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Channel Integration and Systems

In addition to multichannel marketing systems, discussed earlier, two other channel developments are vertical and horizontal marketing systems.

Vertical Marketing Systems

A conventional marketing channel consists of an independent producer, wholesaler(s), and retailer(s). Each is a separate business seeking to maximize its own profits, even if this goal reduces profit for the system as a whole. No channel member has complete or substantial control over other members.

A vertical marketing system (VMS), by contrast, includes the producer, wholesaler(s), and retailer(s) acting as a unified system. One channel member, the channel captain, sometimes called a channel steward, owns or franchises the others or has so much power that they all cooperate. Stewards accomplish channel coordination without issuing commands or directives by persuading channel partners to act in the best interest of all.22 A channel steward might be the maker of the product or service (Procter & Gamble or American Airlines), the maker of a key component (microchip maker Intel), the supplier or assembler (Dell), the distributor (W.W. Grainger), or the retailer (Walmart).

VMSs have become the dominant mode of distribution in the U.S. consumer marketplace. There are three types: corporate, administered, and contractual. A corporate VMS combines successive stages of production and distribution under single ownership, the way Sherwin-Williams makes paint but also owns and operates retail outlets. An administered VMS coordinates successive stages of production and distribution through the size and power of one of the members, the way Frito-Lay and other big brands secure strong reseller cooperation and support. A contractual VMS consists of independent firms at different levels of production and distribution integrating their programs on a contractual basis to obtain more economies or sales impact than they could achieve alone.23 Table 12.2 describes three types of contractual VMSs.

 
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