Page 101 - Marketing the Basics 2nd

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system, in order for the entire system to work effectively, a leader is needed to assign roles and manage disputes between partners. In the next section, we take a closer look at three types of marketing channels that provide the needed leadership to assign roles and manage disputes.
veRTicaL MaRkeTing cHanneLs
The first type of marketing channel that provides the necessary leadership to assign roles and manage disputes is called a vertical marketing channel. In this system, a set of producers, wholesalers and retailers act in concert to maximize the returns for the collective. In this system, channel members engage in a practice called cross- ownership, each member of the channel owns a percentage of the other partner’s companies. If cross-ownership is not possible, or is illegal, contracts can be devised that bind the companies together, or if the market power of one company is so great, all members of the system must cooperate for fear of losing the contract. Wal- Mart is an example of a company whose buying power is so high that the threat of exclusion is sufficient enough to coerce suppliers to cooperate. In a vertical marketing channel system, the firm that assigns roles and manages conflict can be a producer, wholesaler or retailer. The Japanese economy serves as a cautionary tale on the drawbacks of vertical marketing channels. Most of the Japanese economy has been organized in this manner, the difference being that the lending institution (typically a bank) also owns shares in each company in the vertical marketing channel. Following the bursting of a real-estate bubble, economic growth has been virtually stagnant for the last 15 years. One of the reasons the economy remains in the doldrums is because some of the banks that have extensive holdings in other companies are insolvent. If the bank collapses, it takes all of its partners with it.
HoRizonTaL MaRkeTing cHanneLs
A horizontal marketing channel system is where firms at the same level of the channel form a joint venture to pursue a market opportunity either party could not pursue on their own. Sometimes members of the same channel cooperate, sometimes firms in