Nghiên cứu về quản trị hệ thống kênh phân phối tại công ty trách nhiệm hữu hạn một thành viên thương mại và xuất nhập khẩu viettel

ĐẠI HỌC QUỐC GIA HÀ NỘI
KHOA QUẢN TRỊ VÀ KINH DOANH
---------------------

ĐẶNG HỒNG TRIỀU

A STUDY OF DISTRIBUTION CHANNEL SYSTEM MANAGEMENT
AT VIETTEL IMPORT AND EXPORT COMPANY LIMITED

NGHIÊN CỨU VỀ QUẢN TRỊ HỆ THỐNG KÊNH PHÂN PHỐI
TẠI CÔNG TY TRÁCH NHIỆM HỮU HẠN MỘT THÀNH VIÊN
THƯƠNG MẠI VÀ XUẤT NHẬP KHẨU VIETTEL

LUẬN VĂN THẠC SĨ QUẢN TRỊ KINH DOANH

HÀ NỘI - 2019


ĐẠI HỌC QUỐC GIA HÀ NỘI
KHOA QUẢN TRỊ VÀ KINH DOANH
---------------------

ĐẶNG HỒNG TRIỀU

A STUDY OF DISTRIBUTION CHANNEL SYSTEM MANAGEMENT
AT VIETTEL IMPORT AND EXPORT COMPANY LIMITED

NGHIÊN CỨU VỀ QUẢN TRỊ HỆ THỐNG KÊNH PHÂN PHỐI
TẠI CÔNG TY TRÁCH NHIỆM HỮU HẠN MỘT THÀNH VIÊN
THƯƠNG MẠI VÀ XUẤT NHẬP KHẨU VIETTEL

Chuyên ngành: Quản trị kinh doanh
Mã số: 60 34 01 02
LUẬN VĂN THẠC SĨ QUẢN TRỊ KINH DOANH

NGƯỜI HƯỚNG DẪN KHOA HỌC: PGS.TS. NGUYỄN NGỌC THẮNG

Hà Nội - 2019


ACKNOWLEDGEMENT
“I would like to show my great gratitude to Associate professor Nguyễn
Ngọc Thắng, my tutor and who gave me profound support during the conduct of
this reseach. Without his greatly enthusiast guidance, I could never have completed
the thesis on my own.
My grateful thanks are also extended to the employees working in Viettel
import and export company limited (Viettelimex), especially Distribution Center,
have provided to me much necessary and invaluable data and documents for the
research.
I beloved HSB’s staff and friends supports and encouragements during our 2
years of studying in HSB are also deeply acknowledged with unspeakable gratitude.
My success today could never be achieved without the presence of them”
Last but not least, I would like to thank my family who has supported me
with strong encouragements during my studying period.
Thank you./.
Hanoi, November 2018
The Author


TABLE OF CONTENTS
INTRODUCTION .................................................................................................... 5

1. Rationale ................................................................................................................. 5
2. Literature review..................................................................................................... 6
3. Objectives ............................................................................................................... 8
4. Research subject ..................................................................................................... 8
5. Scope ...................................................................................................................... 8
6. Reseach method ...................................................................................................... 8
7. Structure.................................................................................................................. 9
CHAPTER 1: THEORETICAL STRUCTURE OF RESEARCH .................... 10
1.1

Distribution channel ..................................................................................... 10

1.1.1 Conception and Role of distribution channel ............................................. 10
1.1.2 Functions of the members of the distribution channel ................................ 15
1.1.3 Structure and organization of distribution channels ................................... 16
1.1.4 Selection of distribution channel ................................................................ 26
1.1.5 Decision on distribution of physical goods................................................. 29
1.2

Distribution channel management .............................................................. 33

1.2.1 Conception and Role of Distribution channel management ....................... 33
1.2.2 Selection of channel members .................................................................... 34
1.2.3 Encourage channel members ...................................................................... 37
1.2.4 Evaluation of activities of channel members .............................................. 39
CHAPTER

2:

