1. The distribution (place) component of the market mix involves moving the product from the manufacturer to the consumer. The vertical relationship that develops in order to process this movement is a distribution channel. Traditionally, this distribution channel (such as from manufacturer to wholesaler) is transaction-based and isolated (meaning that it involves only those two organizations, or any two similar organizations).
However, the process of moving product from manufacturer to end consumer can sometimes be quite lengthy, involving wholesalers, distributors and retailers (in a traditional retail environment) or research companies, extraction, transportation, refining and gas stations (in the case of gasoline). Each type customer in the process is a distribution channel for the participant "upstream," but the relationship is transaction based and typically involves a "pull" system (the customer places an order which prompts the movement of inventory to the next level) (Cravens, 1997, p. 223).
As products have increased in complexity and has markets have expanded to the global level, the distribution of those products has also increased in complexity and companies have realized benefits to forming strategic alliances in order to gain additional benefit and competitive advantage from their distribution methods. Where distribution channels are individual organizations linked vertically (but each interested in maximizing its own performance), other companies have recognized benefit from creating distribution systems. These vertical marketing systems are found in many different industries, and are particularly dominant in the retail sector.
Distribution systems, unlike distribution channels, typically have more formal relationships, and are actively managed by their participants. The goal is to take full advantage of technological innovations at each level of distribution, and to streamline the distribution so that co...