication of effort. It is vertical marketing systems that dominate the US consumer goods market, serving 70-80% of the total market. There are three main types of IUDs: corporate, managed and contract.

Many independent retailers who are not part of any vertical marketing system create specialty stores that serve market segments that are unattractive to most retailers. The result is some retail polarization. On the one hand, large organizations working in the Navy, on the other, individual specialized stores. This creates problems for manufacturers. They are strongly attached to independent intermediaries, whose services they cannot easily refuse. However, they end up having to deal with rapidly growing vertical marketing systems and losing some of their profits in the process. Members of the Navy constantly threaten large manufacturers with breaking ties with them and creating their own production. The new competition in retail is no longer between independent companies, but between entire systems of centrally managed networks (corporate, managed and contract), which compete with each other to reduce costs and attract customers.

Distribution channels are subject to constant and sometimes significant changes. The three main areas of development are vertical marketing systems (cooperative, managed and contractual forms), horizontal marketing systems and multi-channel marketing systems.

A vertical marketing system (VMS) consists of a manufacturer and one or more wholesalers and retailers operating as a unit, with one channel member either owning the others, franchising them, or having the power to ensure their full cooperation. A vertical marketing system can be dominated by either the manufacturer, the wholesaler, or the retailer.

Vertical marketing system Video text 793 Virtual reality 218 External environment 205 Internal environment 135 Suggestion 675 Exhibition 409 Exhibition hall 649

Vertical marketing system (VMS) is a distribution channel structure in which manufacturers, wholesalers and retailers operate as a single system.

A wholesaler-led voluntary chain is a contractual vertical marketing system in which a wholesaler organizes voluntary chains of independent retailers to help them compete with large distribution chains.

A vertical marketing system has a structure in which manufacturers, wholesalers and retailers operate as a single system. Such a channel can be organized when one of the participants is the owner of the remaining organizations (companies) that make up this channel, or enters into a contract with them, or has other influence sufficient to unite the remaining participants. Both the manufacturer and the trading organization can have a dominant position in the vertical system. This system was created to provide control over the work of the channel and manage conflicts between its participants. A vertical marketing system has tangible advantages over traditional distribution channels: it provides cost savings and the ability to manage the process of reducing prices, as well as the ability to eliminate duplication of functions by channel (system) participants. There are corporate, contractual and managed vertical systems (cooperative BMS, contractual BMS and managed BMS). In a corporate Navy, coordination of the efforts of participants and management of conflicts is ensured due to the fact that all levels of the distribution channel belong to one corporation. In contractual IUDs, gains in reducing costs and increasing sales are achieved through agreements (contracts) concluded between participants in the distribution channel. The agreements cover all types of joint activities (from agreements on

A deep market penetration strategy is recommended when a company is working with an already well-known product in an existing market. It would seem that it has already been mastered, the company has no chance of success. However, a way out can be found in intensifying product distribution, that is, in searching for new, more experienced and active distributors, improving distribution channels, creating a vertical marketing system (combining a manufacturer, wholesaler and retailer into a single complex, under one

Vertical marketing systems are integrated networks of manufacturers and intermediaries, which are professionally managed

In the past, marketing channels consisted of independent companies, each with their own goals. As shown in Fig. 11.7, a company that was part of a conventional marketing channel sought to optimize its purchasing and sales policies, often at the expense of companies at the upper and lower levels of the channel. Conventional channels are being replaced by vertical marketing systems (VMS), in which the activities of the channel are managed by one of its participants - the manufacturer himself, an intermediary or a retailer.

Importance 252 Variation 107 Politeness 114 Vertical integration 515 Vertical marketing system 409

A vertical marketing system (VMS), on the other hand, consists of a manufacturer, one or more wholesalers, and one or more retailers operating as a single system. In this case, one of the channel members either owns the others, grants them trading privileges, or has the power to ensure their full cooperation. The dominant force within a vertical marketing system can be either the manufacturer, the wholesaler, or the retailer 5. VMCs arose as a means of controlling channel behavior and preventing conflicts between individual channel members pursuing their own goals. IUDs are economical in size, have great bargaining power, and eliminate duplication of effort. IUDs have become the dominant form of distribution in consumer marketing, where they already cover 64% of the total market.