ANALYSIS

OF

VIETTELIMEX'S

DISTRIBUTION

CHANNEL MANAGEMENT ............................................................................... 41
2.1 Overview of Viettel Import and Export CompanyLimited ......................... 41
2.1.1 General information about Viettel Import and Export CompanyLimited ... 41
2.1.2 Formation and development of Viettelimex ................................................ 42
2.1.3 Main products and partners .......................................................................... 44
2.2 Current situation of distribution channel management of Viettelimex ...... 45
2.2.1 Situation of organizations and design of distribution channels ................... 45
2.2.2 Comparision between the distribution channel of Viettelimex with
competitors’........................................................................................................... 50
1


2.2.3 Customer surveys on the distribution channel of Viettelimex ..................... 53
2.2.4 Advantages and disadvantages of distribution channel management of
Viettelimex ............................................................................................................ 67
CHAPTER 3: SOLUTIONS FOR IMPROVING DISTRIBUTION CHANNEL
MANAGEMENT OF VIETTELIMEX ................................................................ 70
3.1 Solutions to select members in the channel .................................................... 70
3.2 Solutions to encourage members’s activities in distribution channel .......... 72
3.2.1 Encouraging channel members to distribute ................................................ 72
3.2.2 Marketing and sales solutions to enhance distribution activity ................... 73
3.2.3 Using technology to manage and motivate activities of distribution channel .. 74
3.3 Solutions to evaluate members’ activities in the channel ............................. 76

3.4 Solutions to compete with others..................................................................... 77
3.5. Solutions attached to study results................................................................. 80
3.5.1 Research results ............................................................................................ 80
3.5.2 Solution attached to survey results............................................................... 83
CONCLUSION ....................................................................................................... 85
REFERENCES ....................................................................................................... 86
APPENDIX.............................................................................................................. 88

2


LIST OF DIAGRAMS
Diagram 1: Members of distribution channel ........................................................... 11
Diagram 2: Flow connecting and binding members in the distribution channel ..... 12
Diagram 3: Intermediaries increase the efficiency of contact with customers ........ 14
Diagram 4: Channels for personal consumption products ....................................... 16
Diagram 5: Common distribution channels for industrial goods ............................. 18
Diagram 6: Traditional distribution channels ........................................................... 21
Diagram 7: Vertical Link Distribution System (VMS) ............................................ 22
Diagram 8: Types of vertical link marketing systems .............................................. 23
Diagram 9: Distribution channel management model of Viettelimex ..................... 46
Diagram 10: Organizational and operational modes ................................................ 47

3


LIST OF TABLES
Table 1: Key financial targets over the years of Viettelimex ................................... 43
Table 2: Evaluation criterias of stores, supermarkets and agents............................. 49
Table 3: Market share of Viettel Store in 2017 ........................................................ 50

Table 4: Statistics of surveyed customers at locations ............................................. 54
Table 5: Summary of collected results and deliver survey ballots ........................... 58
Table 6: Proportion of gender participating in the survey........................................ 59
Table 7: Age structure of survey participants .......................................................... 59
Table 8: Income structure of survey participants ..................................................... 60
Table 9: Percentage of information source that customers know about products and
services of Viettelimex ............................................................................................. 61
Table 10: Survey results of customers' evaluations for Viettelimex's stores ........... 61
Table 11: Survey results of some questions about customers' evaluations for
Viettelimex ............................................................................................................... 63
Table 12: Survey results of some questions about customers' evaluation for Viettel
Store's website .......................................................................................................... 65
Table 13: Survey results and evaluation of the author ............................................. 80

4


INTRODUCTION
1. Rationale
One of the major concerns relating to sales strategy of every business,
demonstrating the hit or miss of the product on the market is managing distribution
channels. Weakness in distribution is one of the reasons for the decline of the
company's competitiveness. Therefore, to enhance competiveness the company has
to not only provide better products and services, but also raise the ability to serve its
customers whenever, whatever and however they want. This can only be
implemented through the distribution channel. Businesses should focus their
attention on the distribution channel as a basis for their competitiveness.
According to the Vietnam Association of Software and IT Services
(VINASA), between 2003 and 2017, the industry’s revenue has increased more than
1,000 times, a growth rate which can be considered extremely great. In 2017, the

