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Distribution Channel Arrangements
A distribution channel is made up of various channel members like retailers and wholesalers.
For a smooth working of this channel the relationship between the members must be strong. Trust
and understanding between the members go a long way into successful working of the chain.
A retailer often buys products from a wholesaler and expects him to deliver products on time so
that the retailer can meet the consumer demands. Similarly the wholesaler expects the retailer to
buy products on a regular basis and make payments on time.
Relationship between channel members is a function of the arrangement that occurs between the
channel members. Channel arrangements are of two types:
- Independent Channel Arrangements
- Dependent channel arrangements
In this kind of arrangement the channel members prioritize their own objectives and are not
concerned about the chain as a whole. It is a more conventional form of arrangement where the
members are free to take decisions which are in their own interest. As a result the chain suffers
as a whole as its objectives are not achieved. There is no binding or unity in the group as each
member functions selfishly. The members in this kind of arrangement enjoy the freedom of moving
away from a relationship they feel is not advantageous.
Dependent Channel Arrangements
In this kind of arrangement the channel members feel they are bound together and working together
towards a similar goal. There is more unity. They form a more stable distribution channel. This
form of arrangement is also called the "vertical marketing system". In this system a single member
cannot make changes in the way the product is distributed in the channel.
The dependent channel arrangement can be further divided into three categories:
- Corporate
- Contractual
- Wholesaler-sponsored: where a wholesaler brings together and is responsible for the working of several independent retail stores. The retailers here are supposed to use the same name as well.
- Retail-sponsored: here again several independent retail stores come together but the retailers are themselves responsible for managing the channel.
- Franchised: In this arrangement there exists a central organization which is responsible for controlling the activities of all channel members.
- Administrative
In this form of arrangement the supplier maintains his own distribution channel. This
arrangement is commonly seen in the retail industry. For instance Starbucks operates a
chain of retail stores. Starbucks sells coffee by first importing it. It is then processed
by them and sold under their brand name in their retail stores. It should be mentioned that
Starbucks uses a multi-channel approach to market its product. For instance coffee is also
distributed through grocery stores and mail orders.
In this kind of arrangement the supplier provides a legal document to his distributors who
are supposed to stick to its contents. The legal document clearly mentions which member of
the chain is permitted to perform what and what not. This arrangement can be
In this arrangement a single member controls the activities of all channel members. This is
possible when a single channel member attains a very powerful position. This channel member
may be the manufacturer who has attained this position as his products are enjoying high
consumer demand. Or it may be the retailer because of his size and market coverage.
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