In the world of Sales and Distribution Management, it is imperative to have upstream partners like logistics , distributor , retailers , transporter and whole sellers to effectively sell the products manufactured by a company . Channel integration is a collaborative effort to bring together all these partners into the system and integrate the efforts so that all the partners are benefited out of it.
By using the concepts of Channel Integration, rather than the traditional methods of distribution the organisations save on transaction costs and have better control over the partners. This concept also closely relates to the Supply Chain Management and better management of downstream partners.
Importance of Channel Integration
As has been suggested in the previous paragraphs , the concept of Channel Integration helps us reduce the transaction cost and enjoy better control over the channel members . SCM concepts of Collaborative Planning ,Replenishment and Forecasting (CPFR) apply to the Channel integration. Experts suggest that there is a cost saving to the tune of 10-15% by using channel integration.
Channel integration provides sustainable competitive advantage by using the following concepts:
• It bridges gaps between the consumption and production . The gaps that can be bridged include but are not limited to quantity gap , space gap time gap and variety gaps
• Since the manufacturer can have real time information of the consumption on distributor and retailer front , it helps him plan the inventory and production levels , thus preventing the stock pile at the retailer , distributor or the manufacturer level.
• Channel integration is useful in the international and the exports markets as well
• Channel Integration helps build a strong relationship between the channel members and helps each exploit the advantage the other holds in the market . This concept is built along the lines of exploiting horizontal as well as vertical integration in the channel
• Channel Integration by virtue of controlling the inventory levels at all stages of integration , prevents and avoids the issues of stock outs . Issues like over stocking and Bull whip effect can also be effectively dealt with the using this.
• Channel integration helps in reduction of transaction cost and have great control over entire process by elimination of individual vested interests and working towards common goals.
• As different channel members have different degree of experience and expertise. If all of them work together for common purpose then it can lead to becoming a very efficient distribution system.
• Successful integration work as barrier to entry in market as it provides competitive advantage to the company and helps in reduction of sales due to stock out situations.
• Integrated channel also helps in doing sales promotion and campaigns for increasing sales. Manufacture and channel can forge a relationship and strike a good balance on need and timings of promotion.
• An integrated channel strategy also works a successful marketing strategy against its competitors and helps to win competition.
Vertical Marketing System
In Vertical Marketing system, channel is controlled by one of the channel members and the manufacturer, distributor and retailers vertically integrate to form a marketing system. The member join together for the mutual benefit and helps the companies to control the changing market conditions. Vertical Marketing systems or VMS allows better cooperation between the channel members and reduces conflicts . Good examples of companies successfully completing VMS are Mc Donalds and Wendy.
Vertical Marketing System can be further subdivided into Corporate VMS, Adminstered VMS and contractual VMS.
In a corporate VMS , the VMS is owned and controlled by the manufacturer. Since control is in...