The most progressive method of activity is distribution planning. McCammon defines it as the process of creating, on a planned basis, a professionally managed vertical marketing system that takes into account the needs of both the manufacturer and distributors10. As part of the marketing service, the manufacturer establishes a special department, which is called the department for planning work with distributors and is engaged in identifying the needs of distributors, as well as developing trade incentive programs designed to help each distributor make the most of their capabilities. Together with distributors, the department outlines commercial goals that need to be achieved, determines the level of necessary inventory, develops plans for the use of retail space and their design for product promotion, develops requirements for the training of sales personnel, draws up advertising and sales promotion plans. The goal of all this work is to clearly demonstrate to distributors that they are making money by being part of a carefully designed vertical marketing system.

In a franchise organization, a channel member, called a franchise holder, links several stages of the production and distribution process. The basis of the activity of a contractual vertical marketing system of this type is the method of organizing production and sales activities, based on the granting of a privilege for the production and/or sale of products by one of the members of the distribution channel to another, called a franchise.

The most progressive method of interaction between manufacturers and intermediaries is distribution programming, i.e., building a planned, professionally managed vertical marketing system that meets the requirements of both the manufacturer and the distributor. The supplier organizes a special department for planning relations with distributors, which is engaged in identifying the needs of intermediaries, as well as developing trade promotion programs aimed at increasing the efficiency of each individual seller. Department employees, together with distributors, outline commercial goals, determine the required level of inventory, develop a system of payments and their processing, develop requirements for the training of sales personnel, draw up plans for advertising campaigns and sales promotion activities. The goal of this work is to change the worldview of distributors. Intermediaries do not earn money by purchasing goods from the manufacturer (although after negotiations with him).

The concept of vertical marketing systems (VMS) is used in the works of many scientists (Doyle P., Kotler F., Crevens D., Lambin J.-J. and others), by which they mean vertical structures coordinated by any company - sales channels, distribution channels and marketing channels. Channel management can be carried out by a manufacturer, vendor, wholesale intermediary (distributor) or retailer (dealer, reseller).

In the US consumer goods market, it is vertical marketing systems, that is, structured channels, that make up 70-80% of the total market.

In the most general case, vertical marketing systems can be divided into two types:

- structured marketing systems formed by any market entity under certain conditions;
- unstructured marketing systems, when each participant acts independently, trying to obtain the greatest benefit for himself, taking into account only such factors as the level of competition, consumer profitability, state of demand, etc. P. Doyle calls such systems conventional marketing systems.

Possible options for vertical marketing systems are shown in Fig. 2.8.

Rice. 2.8. Typology of the vertical structure of marketing systems Explanation. The highlighted squares conventionally show possible “owners” who form the basic requirements for the terms of transactions to other participants in the marketing system, and the arrows indicate the directions of influence.

From Fig. 2.8 we can conclude that managed vertical marketing systems include corporate, managed and combined, while contract systems refer to self-regulatory structures.

The development of long-term relationships between the supplier and intermediaries through mutual investment or concluding long-term strategic agreements makes it possible to increase the competitiveness of participants in the vertical marketing system due to the synergistic effect of material, financial and marketing resources. For example, in an integrated system, logistics costs can be reduced by excluding sales representatives, merchandise experts, operators, etc. from the order collection process. To do this, it is necessary to automate the process by combining the software products of the distributor and retailer. In retail chains and distributors, the functions of submitting and receiving orders are assigned to a person. This results in high staff costs, errors, lack of goods on shelves, increased production costs and, as a consequence, loss of profit in the entire chain.

One of the most common organizational forms of marketing systems are product distribution channels, which play a special role in organizing interaction with consumers. At the same time, there are certain problems in the conceptual apparatus relating both to the entire marketing system and to product distribution channels, since the latter are interpreted differently by different authors (Table 2.3).

Table 2.3

Semantic analysis of the concepts of distribution channels

Essential Features	F. Kotler	J.-J. Lamben	B. Rosenbloom	L. Stern
Channel entities belong to the same owner	Corporate	Integrated	Corporate	"Hard" vertical integration
The subjects of the channel are legally and financially independent from each other. The channel is managed or controlled by the most powerful company	Managed	Controlled	Managed	Managed: a) completely; b) partially
Interaction in the channel is carried out on parity terms	Contract	Negotiated	Negotiated	Contract
There is a combination of several of their signs				Combined channels

From the table 2.3 it is clear that the most fundamental terminological difference concerns channels belonging to one owner, which are called corporate (F. Kotler, B. Rosenbloom) or integrated (J.-J. Lambin, L. Stern), however, L. Stern clarifies that this refers to the “hard” integration option.

