VERTICAL & HORIZONTAL MARKETING SYSTEMS Click link below in SLIDESHOW mode for information on “Vertical/Horizontal Integration” (choose from listed topics) http://www.quickmba.com/strategy/

Channel Strategies RETAILER WHOLESALER PRODUCER PRODUCER WHOLESALER Vertical Marketing System RETAILER WHOLESALER PRODUCER Conventional PRODUCER WHOLESALER RETAILER CONSUMER A conventional distribution channel consists of one or more independent producers, wholesalers, and retailers. Each is a separate business seeking to maximize its own profits, perhaps even at the expense of the system as a whole. A vertical marketing system (VMS) consists of producers, wholesalers, and retailers acting as a unified system. One channel member owns the others, has contracts with them, or wields so much power that they must all cooperate. CONSUMER Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

VMS Goodyear is vertically integrated with its retail chain. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Vertical marketing system CORPORATE VMS CONTRACTUAL VMS FRANCHISE ORGANIZATION There are several possible vertical marketing system designs. ADMINISTERED VMS Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall A Corporate VMS integrates successive stages of production and distribution under single ownership. Zara is an example: Zara has control over almost every aspect of the supply chain, from design and production to its own worldwide distribution network. Zara makes 40 percent of its own fabrics and produces more than half of its own clothes, rather than relying on a hodgepodge of slow-moving suppliers. New designs feed into Zara manufacturing centers, which ship finished products directly to Zara stores in 68 countries, saving time, eliminating the need for warehouses, and keeping inventories low. Effective vertical integration makes Zara faster, more flexible, and more efficient than its competitors. Corporate VMS

Contractual VMS A Contractual VMS consists of independent firms at different levels of production and distribution who join together through contracts to obtain more economies or sales impact than each could achieve alone. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Franchised VMS There are three types of franchises. 1. Manufacturer sponsored retailer franchise system—for example, Ford and its network of independent franchised dealers. 2. Manufacturer sponsored wholesaler franchise system—Coca Cola licenses bottlers (wholesalers) in various markets who buy Coca-Cola syrup and then bottle and sell the finished product to retailers in local markets. 3. Service firm sponsored retailer franchise system—examples are found in the auto-rental business (Avis), the fast food service business (McDonald’s), and the motel business (Ramada Inn). Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall In an administered VMS, leadership is assumed not through common ownership or contractual ties but through the size and power of one or a few dominant channel members. Administered VMS

Horizontal System Horizontal marketing systems are when two or more companies at one level join together to follow a new marketing opportunity. Companies combine financial, production, or marketing resources to accomplish more than any one company could alone. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Multi-Channel distribution PRODUCER DISTRIBUTORS Internet, catalogs Sales force RETAILERS DEALERS Multichannel Distribution Systems (often called hybrid marketing channels): Occur when a single firm sets up two or more marketing channels to reach one or more customer segments. These systems increase sales and market coverage, they create new opportunities to tailor products and services to specific needs of diverse customer segments. However, these systems are hard to control and prone to conflict. CONSUMER SEGMENT 1 CONSUMER SEGMENT 2 BUSINESS SEGMENT 1 BUSINESS SEGMENT 2 Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

Channel Design ANALYZE CONSUMER NEEDS SET CHANNEL OBJECTIVES IDENTIFY CHANNEL ALTERNATIVES Marketing channel design calls for analyzing consumer needs, setting channel objectives, identifying major channel alternatives, and evaluating them. EVALUATION Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall