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Distribution Channel Arrangements

Distribution Channel Arrangement Assignment / Homework Help
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
Independent 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
  • 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.

  • Contractual
  • 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

    • 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 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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