Let's conduct a more detailed analysis of vertically integrated marketing systems (VIMS).

1. Corporate vertically integrated marketing systems

In this case, the vertically integrated marketing system belongs to one owner. Integration under the right of sole ownership allows you to fully control product distribution, financial flows and marketing programs. This type of vertical integration also allows you to introduce new ways of working with consumers, train staff, and more effectively create a common culture and image of the manufacturer. The fact that the corporate channel belongs to one owner makes it possible to prevent competitors from entering it. At the same time, the owner of the channel bears all financial responsibility in the event of its ineffective operation. The ability to adapt to rapid changes in the external environment or consumer behavior is lost. This kind of business conduct in Russia has been especially noticeable lately. Those who were engaged in retail trade have taken up wholesale trade or are organizing production (upward integration). Manufacturers, on the contrary, integrate downward, creating wholesale (trading houses) and retail channels (stores, B2C online commerce, etc.).

In general, the advantage of vertically integrated marketing systems is the ability to develop and implement unified strategies, which leads to a synergistic effect. The company that owns VIMS acts within the framework of its mission, corporate, market and competitive strategies and develops marketing strategies for each participant, excluding their contradiction and antagonism.

2. Contract SIMS

Contract SIMS consist of a chain of independent firms that coordinate their work in the channel by concluding agreements on a voluntary basis, defining the rights and obligations of participants.

The goal is to achieve better business results than going it alone. There are two types of contract vertically integrated marketing systems.

Contractual cooperation agreements when financial and marketing resources are pooled between wholesalers and retailers or between manufacturers and intermediaries.

A privilege agreement, when the owner of the privilege grants the intermediary exclusive rights (franchise) to sell goods or services.

If VIMS is based on the principles of voluntary association, then each participant can cooperate on contractual terms. Terms of cooperation - selective or exclusive agreements. In this case, there is partial coordination of strategies within a given marketing system. The higher the level of integration of companies, the greater the possibility of coordinating strategic actions both in relation to sales development and from the point of view of countering companies that are not part of this system. As P. Dixon notes, the trust and mutual understanding created in the process of working together mean more than individual clauses of the contract. Note that contract SIMS have both their advantages associated with greater flexibility and dynamism of operation, and disadvantages that do not allow achieving a deep level of mutual trust.

3. Controlled SIMS

In this case, the management of vertically integrated marketing systems is achieved thanks to the power of one of its participants. Power refers to the status of a company that forces other VIMS participants to accept its terms of cooperation. Channel management can be carried out by a manufacturer, wholesaler or retailer. Vertically integrated marketing systems of this type can be fully or partially managed. The “Vlad Elets” company of the channel coordinates the strategic and operational actions of other participants. It should be noted that the management mechanism under the auspices of the “owner” of the VIMS from the point of view of the formation of values for its participants and consumers has been little studied and requires further research.

4. Combined SIMS

Large companies are forced to create combined vertically integrated marketing systems in order to expand their presence in several markets or attract consumer segments that are not profitable for the company itself to serve. In addition, some suppliers felt that their own wholesale and retail structures were not able to effectively create additional value for consumers, as some independent firms do. Therefore, while leaving their own marketing systems, manufacturers are increasingly collaborating with independent structures that have special competencies and additional resources. The formation of combined SIMS is possible in two ways:

- create a managed marketing structure parallel to your own (corporate) marketing system;
- within the corporate VIMS, replace any of its structures with a more effective independent one. For example, a manufacturer may have its own wholesale link, but remove its retail network, incorporating independent retail networks into the corporate SIMS.

Compared to conventional channels, vertically integrated marketing systems have significant advantages.

Firstly, duplication of management, logistics, and marketing functions is eliminated, which helps reduce operational and transaction costs.

Secondly, the likelihood of intercompany conflicts between VIMS participants is minimized.

Corporate vertically integrated marketing systems have disadvantages, primarily related to the centralization of management, which often leads to delayed reactions to new market changes.

Centralization or decentralization of corporate SIMS refers to a list of powers that their owners delegate to subsidiaries or their other divisions operating in regional or international markets.

Resolving the issue of the degree of centralization of VIMS is especially important when there is a multi-level marketing network consisting of many production, wholesale and retail subsidiaries. Each option for the level of centralization has its own advantages and disadvantages (Table 2.4).

From the point of view of management theory, the most optimal option is the reasonable use of the principles of centralization and decentralization of the work of the company's subsidiaries, which makes it possible to realize the advantages of one or another approach and eliminate their disadvantages as much as possible.