total turnover of IT industry is estimated at 1,723,500 billion VND, projected to
increase approximately 13.15% more than that of 2016.
According to the market research institute GfK, demand for technical
consumer goods in Vietnam has annually grown at about 15.7% from 2011 to 2017.
According to the United Nations Population Fund, Vietnam with a young
population mounting towards 98 million and an average income of $
2,500/person/year by 2020 will be the driving force for cell phone retail market.
Modern and well-planned retail chains entails efficient brand coverage on the
markets. The booming of the cell phone market between 2015 and 2017 has
triggered nationwide expansion of Vietel Store, FPT shop, Mobile World, Tran Anh
Store, Nguyen Kim, Green Machine..., reaching even rural areas. Traditional stores
have been gradually replaced by modern and well-planned retail chains. Concerning
particularly the electronics retail chain, between five years from 2011 to 2017, the
market share increased from 20% to 55%.
The growth rate of the market is the catalyst for the development of
businesses in the industry. Financial reports in the electronics - information
technology retail market also show impressive results. With the rapid development
of the electronics retail market, Viettel import and export company limited
5


(Viettelimex) – established in 2006 as a subsidiary of Viettel Group – is one of the
early entrants to the electronics retail market in Vietnam. Viettelimex's Viettel Store
system is a chain of retail stores providing high-tech products including: phones,
laptops, tablets, miscellanous and medical devices by many brands.
Currently in Vietnam, apart from Viettel Store there are many different retail
chains e.g. FPT Shop, Mobile World, Tran Anh Store.... as well as small outlets
across every living area, to meet the diverse needs and rapid development of
technology. The more the development of information technology, the more
people's demand for technology products. Viettelimex is one of the pioneering

retailers in this market. Despite its great potential, it is facing fierce competition
from other chain stores of FPT Shop, Mobile World and the likes. Therefore, this
paper will partly contribute to the research and solutions to foundation and effective
management of the distribution channel of Viettelimex, to improve competitiveness
in product distribution as well as operational efficiency.
The topic of the paper is:
“A STUDY OF DISTRIBUTION CHANNEL MANAGEMENT
AT VIETTEL IMPORT AND EXPORT COMPANY LIMITED”
The paper will carry out far-reaching analysis of these questions:
- What is the current picture of Viettelimex distribution channel? What are
the advantages and disadvantages?
- What are the solutions to improving management efficiency of
Viettelimex distribution channel?
2. Literature review
In order to have a comprehensive overview on the research field and the
history of this subject, the literature review will be briefly and succinctly presented
through a number of studies and works that the author have been aware of:
Associate Professor Dinh Van Thanh conducted a scientific research at
ministerial level on "Assessment of the current picture and orientation of
distribution channels for some major commodities in Vietnam" in 2006. The
investigation was held by Vietnam Trade Research Institute in 2006. Mr. Dinh Van

6


focused on the distribution channel of some main commodities such as vegetables,
meat, textiles, steel, fertilizer, cement...
Dr. Tran Thi Diem Huong, Ph.D., Doctor of Economics (2005) "Organization
of retail marketing activities of consumer goods by commercial companies in urban
markets", Vietnam University of Commerce. The aforementioned research by Dr.

Tran Thi Diem Huong focused on the organization of retail marketing activities of
consumer goods by commercial companies in urban markets and proposed some
solutions to improving retail marketing of consumer goods in big cities in Vietnam.
"Research on wholesale and retail services of a number of countries and
potentials to be applied into Vietnam", conducted by the Institute of Trade Research
(2007). These authors have researched and gathered experiences in developing
wholesale and retail services of several countries over the world and proposed
solutions that can be apply into Vietnam.
Nguyen Thi Phuong Tu (2013), M.A thesis, "Managing distribution channels
of soy milk at Vietnam Soymilk Company (Vinasoy)”, University of Danang. The
research highlighted the basic concepts of distribution and distribution channel
management. From the study of soy milk products, the author provided readers with
insights into the Vinasoy Company, its current distribution network, its strengths
and weaknesses in distribution channels as well as solutions to improving
distribution channel management. The enhancement of the distribution channel
depends on increasing brand coverage, inreasing sales promotion, price adjustment,
incentives and support for sales agents in terms of HR, prices, discount,
competition.
These studies have contributed to systemizing theories of general issues of
distribution channel management in economic organizations in Vietnam. However,
there currently lacks research on the system of distribution channel management of
Viettelimex. In the face of new changes in the domestic and international economic
situation, especially the 4.0 technology revolution, many issues need to be discussed
not only in terms of management but also in the application of technology into
management. The author will broaden the horizons concerning the distribution

