Unusual approaches are ‘contractual systems’, frequently led by a wholesale or retail co-operative, and `administered marketing systems’ where one (chief) member of the distribution chain uses its place to co-ordinate the other members’ activities. This has customarily been the form led by manufacturers.
The intention of vertical marketing is to give all those concerned (and mainly the supplier at one end, and the retailer at the other) ‘control’ of the distribution chain. This takes away one set of variables from the marketing equations.
This relatively current development integrates the channel with the unique supplier - producer, wholesalers and retailers working in one combined system. This may arise for the reason that one member of the chain possesses the other elements (often called `corporate systems integration’); a supplier possessing its own retail outlets, this being ‘forward’ integration. It is probably more likely that a retailer will possess its own suppliers, this being ‘backward’ integration. (For instance, MFI, the furniture retailer, possesses Hygena which makes its kitchen and bedroom units.) The integration may also be by franchise (such as that provided by McDonald’s hamburgers and Benetton clothes) or easy co-operation.
It is complicated enough to motivate direct employees to provide the needed sales and service support. Motivating the owners and employees of the autonomous organizations in a distribution chain needs even greater effort. There are many devices for attaining such motivation. Perhaps the most traditional is `incentive’: the supplier offers a better margin, to excite the owners in the channel to push the product more willingly than its competitors; or a competition is offered to the distributors’ sales personnel, in order that they are tempted to push the product. At the other end of the spectrum is the more or less symbiotic relationship that the all too uncommon supplier in the computer field develops with its agents; where the agent’s staff, support as well as sales, are trained to almost the same way as the supplier’s own staff.
Intensive distribution is a kind of distribution when the majority of resellers stock the commodities (with convenience products, for instance, and particularly the brand leaders in consumer products markets) price competition may be obvious.
Selective distribution is the normal pattern (in both consumer and industrial markets) where ’suitable’ resellers stock the goods.
Exclusive distribution is a case when only specially selected resellers or authorized dealers (normally only one per geographical area) are permitted to sell the ‘product’. Frequently this form of distribution stipulates the contracted resellers are not able to offer competing products.
A lot of the theoretical arguments about channels consequently revolve around cost. In contrast, most of the practical decisions are concerned with management of the consumer. The small company has no option but to use intermediaries, often a number of layers of them, but large companies ‘do’ have the option.
On the other hand, many suppliers seem to suppose that once their product has been sold into the channel, into the beginning of the distribution chain, their job is done. Yet that distribution chain is simply assuming a part of the supplier’s responsibility; and, if he has any ambitions to be market-oriented, his job should really be extended to controlling, albeit very indirectly, all the processes elaborated in that chain, until the product or service gets to the end-user.
The channel decision is very significant. In theory at least, there is a form of trade-off exists: the price for using intermediaries to gain wider distribution is supposedly lower. Certainly, most consumer goods manufacturers could never give good reason for the cost of selling direct to their consumers, apart form by mail order. In actual fact, if the producer is big enough, the use of intermediaries (predominantly at the agent and wholesaler level) can occasionally cost more than going direct.