Table 2.4

Advantages and disadvantages of centralization/decentralization

VIMS

cation of decisions made

Possibility of creating a unified corporate culture and image. Possibility of optimal distribution of resources between participants.

which are the peculiarities of each sales market. The initiative and responsibility of participants is reduced.

Decentralization

Allows you to take into account the local characteristics of each sales market.

Allows you to respond more flexibly and adequately to changes in the market situation and consumer behavior.

Responsibility, initiative and motivation of participants increase.

The complexity of financial control if the number of participants is large.

Increase in the number of employees due to duplication of functions.

The difficulty of maintaining a unified corporate culture, corporate identity of the company, and policy of interaction with consumers.

Increase in overall costs.

When considering the structure of interaction between business entities in marketing systems, it is necessary to take into account the possibility of the existence of diagonal and counter material, communicative and other types of interaction. Diagonal interaction occurs, for example, when a retail company enters a wholesale market with a supplier's goods. Thus, the Lenta retail chain sells goods to the public (retail trade) and individual entrepreneurs (wholesale trade) in its hypermarkets. Countertrade involves offering the supplier its assortment, which is available to the buyer. Philip Cateora suggested using countertrade in developing a company's overall marketing strategy. According to the observations of the mentioned author, countertrade is used in cases where other methods of conducting a transaction were not available. Countertrade carried out in marketing systems increases the level of interaction between business entities, moving them to a strategic level, as the depth and frequency of relationships increase, and trade turnover indicators increase.

In our opinion, diagonal and counter types of interaction are secondary in relation to the vertical or horizontal structures of the marketing system, which are fundamental from the point of view of the formation of consumer value.

The process of vertical integration, involving the supplier and intermediaries, improves efficiency by reducing management overhead costs, marketing and logistics investments, merging information systems and improving the management and control of all business processes occurring in the channel. P. Dixon gives the necessary conditions when vertical integration becomes profitable:

- the level of competition in the field of customer service in the supplier market is decreasing, thereby creating conditions for upward vertical integration;
- the presence of difficulties in measuring the general economic indicators of the channel’s activities, which means a loss of control;
- competitors use the supplier’s proprietary information to improve their own efficiency;
- the uncertainty of the general situation causes the need for adaptation;
- large-scale and/or frequent operations are carried out, providing economies of scale and scope that the firm is more likely to take advantage of itself rather than cede to channel partners;
- it is necessary to protect unique products, trade secrets and marketing techniques from attacks by competitors.

The attitude of academic economists and practitioners towards vertical integration is generally ambiguous. According to some researchers, market relations are more effective than integration ones, since they allow you to automatically “clear yourself of ballast,” i.e. timely and uncompromisingly reduce staff and unnecessary costs, maintain the competitiveness of the enterprise.

According to other experts (E.T. Coughlan, L. Stern, A.I. El-Ansari, etc.), the existence of “special” relations between a given enterprise and its immediate market environment can bring positive results, especially in those cases when the “integrator’s” control over a key type of resource enhances its competitiveness. Better information support for the enterprise in the case of upward and downward integration, including more accurate knowledge of the buyer's needs and the threat of fluctuations in resource provision from suppliers, allows the “integrator” to anticipate possible changes in the environment surrounding the enterprise and better prepare for them.

L. Stern and his colleagues pay attention to the choice of strategies for creating a vertical channel, dividing them into “hard” and “flexible” options for vertical integration. By “hard” integration they mean creating a corporate channel through investing in new businesses or acquiring existing ones. The “flexible” integration strategy consists of a voluntary merger of channel entities on the basis of concluded cooperation agreements, rather than a takeover.

An analysis of the advantages and disadvantages of various channel options is presented in Table. 2.5.

Table 2.5

Advantages and disadvantages of different types of channels

Advantages

Flaws

Feasibility of application

Corporate

Companies have the opportunity to reduce costs, especially fixed costs, due to economies of scale and thereby increase profits. It is possible to offer consumers quality services.

Allows you to more fully realize the “key competence” of the company.

The company can control all processes occurring in the channel.

There is synergy between marketing efforts

The company's capabilities may not be sufficient to penetrate deeply or expand its market presence.

There may be a decrease in the motivation of employees of company structures. Difficulty in switching a channel to another type of activity (during diversification). Difficulty managing all elements of the vertical structure

Applies if the cost of third-party services is higher than if the company created its own channel.