7


channel management of the retail chain in the current market in general and

Viettelimex in particular.
3. Objectives
The research aims to: Clarify the current situation of distribution channel
management at Viettelimex through the activities of organizing and structuring
distribution channels; comparing with competitors on the market; performing
survey customers about the distribution channel, analyzing

advantages and

disadvantages of the distribution channel... From that, the paper proposes some
solutions about human resources, management, key performing indicators
(KPIs)…especially technical solutions to improving the management of distribution
channel in the future.
4. Research subject
The subject of the paper is the management activities of Viettelimex
distribution channel.
5. Scope
- Spatial scope: The management of Viettelimex distiribution channel.
- Temporal scope: 2015– 2017 (some contents are updated to 30/09/2018)
6. Reseach method
- Logical, historical, statistical methods.
- Analyzing secondary documents: The analyzed data includes data and
parameters obtained from Viettelimex and related magazines, reports and scientific
research.
- Survey: Survey is used to collect information about the distribution channel
of Viettelimex and customer's assessment of distribution channels of Viettelimex in
big cities like Hanoi, Ho Chi Minh City. 10 stores and 200 customers are surveyed.
- Data processing method: Excel software
- Quantitative study: Based on the number of people choosing criterias, the
author quantifies criterias, thereby evaluating performance and evaluating

advantages and disadvantages of the agents and stores in the distribution channel
compared to competitors.

8


- Qualitative study: For more information on the assessment of factors
affecting the distribution channel management at Viettelimex, at the same time to
learn these factors in the retail chain of Viettelimex, the author conducts interviews
with customers, so that customers can answer some open questions.
- Research tools applied
(1) Use the "fish-bone" analysis tool to analyze the organization and
management of distribution channels, find causes and propose solutions through
primary and secondary datas collected by the author.
(2) Use statistical and general tools to handle collected datas.
(3) Use questionnaires for customers to survey customers' opinions about
Viettelimex's stores. Survey and assessment of customers in Viettelimex's chain of
stores, thus assessing the efficiency of Viettelimex's distribution channel.
7. Structure
The paper consists of 3 chapters:
- Introduction, which presents Rationale, Literature review, Objectives,
Research subject, Scope, Reseach method, Structure of the Thesis.
- Chapter One: Theoretical structure, which presents Overview of research
and infomations about distribution channel and distribution channel management.
- Chapter Tow: Situation of distribution channel management at Viettel
import and export company limited – Viettelimex, which presents overview of
Viettelimex and actual status of the distribution channel management of
Viettelimex.
- Chapter Three: Solutions to improve efficiency of distribution channel
management at Viettelimex, which provides analysis of the foundations for

proposing solutions, solutions to improve distribution channel management for
technology products of Viettelimex and distribution channel management policies.

9


CHAPTER 1: THEORETICAL STRUCTURE OF RESEARCH
1.1 Distribution channel
1.1.1 Conception and Role of distribution channel
1.1.1.1 Conception of distribution channel
Today, the companies are increasingly emphasized the role of distribution
channels in their marketing activities. Therefore, decision on the distribution
channel is one of the most important and complex decisions to be approved by
management board. The distribution channels selected by the Company will directly
affect all other decisions in the marketing field and it decides largely to the success
or failure of the Company later.
There are many conceptions of distribution channel. Depending on different
aspects of research, one can introduce different conceptions about distribution
channel.
According to general point of view, "Distribution channel is a set of interdependent
and independent enterprises and individuals involved in the process of bringing
goods from the producer to the consumer. In other words, this is a group of
organizations and individuals performing activities that make product or service
available for consumers or industrial users to buy and use" (Extract source: Basic
marketing introductory course, Associate Professor, Doctor Tran Minh Dao, 2002).
In addition, distribution channel is defined as follows:“A distribution channel
is a chain of businesses or intermediaries through which a good or service passes
until it reaches the end consumer. It can include wholesalers, retailers, distributors,
and even the internet. Channels are broken into direct and indirect forms:
A direct channel allows the consumer to buy the good from the producer, and an

indirect channel allows the consumer to buy the good from a wholesaler or retailer.
(According to: Investopedia).
We should understand that distribution channels exist outside the enterprise,
they are not part of the internal structure of the enterprise. Distribution channel
management involves using management capabilities between organizations rather
than management within an organization. Members of a distribution channel have
mutual relationship to bring Company’s goods to consumers.
10


