How Can Companies Integrate Different Channels?

A lot of intermediaries are involved in the process of producing the goods and then making them available for sale to customers. Business is the perfect example "of one cannot do it all alone, but all of you can do something". The intermediaries that companies are involved with are known as channels. If we have to divide the distribution channel into simple terms, it will be the raw material provider, the producer, the wholesaler, and the retailer. Agents are added in between because not all the information is freely available to everyone. All the members of the channel are in here for profits, and the accumulated profit of each party involved is the cost of the product, which is the price that the customer pays to obtain the good.

In this article, what could be the different types of integration of channels, and how does the integration of channels help the business and the customer?

Integration of Different Channels

It is the process by which one or two different parties join hands or one single entity takes up dual responsibilities. There could be a situation in which the producer and the wholesaler are the same entity. The producer has so much capital and resources that it has decided to eliminate the wholesaler and thus its profit margin and use that to sell the products at a lower price to the retailer and pocket more money than the other wholesalers and producers in the same industry. Whenever an integration channel happens, it means that one party in the channel has more power than the others present. The party with power is known as the channel steward or the channel captain. More power can be found in terms of −

  • Has some exclusive rights that are essential in the production of goods. For example, a patent, a trademark, or the buyer of the product is the only buyer of the product, among others.

  • More and more financial resources and other resources

  • when an intermediary has access to limited and valuable ingredients and others.

Different Types of Channel Integration

Horizontal integration system − This is a marketing system in which two or more unrelated companies join hands together to exploit a marketing opportunity or to serve their customers better. For example, many supermarket chains have an arrangement with local banks to set up kiosks inside the store. It is profitable for the banks because they can acquire more customers through the increased footfall of the shopping market, and the shops can brag about the facility of providing customers with in-store banking services.

Citizen Bank has more than 500 branches in different supermarkets, making up one-third of its total branch network. The staff members of Citibank in these supermarket outlets are bankers and salespeople. They are young, enthusiastic, and sales-oriented individuals with retail backgrounds. The horizontal integration system is kind of a collaboration or joint venture between brands to target more customers.

Vertical integration system − This is a marketing integration system in which two channel partners either join hands or choose one channel over another. The business is generally related and is seen as a step forward in the production and procurement processes. This helps the channel partner gain an advantage over the other and also helps him earn more profits. There are three types of vertical integration systems, and those are −

  • Corporate vertical integration system − This is a system in which the company takes over the other chronological processes from production to distribution and marketing channels. For example, Sherwin Williams not only produces paint but also has more than 3500 retail outlets owned by the company. Her company is acting not only as the producer of the goods but is also serving its customers. In India, we have bata manufacturers. The company manufactures and sells shoes through its own showrooms in various geographical locations in India. This helps the company earn more products and, at the same time, keep a check on the customer experience.

  • Administered vertical integration system − This is an integration system in which the channels are not taking over the entire channel but, because of the bargaining power in their hands, are controlling the working of the other channels. For example, Procter and Gamble (P&G), because of its market popularity and market share, has the upper hand. Whenever the brand enters any supermarket, they gain advantages in terms of display, shelf space, promotion, and price policies. Another example could be Walmart. Walmart is a retail shop known for having huge quantities and different varieties. The shops offer different discounts to their customers, but the same cannot be done by individual shops or retailers because of their limited capital. Even though the retail outlets complain about this to the company, companies are bound to accept the behavior of Walmart.

  • Contractual vertical integration system − This is also known as a value-adding partnership. Here, the different channels join hands to earn more profit or target more customers. It can be done in the following ways −

  • Wholesaler-sponsored value chains − wholesalers give voluntary chains to independent retailers in order to standardize the selling process and so that they are also immune from competing with the large shop owners.

  • Retailer cooperatives − retailers join hands to form cooperatives so that they can take advantage of bulk buys or even produce some goods. Manufacturers also plan jointly to advertise the product and use the same price throughout all joints. Other small retailers can also approach the retail cooperatives for purchases.

  • Franchise organization − where the company wants to expand in different territories but is limited by resources. Hence, the company gives franchises to different individual owners. Now the company gets a fee for the franchise, and the owner gets to keep the sales and the profit. Here, the company ensures the core essence of the brand is not lost and that the brand is delivering the same customer experience throughout. An example of this could be different Burger King, Subway, McDonald's, Pizza Hut, Domino's, and Biba outlets.

Integration between channels not only helps the agents involved but also ensures that the company can serve its customers better. Companies can even integrate with their suppliers to ensure that they get exclusive products as per their needs and at a reduced cost. Join hands to accelerate your growth.

Updated on: 11-May-2023


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