There is a shortage of relevant partner companies. Buyers prefer to deal with manufacturers.

Promotion of a new unique or technically complex product to the market

	Advantages	Flaws	Feasibility of application
Contract	Marketing capabilities are increased, as well as the ability to purchase and sell goods. The contract takes into account the interests of all parties. In a contract channel, all participants have rights in proportion to their contribution to its organization	Small companies may have few privileges over larger companies	To improve the competitive position of companies included in the channel. To generate additional profits through economies of scale
agreements	It is the least risky form of starting a business. It is possible to promote a single brand. For the franchisor, the risk that may occur in the case of direct presence is reduced	Franchise agreements are often concluded in such a way that the franchisor has more benefits than the franchisee	Used as a method of entering new markets or for deeper penetration into an existing market
Managed	The need for investment is reduced. The company gains access to the resources and innovations of channel participants. The company forming the channel may exclude some partners, replacing them with more effective ones. Specialized partner company	A channel member can simultaneously work with competitors. The goals and strategies of different channel participants may not coincide. Channel members often “pull” the blanket over themselves, which creates conditions for conflicts	Applies if the company forming the channel uses a strategy of small or medium investments in the marketing channel. Applicable if there are specialized companies on the market

In accordance with the concept adopted in this study, the reduction of coordination costs and compromises is facilitated by the development of trust between business partners of an integrated marketing system. Trusted intersubjective interactions transfer many procedures from the formal to the informal level. The effectiveness of coordination depends on the ability and ability of the “owner” of the marketing system to organize interaction at each level of the vertical chain of value creation for consumers, as well as on his ability to use market power in relation to his partners.

Considering the positive and negative aspects of joint activities of business units, it is advisable to cite the opinion of M. Porter, who noted that there are rarely cases when all business partners receive equal benefits of the association. He divides the costs of joint activities into three types: coordination costs; costs of compromise; costs of inflexibility.

Carrying out joint activities, business partners must coordinate their efforts in such areas as overall planning, control, problem resolution and possible conflicts. Coordination costs include wasted time spent by staff on organizational issues and possibly money. Compromise costs involve mutual concessions that companies make in the process of strategic interaction. Such concessions are not always optimal for every company that does not have the necessary power in the channel. The costs of inflexibility manifest themselves in a decrease in the speed of reaction to the actions of competitors. Doyle P., considering the problems of integrated structures, notes that currently many companies refuse integration due to the changed external environment, preferring to delegate some functions to independent companies - suppliers, distributors and partners, and the value chain is increasingly integrated into a system for providing solutions for consumers.

Vendor - seller. A vendor can be considered a manufacturer or any intermediary.
Reseller is a reseller who adds added value to a product by customizing the product offering and providing customers with various additional services. Resellers differ from integrator companies in that they primarily work with finished products, while “integrators” are engaged in the formation of products for the consumer (customer), receiving the necessary components and other necessary components of consumer value from other participants in the marketing system. The concepts of “vendor” and “reseller” are used primarily in the field of digital technologies (markets for computers, components for them, IT technologies).

Horizontal and vertical marketing systems and their types.

Spread of vertical marketing systems

One of the most significant recent developments has been the emergence of vertical marketing systems that challenge traditional distribution channels. In Fig. 68 provides a comparison of two channel block diagrams. A typical traditional distribution channel consists of an independent manufacturer, one or more wholesalers, and one or more retailers. Each channel member is a separate enterprise, striving to ensure the maximum possible profits, even to the detriment of maximum profit for the system as a whole. None of the channel members has complete or sufficiently complete control over the activities of the other members.

Comparison of traditional distribution channel and vertical marketing system

A vertical marketing system (VMS), on the other hand, consists of a manufacturer, one or more wholesalers, and one or more retailers operating as a single system. In this case, one of the channel members either owns the others, grants them trading privileges, or has the power to ensure their full cooperation. The dominant force within a vertical marketing system can be either the manufacturer, the wholesaler, or the retailer 5 . The Navy arose as a means of controlling the behavior of the channel and preventing conflicts between its individual members pursuing their own goals. IUDs are economical in size, have great bargaining power, and eliminate duplication of effort. IUDs have become the predominant form of distribution in consumer marketing, where they already cover 64% of the total market. Let's consider three main types of vertical marketing systems (Fig. 7).