The establishment of distribution channel management aims at the ultimate
goal of achieving distribution goals. Before setting up a distribution channel, the
distribution goal must be defined so that the channel management design follows
such goal. The distribution goals can be changed and can lead to change the
elements of the organization, external relations and management of activities.
Distribution channels make up the flow of goods from producers through or
without intermediaries to the final buyer. All participants in the distribution channel
are called members of the channel. Trade intermediaries between producers and
final consumers are important members in many distribution channels.
Diagram 1: Members of distribution channel
Negotiation

Non-negotiation
Channel participants

Channel’s
official members

Support
organizations

Producer

Wholesaler

Retailer

End
Consumer

(Source: Basic marketing introductory course,
Associate Professor, Doctor Tran Minh Dao, 2002)
There are many types of commercial intermediaries take part in distribution
channel and perform various functions. Here are some main types of commercial
intermediaries:
- Wholesalers: are trade intermediaries selling goods and services to other
intermediaries, sell to retailers or industrial users.
- Retailers: are intermediaries selling goods and services directly to end
consumers.
- Agents and brokers: are intermediaries having the right take legal action on
behalf of the producer.
11


- Distributor: refers to intermediaries performing distribution functions in the
industrial market. Sometimes people refer to wholesalers as well.
There are some types of commercial intermediaries buying goods from sellers,
stocking them and selling them to buyers. Other intermediaries such as agents and
brokers represent the seller but do not own the product whose role is to bring buyers
and sellers together. The importance of intermediaries is evident when people

consider their functions and benefits that they generate for end buyers.
Once a distribution channel has been developed, many flows appear in it.
These flows are enough to connect and bind members in the channel and other
organizations together in the distribution of goods and services. From the channel
management viewpoint, most important flows are: Product flow; Negotiation flow;
Ownership flow; Information flow; Promotion flow; Monetary flow.
Diagram 2: Flow connecting and binding members in the distribution channel
Information
flow

Negotiation
flow

Product
flow

Ownership
flow

Promotion
flow

Produce

Produce

Produce

Produce

Produce

Transport
company

Transport
company

Advertisin
g agent

Wholesaler

Wholesaler

Wholesaler

Wholesaler

Wholesaler

Retailer

Retailer

Retailer

Retailer

Retailer

Consumer

Consumer

Consumer

Consumer

Consumer

(Source: Basic marketing introductory course,
Associate Professor, Doctor Tran Minh Dao, 2002)
12


- Product flow: represents the actual physical movement of the product in
space and time, through all members take part in this process from the production
location to the final consumer location.
- Negotiation flow: represents the interaction of buyers and sellers related to
product ownership. Perceptions that the transport company is not in this flow
because it does not take part in negotiation. At the same time, it should be noted that
this is a two-way flow indicating the negotiation relating to bilateral exchanges
between buyers and sellers at all levels of the channel.
- Ownership flow: represents the transfer of ownership of the product from the
producer to the end consumer. Here again the transport company is not in this flow
because it does not own the product during transport, it only facilitates the
exchange.
- Information flow: We see that transport company appears in this flow and
information flow from the producer to the end consumer is two-way information.

