MGT301 - Principles of Marketing - Lecture Handout 31

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Distribution channel

A set of interdependent organizations involved in the process of making a product or service available for use or consumption by the consumer or business user.

Channel level

A layer of intermediaries that performs some work in bringing the product and its ownership closer to the final buyer.

Direct marketing channel

A marketing channel that has no intermediary levels.

Indirect marketing channel

Containing one or more intermediary levels.

Channel conflict

Disagreement among marketing channel members on goals and roles—who should do what and for what rewards.

Conventional distribution channel

A channel consisting of one or more independent producers, wholesalers, and retailers, each a separate business seeking to maximize its own profits even at the expense of profits for the system as a whole.

Vertical marketing system (VMS)

A distribution channel structure in which producers, wholesales, and retailers act as a unified system. One channel member owns the others, has contracts with them, or has so much power that they all cooperate

Corporate VMS

A vertical marketing system that combines successive stages of production and distribution under single ownership—channel leadership is established through common ownership.

Contractual VMS

A vertical marketing system in which independent firms at different levels of production and distribution join together through contracts to obtain more economies or sales impact than they could achieve alone.

Franchise organization

A contractual vertical marketing system in which a channel member, called a franchiser, links several stages in the production-distribution process.

Administered VMS

A vertical marketing system that coordinates successive stages of production and distribution, not through common ownership or contractual ties but through the size and power of one of the parties.

Horizontal marketing system

A channel arrangement in which two or more companies at one level join together to follow a new marketing opportunity.

hybrid marketing channel

Multi-channel distribution system in which a single firm sets up two or more marketing channels to reach one or more customer segments.

Intensive distribution

Stocking the product in as many outlets as possible.

exclusive distribution

Giving a limited number of dealers the exclusive right to distribute the company's products in their territories.

Selective distribution

The use of more than one, but fewer than all, of the intermediaries who are willing to carry the company's products.

Physical distribution/marketing logistics

The tasks involved in planning, implementing, and controlling the physical flow of materials, final goods, and related information from points of origin to points of consumption to meet customer requirements at a profit.

Distribution center

A large, highly automated warehouse designed to receive goods from various plants and suppliers, take orders, fill them efficiently, and deliver goods to customers as quickly as possible.

Integrated logistics management

The logistics concept that emphasizes teamwork, both inside the company and among all the marketing channel organizations, to maximize the performance of the entire distribution system.

Third-party logistics provider

An independent logistics provider that performs any or all of the functions required to get their clients' product to market.


Retailing includes all the activities involved in selling goods or services directly to final consumers for their personal, no business use. Many institutions— manufacturers, wholesalers, and retailers—do retailing. But most retailing is done by retailers: businesses whose sales come primarily from retailing.


Wholesaling includes all activities involved in selling goods and services to those buying for resale or business use. We call wholesalers those firms engaged primarily in wholesaling activity.

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