Rice. 7. Main types of vertical marketing systems

First– a system of retail franchise holders under the auspices of the manufacturer, common in the automotive industry. For example, Ford issues licenses to sell its cars to independent dealers, who agree to adhere to certain conditions of sales and service organization.

Second- a system of wholesalers-privilege holders under the auspices of the manufacturer, widespread in the field of trade in soft drinks. For example, the Coca-Cola company issues licenses for the right to wholesale trade in different markets to owners of bottling plants (wholesalers), who purchase beverage concentrate from it, carbonate it, bottle it and sell it to local retailers.

Third– a system of retail franchise holders under the auspices of a service company. In this case, the service firm forms a complex system, the purpose of which is to deliver the service to consumers in the most effective way. Examples of such systems are found in the car rental industry, in the fast food service industry, and in the motel business.

In addition to vertical marketing systems, another phenomenon inherent in distribution channels has been the willingness of two or more firms to join forces in jointly pursuing marketing opportunities.

This kind of integration is called horizontal marketing systems . In this case, the individual firm either lacks the capital, technical expertise, production capacity, or marketing resources to go it alone, is afraid to take risks, or sees significant benefits in joining forces with another firm. Firms can cooperate on a permanent or temporary basis, or they can create a separate joint company.

Firms are increasingly turning to multi-channel marketing systems to reach the same or different markets. Typically, multichannel marketing systems are used to serve different customers. For example, General Electric Corporation sells major appliances both through independent dealers and directly to large home building contractors.

Vertical marketing systems. Recently, vertical marketing systems have emerged, challenging traditional distribution channels.

Typically, the distribution channel consists of an independent manufacturer, one or more wholesalers, and one or more retailers. Each channel participant is a separate enterprise, the goal of which is to obtain the maximum possible profits, even to the detriment of maximum profit extraction by the system as a whole. None of the channel members has complete or sufficiently complete control over the activities of the other members. A vertical marketing system (VMS), on the other hand, consists of a manufacturer, one or more wholesalers, and one or more retailers operating as a single system. In this case, one of the channel members either owns the others, or grants them trading rights, or has the power to ensure their close cooperation. The dominant force within the BMC may be either the manufacturer, the wholesaler, or the retailer. The Navy arose as a means of controlling the channel and preventing conflicts between its individual members pursuing their own goals. IUDs are small in size, have great market power and eliminate duplication. In developed countries, IUDs have already become the predominant form of distribution in the consumer goods industry.

Corporate Navy. In a corporate BMC, successive stages of production and distribution are managed by a single company. Since 1996, General Motors, the largest company in the world by the number of employees, has received more than 50% of its income from trade and sales of services, rather than from the production of goods. More than 50% of all goods sold by Cire, the largest retailer in the United States, come to its stores from companies partly owned by the company itself. This is a global trend.

Negotiated Navy. A contractual BMC consists of independent firms bound by contractual relationships to jointly achieve greater business results than could be achieved alone. Contractual IUDs became widespread in the 70s and often impoverish small and large businesses. There are three types of contractual IUDs:

1. Voluntary chains of retailers under the auspices of wholesalers. Wholesalers in developed countries are massively organizing voluntary associations of independent retailers into chains that should help them compete with large distribution networks. The wholesaler is developing measures aimed at streamlining the trading activities of independent retailers and ensuring cost-effective purchasing, which allows the entire group to compete effectively with chains. Many Russian retailers are willing to agree to such a merger, but wholesalers do not pay enough attention to them.

2. Retailer cooperatives. Retail traders can take the initiative and organize an independent business association that will engage in wholesale operations and, possibly, production. The members of the association will make their purchases through the cooperative and jointly plan advertising activities. Despite the old traditions of Russian cooperation, it has not yet become widespread in trade. The main reason is insufficient attention to this problem by regional and municipal authorities.

3. Organizations of rights holders. A channel member - the owner of the rights - can combine in his hands a number of successive stages of the production and distribution process. The practice of issuing rights is one of the most interesting phenomena in the retail industry. And although the idea of such an association has been known for a long time, some forms of practical activity based on the transfer of rights have appeared quite recently.

