Types of Channel Arrangement

Channel arrangements can be categorized as follows

Independent Channel arrangement

Under Independent channel arrangement a channel member negotiates deals with others that do not result in binding relationships i.e., a channel member is free to make whatever arrangements they feel is in their best interest. This conventional distribution arrangement often leads to significant conflict as individual members decide what is best for them and not necessarily for the entire channel.

Dependent Channel Arrangement

Under Dependent channel arrangement a channel member feels tied to one or more members of the distribution channel. Also referred to as vertical marketing systems this approach makes it more difficult for an individual member to make changes to how products are distributed. However, the dependent approach provides much more stability and consistency since members are united in their goals.

The dependent channel arrangement can be further segregated into three types described below

Corporate: Under this arrangement a supplier operates its own distribution system in a manner that produces an integrated channel. This occurs most frequently in the retail industry where a supplier operates a chain of retail stores. Starbucks is a company that does this. They import and process coffee and then sell it under their own brand name in their own stores. It should be mentioned that Starbucks also distributes their products in other ways, such as through grocery stores and mail order.

Contractual: Under this arrangement a legal document obligates members to agree on how a product is distributed. Often times the agreement specifically spells out which activities each member is permitted to perform or not perform.

This type of arrangement can occur in several formats such as

• Sponsored Wholesaler: Under such an arrangement a wholesaler brings together and manages many independent retailers including having the retailers use the same name
• Sponsored Retailer: Under this arrangement it brings together retailers but the retailers are responsible for managing the relationship
• Franchised: Under this arrangement a central organization controls nearly all activities of other members

Administrative: In certain channel arrangements a single member may dominate the decisions that occur within the channel. These situations occur when one channel member has achieved a powerful position. This most likely occurs if a manufacturer has significant power due to brands in strong demand by target markets such as Procter &Gamble or if a retailer has significant power due to size and market coverage such as Wal-Mart. In most cases the arrangement is understood to occur and is not bound by legal or financial arrangements.

Independent channel arrangement is less restrictive than dependent arrangements and makes it easier for channel members to move away from relationships they feel are not working to their benefit.