Table of Contents

• Conventional marketing system
• Vertical marketing system
• The intensity of marketing channel

The introduction of marketing channel can be read at my previous article.

In this article, if you have read, you will understand that implementing marketing channel is crucial.

Why implementing an appropriate marketing channel is necessary? Because your product can reach the end consumer through your marketing channel. Without marketing channel, your product will never reach the customer.

How can your product reach the end consumer quickly? You can deliver your product efficiently by selecting an appropriate marketing channel, marketing channel that is suitable for your product, your condition, and your marketing strategy.

In order to select an appropriate marketing channel which is relevant to your product and your situation, you must know the design of marketing channel and types of marketing channel.

This article will discuss only the theory of marketing channel design (basic marketing channel from a wide top of view). I will review examples of marketing channel entities in the next article.

Before continuing to read further, you should observe the picture below. The image tells us about marketing channel strategies to select marketing channel entity by David Craven, 1991.

The diagram informs us that there are two choices of marketing channel (the intensity of a marketing channel), they are a group of independent intermediaries (conventional marketing system) and vertical marketing system (organized marketing system).

Afterward, I will tell you about the diagram detail.

Conventional marketing system

There are three entities involved in this system; they are a producer, wholesaler, and retailer. Each entity free to maximize the profit. That's why it is called a group of independent intermediaries marketing system.

Vertical marketing system

A vertical marketing system is a group of a network that is managed professionally. It is centralized network program to deliver the product to the customer.

The ultimate goal is to achieve efficient operational activities so that you can maximize the marketing result by implementing technology together (saving money), co-promotion (saving marketing spend), and so on.

There are three vertical marketing systems, they are

1. Corporate vertical marketing system
Corporate VMS is combining the process of production and commercialization channel under one owner or one entity. For example, a manufacturer who has its own store.

2. Contractual Vertical Marketing System
Contractual VMS is a system where each entity has its system but working together based on an agreement (contract).

3. Administered vertical marketing system
Administered VMS is a system where marketing channel activities are performed by each entity in one management (in one channel).

The intensity of marketing channel

There are two options you can decide in the marketing channel, first is conventional marketing channel and the last is the vertical marketing channel.

Conventional marketing channel has three groups; they are a manufacturer, wholesaler, retailer.

Whereas vertical marketing channel has three channels; they are exclusive marketing channel, selective marketing channel, intensive marketing channel.

Exclusive marketing channel

Exclusive marketing channel uses only one channel in one area, for example one wholesaler in one certain area or one retailer in the particular field.

Benefit of implementing exclusive marketing channel at manufacturer side is, the manufacturer is easier to supervise (supervise a retail price, etc.) and easier to manage a co-promotion with the wholesaler or retailer.

Benefit of implementing exclusive marketing channel at wholesaler/retailer side is, there are many customer will buy at this particular wholesaler/retailer (because there is only one retailer in specific area, as a consequences many buyers will purchase to this retailer)

Exclusive marketing channel strategy is suitable for:

a. Market an exclusive product / unique product.
b. There is wholesaler who is ready to buy and manage the product in bulk (high amount of product) or retailer who is willing to buy, manage, and store a significant amount of goods. Therefore, a customer is easy to get the product in their area.

Selective marketing channel

This system is almost the same as exclusive marketing channel above, but the amount of entity is more than one.

In this strategy, you can pick several wholesalers or several retailers in a special area.

The goal of a selective marketing channel strategy is, eliminate wholesaler or retailer which has a bad performance (low amount of sales).

Intensive marketing channel

Intensive marketing channel strategy is used for selling a specific/convenience goods.

The goal of implementing intensive marketing channel is, to provide the product to the customer easier and quicker so that the customer will be satisfied.

Merchant middlemen

Merchant middlemen are producer's intermediaries. The manufacturer uses an intermediary to reach the end customer.

Types of intermediaries are wholesaler, retailer, agent, franchiser.

Wholesaler

Wholesaler is one of merchant middlemen. The wholesaler is buying, owning the product, storing, managing the product in a large quantity.

Wholesaler sells the product to the retailer or reseller. One function of the wholesaler is to move the product from the manufacturer to retailer. Therefore, wholesaler doesn't sell a small amount of quantity (not sell directly to end customer).

Retailer

A retailer is an entity who sells the product to the end consumer. The retailer does all action which directly serves to the end user.

Agent

An agent in person/organization who sells the product to the customer, but the agent has no right of goods ownership.

An agent middleman has no property right. This agent only gets some amount of fee (reward or compensation) for the effort of closing the sale.

Franchise

A franchise is one kind of marketing channel based on the license that is given to another entity (based on franchise agreement).

A person/an organization who has the license is called franchisee.

A person/an organization who gives the license is called franchisor.

Franchisee buys the right to use franchisor's trademark, brand, and other properties. Then franchisee has a right to sell the product in given area (certain area).

Summary

1. A company can select one of marketing channel strategy, direct selling strategy or uses one (or more) marketing channel.

2. If the company pick one (or more) marketing channel, it means the company needs merchant middlemen (intermediaries).

3. Each strategy has benefits and lacks, and you must consider all things to select the selling strategy.

4. Advantages of using middlemen are:

a. Reduce the manufacturer's tasks in distributing the goods.
b. Middlemen can help providing the supporting material for the product.
c. Middlemen can help with transportation.
d. Middlemen can contribute to store and manage the product in the warehouse and the store.
e. Middlemen can assist the manufacturer in marketing the product (find new customer and manage current client)
f. Middlemen can distribute the information to the customer.
g. Manufacturer along with middlemen can do a promotion together.