The following forms can be distinguished here:

a) a system of retail rights holders under the auspices of the manufacturer, traditionally common in the automotive industry, starting with the creation of the AvtoVAZ trade and service network in our country in the 70s. But there are many other examples. Thus, Microsoft issues licenses for the right to sell its software to independent dealers in Russia. They are obliged to adhere to certain conditions of sale and organize service;

b) a system of wholesalers-rights holders under the auspices of the manufacturer, common in the soft drink trade. For example, the Coca-Cola company issues a license to trade in various markets to the owners of Russian bottling plants, who purchase concentrate from it, prepare the drink, bottle it and sell it to retailers;

c) a system of retail, rights holders under the auspices of a service firm. In this case, the service firm forms an integrated system, the purpose of which is to bring services to consumers in the most effective way. Examples of such systems are found in the field of tourism, public catering, etc. Controlled IUD. A managed Navy coordinates successive stages of production and distribution not because of common ownership by one owner, but because of the size and power of one of its members. The manufacturer of a branded product is able to obtain cooperation and support from intermediate sellers of this product. Thus, the Coca-Cola Corporation, even in Russian conditions, has achieved close cooperation with intermediate sellers of its goods in organizing exhibitions, allocating retail space, implementing incentive measures and formulating pricing policies.

CHANNELS OF DISTRIBUTION OF GOODS AND SERVICES

Most businesses offer their products through intermediaries. Distribution channel - a set of firms or entrepreneurs that assume or help transfer to someone else the ownership of a specific product or service when it moves from producer to consumer. Functions of intermediaries. The manufacturer delegates part of the sales work to intermediaries. To some extent, he loses control over how and to whom the goods are sold. But manufacturers believe that using intermediaries is beneficial. Many manufacturers lack the financial resources to organize trade - both Russian coal mines and American automobile companies. General Motors, for example, sells its cars through an army of 20 thousand dealers. It is very difficult for even this largest corporation in the world to buy out all the dealerships. Firms consider it unprofessional and unprofitable to open stores everywhere for their goods. Intermediaries, thanks to their contacts, experience, specialization and scale of activity, offer the manufacturer greater sales opportunities than he can achieve on his own. One of the main sources of savings when using intermediaries is the increase in the number of contacts with consumers. For example, to connect three producers directly with three consumers, nine separate contacts must be established. But if three manufacturers operate through one authorized distributor - only six contacts are required. Intermediaries improve the operational efficiency of the market. Functions of the distribution channel.

A distribution channel is the path through which goods move from producers to consumers. Its task is to ensure the movement and change in ownership of goods and services, as well as smooth out the unevenness of their flows. Participants in the distribution channel perform the following functions: organize product distribution - transportation and storage of goods, stimulate sales by disseminating attractive information about the product; establish and maintain relationships with potential buyers, finalize, sort, assemble and package goods; negotiate, agree on prices and other terms of sale; finance the functioning of the channel, assume the risk of responsibility for the functioning of the channel, and collect information for sales planning. All of these functions consume scarce resources, but they must be performed. If some of them are performed by the manufacturer, his costs rise accordingly, which means prices should be higher. When transferring some functions to intermediaries, the costs and prices of the manufacturer are lower. In this case, intermediaries must charge an additional fee to cover their costs of organizing the work. The question of who should perform the various functions inherent in a channel is essentially a question of relative effectiveness and efficiency.

If it becomes possible to perform functions more effectively, the channel should be rebuilt. Number of channel levels. Distribution channels differ in the number of their constituent levels. The distribution channel level is any intermediary who performs this or that work to bring the product and ownership of it closer to the final buyer. Since both the manufacturer and the final consumer perform certain work, they are also part of any channel. The length of a channel is usually denoted by the number of intermediate levels present in it. A zero-tier channel, also called a direct marketing channel, consists of a manufacturer selling a product directly to consumers. There are three main methods of direct selling - trading through manufacturer-owned stores, mail order trading and peddling. A single-level channel includes one intermediary. In consumer markets this is usually a retailer, and in industrial markets this is usually a sales agent or broker. A two-level channel includes two intermediaries. In consumer markets, such intermediaries are usually wholesalers and retailers; in industrial goods markets, these intermediaries can be industrial distributors and dealers. A three-level channel includes three intermediaries. For example, in industry, between the wholesaler and the retailer, there is usually a small wholesaler. Small wholesalers buy goods from large wholesalers and resell them to small retailers. There are channels with a large number of levels, but they are less common. The more levels a distribution channel has, the less ability to control it, but the more stable the rhythm of the manufacturer’s work.

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One of the most significant recent developments has been the emergence of vertical marketing systems that challenge traditional distribution channels. In Fig. 2.1 provides a comparison of two channel block diagrams. A typical traditional distribution channel consists of an independent manufacturer, one or more wholesalers, and one or more retailers. Each channel member is a separate enterprise, striving to ensure the maximum possible profits, even to the detriment of maximum profit for the system as a whole. None of the channel members has complete or sufficiently complete control over the activities of the other members.

