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MARKETING CHANNELS
Administrative Structures
Berman Chapter 12
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Administrative Structures
• 1. Conventional vs Vertical Systems
• 2. Corporate Marketing Systems
• 3. Administered Marketing Systems
• 4. Contractual marketing Systems
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1. Conventional vs Vertical
• Conventional Channel
– each unit is independently owned
• Vertical Marketing Systems
– alliances and networks – unified teams
– types
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2. Corporate Marketing Systems
– one firm ownership vs conventional
– highest level of coordination and control
• Forward vertical integration
– mfgr or whlslrs acquire retailers – advantages
• 100% control
• sensitive to customer trends • control of channel suppliers
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• Backward integration
– retailers acquire mfgrs or whslrs
– assures continuous source of supply – dual channel opportunity
– examples - Sears, Supervalu, Ralph Lauren
• Problems
– effective control of all functions
• Adapted Systems
– outsourcing, free up capital requirements
• Profitability
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3. Administered Marketing Systems
– closest to conventional marketing systems
– allocates, coordinates reseller responsibilities – no ownership linkage or formal long term
contracts
– close to Relationship marketing concept
– base = relationships, trust, information sharing – requires a channel leader with reward, referent,
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• Administered characteristics
– shifting functions among resellers
• General Electric Direct Control Program
– programmed merchandising agreements
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4. Contractual Marketing Systems
– coordination of members
– legal agreements of responsibilities – formalized procedures, policies, rules
• Three forms
– retail owned cooperative
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Retailer Owned Cooperatives
• wholesalers and manufacturers
– purchase , lease or build
• variations
– stock-based ownership
– profit and non-profit divisions
– member and non-member directorships – dividend payouts, vesting
• disadvantages
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Wholesaler sponsored voluntary chains
• objectives
– greater efficiency and effectiveness – retailers affiliate with wholesalers
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Franchise Systems
– formal contractual agreements – franchise fees, royalty payments
• types
– organizational format
• M-R, W-R, Service sponsor-R
– type of agreement
• Mfgr franchise, Product/Trademark franchise, business format franchise
– form of franchise expansion
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• Franchise methods
– legal and economic control – administrative coordination – secondary linkages
• Conflicts
– royalty payments vs low price specials – new outlets vs established territories – company owned sites vs franchise sites – captive commodity items
– new locations, scarce product allocations – real estate control by franchisor
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Franchisor advantages and disadvantages
Advantages
• resource scarcity • administrative
efficiency
• rapid market penetration
• economy of scale
Disadvantages
• loss of control to franchisee
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Franchise advantages and disadvantages
Advantages
• uniform image
• economies of scale • management
assistance
• special services
• national advertising • proven format
Disadvantages • conflicts
• overstated income • one sided contracts • system costs
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Trends in Franchising
• changing nature
• increase capital availability
• better contacts and contracts for Franchisee
• more executive talent
• better educated franchisees
• globalization
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5. Legal Aspects
• Federal and State regulation of franchises
– shared intellectual properties – trademarks vs royalties
– payments for rights to system
– marketing and operating system participation
• Tying arrangements
• FTC disclosure laws, state laws
– 23 categories
