Vertical Marketing System: Procter & Gamble Company Essay

Introduction

The world of business is a complicated phenomenon in which there are specific rules and laws according to which the relations between the companies are structures. Marketing and distribution play an important role in business, and the companies always try to update how they distribute goods and increase sales rates. A distribution channel is the best way for good distribution, but recently numerous companies start to transform their distribution channels into vertical marketing systems (VMSs) to achieve greater success in the market. The example of Procter & Gamble Company that adopted the VMS in 2007 allows seeing how a conventional distribution channel evolves into the VMS.

Literature Review/Theoretical Foundations

Starting the discussion of the evolution of distribution channels into vertical marketing systems, it is necessary to define the basic terms used in the discussion. Thus, Gerth (2005) defines a conventional distribution channel as the structure that “consists of one or more independent producers, wholesalers, and retailers” and whose “members are separate businesses seeking to maximize their profits—even at the expense sometimes of the system as a whole” (Gerth, 2005). At the same time, Gerth (2005) and Berkowitz et al. (2000) argue that the VMS is the system in which all the distribution participants, i. e. producers, wholesalers, and retailers are joined by either a contract or the supreme power of one of them, who controls distribution process. The transition from one form of distribution to another is carried out, according to Berkowitz et al. (2000) and Kotler & Keller (2008), when the company increases its market share enough to dictate its conditions to other market players.

Application/Research Findings/Methodologies

Accordingly, the activities that Procter & Gamble Company was busy within 2007 can be interpreted as a confident attempt to establish its dominance, at least in the cosmetics market. According to ECM (2007), in February of 2007 Procter & Gamble Company concluded the distribution agreement with The Beauty Systems Group (BSG), which operates over 720 retail and wholesale stores around the USA (ECM, 2007). This step allows Procter & Gamble Company to achieve two goals at once; first, the company obtains the opportunity of promoting its goods in the nation’s widest retails stores network; second, Procter & Gamble becomes the dominant player of the cosmetics market with the nationwide distributional opportunities for its products. The contract with BSG allows speaking of the VMS being implemented by Procter & Gamble for distributing its products. BSG serves as the distributor whose performance, according to the contract is supervised and monitored by Procter & Gamble Company (Gerth, 2005). Thus, the existence of the contract between the producers and retailers establishes the VMS relations between them.

Conclusion

To conclude, the example of Procter & Gamble Company that adopted the VMS in 2007 allows seeing how a conventional distribution channel evolves into the VMS. BY signing the contract with BSG, Procter & Gamble obtained the opportunity to distribute its products through the widest retailer network of the USA and control the distribution performance of its contractor, BSG. As far as the existence of the contract that puts one of the parties above another in distributor relations presupposes the establishment of the VMS (Kotler & Keller, 2008), Procter & Gamble currently enjoys this system of distribution in its operations.

Reference List

1. Berkowitz et al. 2000, Marketing, Irwin/McGraw-Hill.
2. ECM 2007, P&G expands distribution channels, Cosmetics Business.
3. Gerth, D 2005, Channels of Distribution, Logistics, and Wholesaling, NSCC.
4. Kotler, P. & Keller, K 2008, Marketing Management. Pearson/Prentice Hall.