Rice. 2.1.

A vertical marketing system (VMS), on the other hand, consists of a manufacturer, one or more wholesalers, and one or more retailers operating as a single system. In this case, one of the channel members either owns the others, grants them trading privileges, or has the power to ensure their full cooperation. The dominant force within a vertical marketing system can be either the manufacturer, the wholesaler, or the retailer. The Navy arose as a means of controlling the behavior of the channel and preventing conflicts between its individual members pursuing their own goals. IUDs are economical in size, have great bargaining power, and eliminate duplication of effort. IUDs have become the predominant form of distribution in consumer marketing, where they already cover 64% of the total market.

Let's look at the three main types of IUDs shown in Fig. 2.2.

Fig.2.2.

CORPORATE Navy. In a corporate BMC, the successive stages of production and distribution are under single ownership. For example:

Sherwin-Williams owns and manages more than 2,000 retail businesses. According to available information, 50% of all goods sold by the Sears corporation come to its stores from enterprises in which part of the shares belongs to the corporation itself... The Holiday Inns hotel company is gradually turning into a self-sufficiency enterprise and has already acquired its own carpet weaving factory, furniture factory and a variety of intra-company establishments for the redistribution of goods. In short, these and other organizations are powerful, vertically integrated systems. To call them “retailers,” “manufacturers,” or “motel owners” is to oversimplify the complex nature of their activities and ignore the realities of the marketplace 6 .

TREATY BUDS. A contractual BMC consists of independent firms bound by contractual relationships that coordinate their business programs to jointly achieve greater savings and/or greater business results than could be achieved alone. Contractual IUDs have become widespread recently and are one of the significant phenomena in economic life. There are three types of contractual IUDs.

Voluntary chains of retailers under the auspices of wholesalers. Wholesalers organize voluntary associations of independent retailers into chains that should help them compete with large distribution networks. The wholesaler is developing a program to standardize the trading practices of independent retailers and ensure cost-effective purchasing, which will enable the entire group to compete effectively with the chains. An example of such an association is the Union of Independent Grocers.

Retailer cooperatives. Retailers can take the initiative into their own hands and organize a new independent business association that will deal with wholesale operations and, possibly, production. The members of the association will make their main purchases through the cooperative and jointly plan advertising activities. The profit received is distributed among the members of the cooperative in proportion to the volume of purchases they make. Retailers who are not members of the cooperative may also purchase through it, but do not participate in the distribution of profits. An example of such a cooperative is the Grocers Association.

Organizations of privilege holders. A channel member, called a franchise owner, can bring together a number of successive steps in the production and distribution process. The practice of issuing trading privileges, which has rapidly spread in recent years, is one of the most interesting phenomena in the retail industry. Although the underlying idea behind this phenomenon has been around for a long time, some forms of privilege-based practice have emerged more recently. Three forms of privilege can be distinguished.

The first retail franchise holder system under the auspices of the manufacturer, common in the automotive industry. For example, Ford issues licenses to sell its cars to independent dealers, who agree to adhere to certain conditions of sales and service organization.

The second system of wholesalers-privilege holders under the auspices of the manufacturer, common in the field of trade in soft drinks. For example, the Coca-Cola company issues licenses to trade in various markets to bottler owners (wholesalers), who purchase beverage concentrate from it, carbonate it, bottle it, and sell it to local retailers.

The third system of retail franchise holders under the auspices of a service firm. In this case, the service firm forms a complex system, the purpose of which is to deliver the service to consumers in the most effective way. Examples of such systems are found in the car rental industry (Hertz and Avis companies), in the field of fast food catering establishments (McDonald's, Berger King), in the motel business (Howard Johnson, Ramada inn"). This form of trading privileges will be discussed in more detail in Chapter. 13.

CONTROLLED IUD. A managed Navy coordinates the activities of a number of successive stages of production and distribution, not because of common ownership of one owner, but because of the size and power of one of its members. The manufacturer of a leading branded product is able to achieve cooperation and strong support from intermediate sellers of this product. Thus, the corporations General Electric, Procter & Gamble, Kraft and Campbell Soup are able to achieve unusually close cooperation with intermediate sellers of their goods in organizing expositions, allocating retail space, implementing incentives and shaping pricing policies.