All members taking part in the information flow and this information are mutual
passed between each pair of members. Most of this information relates to the
purchase, sale and promotion, quantity, quality of goods, time, place of delivery,
payment, etc.
- Promotion flow: represents the support on product communications by
producers for all channel members in the form of advertising, personal sales, sales
promotion and public relations. Here there is the participation of advertising
agencies to provide and implement advertising services. Producers and advertising
agencies will work together to develop effective channel promotion strategies.
Content of the flows in the channel provides different basis for distinguishing
between physical distribution management and channel management. Channel
management relates to managing all of the flows while managing the physical
distribution solely relates to product flow management.
1.1.1.2 Role of distribution channel
For the producer, the use of distribution channel is a commercial
intermediaries that improves efficiency and specialization of the distribution by
minimizing the number of sales contact needed to satisfy the target market.
13


Through contacts, experience, specialization, and scale of operations,
intermediaries shall give producers more benefits than they do themselves. Main
role of commercial intermediaries is to make supply and demand suitable
effectively and orderly. In some cases, the producer can distribute directly, but most
of the products need to be distributed through a variety of trade intermediaries on
the principle of specialization and division of social labor.
Distribution channel is the path where the goods are circulated from producers
to consumers. Thanks to the distribution channel network that overcomes
differences in time, place and ownership between producers and consumers of
goods and services.

Diagram 3: Intermediaries increase the efficiency of contact with customers

(Source: Basic marketing introductory course,
Associate Professor, Doctor Tran Minh Dao, 2002)

14


1.1.2 Functions of the members of the distribution channel
Different commercial intermediaries perform different marketing functions at
different levels. Here, these marketing functions are completely objective, need to
have management personnel in the process of product distribution, whether the
producer or intermediary. In other words, the question of distribution management
here is not whether or not to implement these functions but who will implement
them and to what degree? Channel members often talk about the specific functions
that they will perform. Sometimes conflict occurs, breaking the relationship
between the channel members. Of course, the producer can remove a commercial
intermediary but can not remove functions that it does. As such, all channel
members must perform the following major functions:
1.1.2.1 Function of researching market:
To gather the information needed to develop the distribution strategy.
1.1.2.2 Extensional promotion functions for products that they sell:
Compose and propagate information about goods. This makes their goods
known by the customer.
1.1.2.3 Function of negotiation:
Agree to divide responsibilities and benefits in the channel. Participants in the
distribution channel agree together on pricing and other distribution conditions.
1.1.2.4 Function of distributing material:
Transport, maintain and reserve goods.
1.1.2.5 Function of setting relationships:

Establish and maintain relationships with potential buyers.
1.1.2.6 Function of completing goods:
Make goods meet requirements of the buyer, means to carry out part of the
work of the producer.
1.1.2.7 Function of funding:
Financial mechanism helps channel members in payment.
1.1.2.8 Function of sharing risk:
Risks involved in the distribution process. The problem is that these functions
must be properly divided among channel members. The principle for division of
15


functions is specialization and division of labor. If the producer performs these
functions, the cost will increase and the price will be higher than the transfer of
some functions to the intermediary. Therefore, the issue of who is to do the work of
the channel will result in higher productivity and efficiency.
1.1.3 Structure and organization of distribution channels
1.1.3.1 Structure of distribution channels:
Organizations and individuals that participate in distribution channels with
different ways of linking different channel structures. The distribution channel
structure is determined by the length and width of the channel system.
* Length of distribution channel:
Length of distribution channel is first determined by the number of
intermediate levels present in the channel. A distribution channel is called a long
channel if there are multiple intermediate levels in the channel. Below are the
distribution channels which are structured in length:
Distribution channels for personal consumer goods and services
Diagram 4 below shows four popular distribution channels for consumption
goods and services. It also shows the number of levels in each distribution channel,
expressed by the number of intermediaries between producers and the end

consumers. If the number of intermediaries between producers and buyers
increases, the channel is considered to increase in length. For example:
Channel: Producer → Wholesaler → Retailer → Consumer
Is longer channel: Producer → Consumer
Diagram 4: Channels for personal consumption products

