268 CHAPTER 10 CHANNELCONCEPTS: DISTRIBUTING THE PRODUCT
memberrelationshipsmaylastforyears.Despitethesedeficiencies,thistypeof channel
structureremainsmostcommon,andtherearenumerousexamplesofsuchnetworksworking.
VerticalMarketingSystems
Verticalmarketingsystemshaveemergedasa so lutiontoth":problemsofconventionalnet-
works.Averticalmarketingsystem(VMS)comesaboutwhena memberofthedistribu-
tionchannel(usuallythemanufacturer)assumesa leadershiproleandattemptstocoordinate
theeffortsofthechannelsothatmutuallybeneficialgoalscanbeattained. Threeforme:of
'v'erticalintegrationarenowcommon.
AdministeredVMS
TheadministeredVMSisveryclosetotheconventionalnetwork,butdiffers inthatit is
informallyguidedby goalsandprogramsdeveiopedbyoneora limitednumberoffirms
intheexistingchannel.Thisframeworkis thesourceoftheconceptofachannelcaptain,
inthatadministrativeskillsandthepowerofoneindividual:naybethedrivingforceof
thechannel.Oftenthedominantbrands,asinthecaseofXerox orProcter&Gamble,are
able tomanifestthiscooperation.
Throughtherecognitionofa channelleader, thedistributionnetworksfunction bet-
ter,salesandprofitsarehigher, productexposureimproves,irventorymanagementsys-
temsareinitiated,and thecoordinationofpromotionalactivitiesbecomesa reality.An
administeredsystemisnotwithoutitsproblems.Often,thiseffortisplacedoniheshoul-
dersofa singleindividual.Anotherdrawbackisthetendencyofpolarizingchannelmem-
bers.BusinesseseitherbecomepartoftheVMSorremainstronglyindependent.Eventually
theseindependentsmayfindthemselvesat a tremendouscompetitivedisadvantage,andmay
evenbedeprivedofcertainchannelbenefits.
ContractualVMS
Thereareinstanceswhenchannelmemberswishtoformalizetheirrelationshipbyemploy-
inga contractualagreement,knownasacontractualVMS.Thisprovidesadditionalcon-
trol,andeitherexplicitlyorimplicitlyspellsoutthemarketingfunctionstobeperformed
byallthemembersofthechannel.Thisisthemostpopularformofverticalmarketing
arrangement.
CorporateVMS
Whenchannel membersondifferentlevelsareownedandoperatedbyoneorganization,a
corporateverticalmarketingsystemissaidtoexist.Suchintegrationcanbeforwardorback-
ward.Amanufacturerwhoownsthevariousintelmediariesin itschan:lelnetworkhasengaged
inforwardintegration.Aretailerwhotakesoverthewholesalingandmanufacturingtasks
isbackwardintegrating.Thisprocesscanentaileithertheorganization's purchasingtheinsti-
tutions, orestablishingitsownfacilities.Althoughpartialforwardorbackwardin tegration
ismostcommon,totalintegrationisbecomingmorepopular.Iv1anufacturers whohaverecently
integratedthroughtotheretaillevelareDannon"{ogurt, BlueBt:llTeeCream,andPep-
peridgeFarms.SearsandSafewaystoresaretworetailersthathavesuccessfullyintegrated
backward.AmericanHospitalSupplyCornorationisanexampleofa wholesalerthathas
integratedbothbackwardandforward.
HorizontalChannelSystems
ThereareinstanceswheretWOormorecompaniesareunabletoacquirethecapital,ordon't
havethetechnicalorproductionknow-how,toeffectivelymarkettheirproductsalone.In