16


(Source: Basic marketing introductory course,
Associate Professor, Doctor Tran Minh Dao, 2002)
Channel A is a direct channel: because producers sell directly to end
consumers. Many products and services are distributed in this way. For example,
companies use home sales forces. Because there is no intermediary in direct
channel, producers must perform all functions of the channel. More and more
businesses use Direct Marketing to exploit buyers. Direct marketing allows
consumers to buy products through the use of advertising information medium
without directly contacting sellers. Direct marketing includes mail sales, catalog
sales, telemarketing, computermarketing.
The remaining three channel types are indirect channels because there are
intermediaries located between producers and consumers and perform many
functions of the channel.
Channel B: often referred to as one-level channel with more retailers, is often
used when large retailers can buy large volumes from the producer or when storage
costs are too expensive if using wholesalers.
Channel C: often referred to as two-level channel with two more wholesalers.
Channel C is commonly used for low unit value goods, low cost which are
purchased by consumers such as confectionery, cigarettes, magazines, etc.
Channel D is the longest channel called three-level channel, used when there
are many small producers and small retailers, an agent that is used to help

coordinate the supply of bulk products.
There are also more multi-level channels. According to theproducer's point of
view: more and more multi-level channels are less likely to control it
- Distribution channels for industrial goods and services:
Four most popular channels for industrial goods and services are shown in
Diagram 1.3 below. Unlike channels for consumption goods, distribution channels
of industrial goods are generally shorter and usually have only one intermediary or
17


none because industrial users are less in quantity, geographically focused and buy
with big quantity.
Diagram 5: Common distribution channels for industrial goods

Producer

Producer

Producer

Producer

Agent

Agent

Technology
Distributor

Technology

Distributor

Technology
User

Technology
User

Technology
User

Technology
User

(Source: Basic marketing introductory course,
Associate Professor, Doctor Tran Minh Dao, 2002)
Channel A is a direct channel: Businesses using this channel can maintain
their own sales force and are responsible for all channel functions. This channel
type is used when buyers are large and well-defined, sales efforts require strong
negotiation, high unit value products and require installation assistance or manual.
The remaining channels are indirect channels with some intermediaries to
reach the industrial buyers. In Channel B, an industrial distributor performs a
variety of channel functions including sales, warehousing, distribution and credit.
In many respects, industrial distributors like wholesalers in consumer goods.
Channel C introduces the second intermediary as an agent, acts as a semiindependent force of the producer and introduces the producer to industrial users.
The longest D channel includes agents and distributors. Agents use this
channel for contacting to distributors - sellers for industrial users.

18

In some cases, the producer uses a parallel distribution, a form of distribution
in which the business meets the need of different buyers thank to using two or more
different channels for the same product.
Parallel distribution is often used to achieve rapid market coverage - a basic
requirement for producers who are selling fad products. Through parallel channels,
producers can create many paths to the market, satisfying the needs of many buyers
and increasing sales. However, parallel distribution can also be a cause of conflict
in the channel and may increase legal issues.
* Width of distribution channel
In order to achieve the best market coverage, enterprises must determine the
number of intermediaries at each distribution level. Businesses must choose
between many different distribution modes, each with different commercial
intermediaries. There are three distribution modes: broad distribution, selective
distribution and unique distribution (privilege).
Broadly distribution: means that businesses sell products through multiple
commercial intermediaries at each distribution level. In this case, businesses try to
bring their products and services to as many retailers as possible. Broadly
distribution is often used for popular products and services, such as: chewing gum,
cigarettes, etc. Medicinal services are also being distributed in this way.
Only distribution (privilege): is opposite of broad distribution, in each market
area, enterprises only sell products through a single commercial intermediary. For
example, businesses only sell products through a single retailer in a particular
geographic area. This often goes together with exclusive sales, which means that
producers ask their agents not to sell competing items. This unique type of
distribution is common in such industries as cars, equipment. Through exclusive
distribution, producers expect sellers to be more active and at the same time more
easily in control of the intermediary's policy about pricing, credit, advertising and
other services.
Selective distribution: lies between broad distribution and exclusive

distribution which means that businesses sell products through some selected
commercial intermediaries according to certain standards at each distribution level.
19


For example, businesses seek out selectively certain retailers to sell their products in
a particular market area. This is the most common form of distribution and is
commonly used for thoughtful purchases and for businesses seeking to attract
commercial intermediaries. Producers can focus their efforts, open good business
relationships with selected intermediaries if they achieve the appropriate market
size and save distribution costs.
1.1.3.2 Organization and operation of distribution channels
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Overview of organization and operation of the channel:

Distribution channels are not just a passive gathering of related organizations
in the distribution of goods and services that they are complex operating systems in
which human beings and companies interact each other to achieve their own goals.
Some channel systems have only informal interactions between loose connection
companies, some other systems have formal interactions and high levels of
connectivity. Channel systems do not keep still, new intermediaries are emerging
and new channel systems are formed. Here, just consider the motivations for the
channel's activity and how channel members organize to to complete the work.
A distribution channel is the link between different manufacturing and
commercial enterprises for mutual benefit. Each member of the channel relies on
other members of the channel and their success is linked to the success of other
channel members. Each channel member holds a specific role and specializes in
performing one or several functions. Channels will be most effective when each
member is assigned the tasks that they can do best.

Ideally, for the success of each member depending on the success of the
channel, all members of the channel must understand and accept their own work
and coordinate their activities with targets and activities of other members, and
coordinate to accomplish targets of the whole channel. Producers, wholesalers, and
retailers must complement each other's activities and work together to make more
profits than when working alone. Each member should consider how their activities
affect the operation of the whole channel. By cooperation, they can supply and
satisfy the target market better.
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Traditional distribution channels:
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In traditional distribution channels is described as a random collection of
independent sovereign and managerial facilities and each facility has little interest
in the performance of the channel. It is a disconnected network that loosely
connects producers, wholesalers and retailers due to selling directly to each other,
actively negotiating terms of sale and independent operation. Traditional channel
members work for their own targets, not common target of the whole channel. Thus,
these channels lack centralized leadership and are characterized by poor
performance and a lot of disastrous conflicts.
Diagram 6: Traditional distribution channels
Producer

Wholesaler

Retailer

Customer

(Source: Basic marketing introductory course,
Associate Professor, Doctor Tran Minh Dao, 2002)
In fact, members of the traditional distribution channel are more likely to be
interested in short-term targets and deals with their closest members in the channel.
Collaboration to achieve common targets of the channel sometimes means
abandoning specific targets. Therefore, although the members are interdependent,
they often operate independently for their best short-term interests. They often do
not agree on the role that each member must make and the corresponding benefits.
Disagreements about such roles and targets shall generate conflicts in the channel.
- Horizontal conflicts: are conflicts between intermediaries at the same level
of distribution in the channel. For example, conflicts between wholesalers of the
same item due to different pricing or sales outside of the divided territory.
- Vertical conflicts: occur between members at different levels of distribution
in the channel. For example, conflicts between producers and wholesalers on
pricing, service provision, and advertising.
Channel conflicts can lead to a reduction in channel efficiency even if the
channel is broken, but there are also more conflicting cases that make the channel
more effective when members find a better way to handle conflicts.

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In order for the channel to function properly, it is necessary to clearly define
the role of each member and resolve conflicts. To do so, good executive leadership
is needed, means that there will be a member or apparatus has the power to duly
divide the distribution function in the channel and resolve conflicts. In order to do
so, good executive leadership is needed, means that there is a member or apparatus
has the power to duly divide the distribution function in the channel and resolve
conflicts. Many businesses have developed new channels to perform their channel

functions more efficiently and achieve greater success. It is a vertical marketing
system that is in contrast with traditional distribution channels.
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Vertical distribution channels (vertical marketing system)

Vertical Marketing System (VMS) is professionally, centrally managed
distribution channels designed to achieve maximum distribution effect and
marketing impact. Members of the channel are closely connected with each other
and act as a unified entity, in order to satisfy the market demand of the whole
system. VMS appears to control channel activity and resolve conflicts. It achieves
efficiency by scale, affordability, eliminates duplicate works and minimizes
conflicts.
Diagram 7: Vertical Link Distribution System (VMS)
Retailer

Customer
Wholesaler

Producer

(Source: Basic marketing introductory course,
Associate Professor, Doctor Tran Minh Dao, 2002)
A vertical marketing system (VMS), including producers, wholesalers and
retailers, acts as a unified entity. Either a member is the owner of other members, or
give them exclusive selling rights or power so strong that other members must
cooperate. The vertical marketing system can be placed under the control of a
producer, a wholesaler or a retailer. The vertical marketing system is a centralized
planning and management network that is designed with the intention of ensuring
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