Showing posts with label strategy. Show all posts
Showing posts with label strategy. Show all posts

Friday, March 07, 2014

Win with Adwords Strategic Decisions

I make myself tiring when i say to my friends and colleagues again and again that what is missing nowadays is not skill, but critical thinking. Strategic insight and then tactical implementation.

Marketers are not an exception.

Now, if we think Adwords from a marketer’s holistic point of view, caution is necessary; otherwise our campaign is doomed to fail. What else could we put emphasis on, apart from grouping the keywords correctly, using optimized settings and then sitting back to drink scotch (or soda if you prefer), thus leaving our account to run without intervention?
Ignoring our Unique Selling Proposition
USP stands for Unique Selling Proposition. The USP states that such campaigns made unique propositions to the customer that convinced them to prefer or even switch brands. In Google Adwords, no part of the marketing campaign needs a USP more than our ads. If we write the headline, benefits and URLs without strategic insight on how to sell the offer to a specific customer, our ads will fail. The stimuli provided by the ad will not cause attention and perceptual selection, causing CTR and ad position in the search results to go down.
Instead, before writing any Adwords ads, we should try to understand and be ready to circulate the benefits of our advertised products or services. Understand our target customer, the needs and solutions they would value. Reflect all of these points in our ads and landing pages. Bid on the brand, not the money. Google may reward us with high quality score (QS) and customers will reward us with a good Click-Through-Rate (CTR) and, why not, feasible lead generation. This is the quintessence of marketing, after all. Satisfying customer needs.

“Highest bid for the highest position” strategy

“Turnover is vanity and profit is sanity”. I will bypass the theory behind the auction computational problem that is called Google Adwords, even though I strongly recommend deeper digging in publications of researchers like Aranyak Mehta or Nikhil Devanur as food for thought for the computational mechanism behind Adwords. The truth is that we must be stupid if we think that we must bid the most to get higher search result positions. This is a common Google Adwords budgeting mistake that will waste money and leave us with nothing more to spend very soon. It may get us to the top temporarily, but it’s definitely not a sustainable strategy for our resources. Especially if our PPC campaign is the part of our strategic marketing plan and we have limited budget.

Instead, we may opt for the long-term, budget-safe solution. Improve the relevancy and consistency of our ads, ad groups, keywords and landing pages, then Google will increase our Quality Score (QS). A good QS may increase the frequency of our ads at better positions and our CPC may go down. By improving overall quality in PPC campaigns, we end up to spend less budget for a higher position in the long-term.

Forgetting conversion profit margins & costs p.u.

Not setting up conversions for sales or enquiries so that ROI of this marketing action can be measured? No conversion tracking? Not understanding the profit margins and marketing costs per unit for our products or services so that we can set a price per click? FAIL.

When we spend €10,000 on Google Adwords, this is a cost. Marketing costs need to have a ROI. Wise planning of cost per conversion/impression/click/unit/day etcetera is highly recommended. Off course, there is always the opportunity cost, the cost of the missed opportunity. Ok, it’s time for some critical thinking, I guess. But come on, had we managed the account better and spent our budget in a smarter way, we may have had more satisfying financial results. Which is why we are paid for, at the end of the day.

Thursday, October 17, 2013

Monozukuri for Sustainable Brands in the 21st Century

The word Monozukuri has only been in use for almost 15 years. In 1998, the Japanese Prime Minister’s Office set up a "Monozukuri Kondankai", in order to reverse the trend of deindustrialization and hollowing out that Japan was experiencing after the end of the Japanese financial bubble by affirming Japan’s strengths in manufacturing. In general, monozukuri  is the "art, science and craft of making things." While monozukuri is used to describe technology and processes integrating sustainable development, production and procurement, it also includes intangible qualities such as unique craftsmanship and dedication to continuous improvement. In the Japanese tradition of Monozukuri, when an item or human effort is taken into use, there needs to be a benefit for the society as a result while, at the same time, the balance between production, resources and the society should be maintained. Monozukuri should therefore be an inspiration for most global organizations in the 21st century in their effort to create strong, innovative brands, which deliver compelling content through their media channels, especially then it comes to branding and brand storytelling.

Toyota and Nissan lead the way

Companies such as Toyota and Nissan have already tried to elevate their brands or the company’s core interests by creating unique content that exceeds infomercial-like self reverence.

Back in 2011, Toyota chairman Fujio Cho said that Toyota’s mission is to “preserve the Japanese Monozukuri". What does "monozukuri" mean here? It probably captures the Toyota perception of sustainability. According to Toyota monokuzuri, the person doing the making is de-emphasized and the attention is on the ‘thing’ being made. This subtle difference reflects the Japanese sense of responsibility for using ‘things’ in production and their deep respect for the world around them both animate and inanimate. In its application of Monozukuri to the production of automobiles, Toyota has pursued a sustainable method of making its cars ever more safe, environmentally friendly, reliable and comfortable and circulating this perception to its customers.

At Nissan, brand storytelling has been dubbed “kotozukuri,” complementing the Japanese manufacturers’ mantra of “monozukuri”. Brand agnostic stories, intentionally omitting reference to the parent firm or its competitors, or in Nissan’s case, look to raise the profile of the people, products, technologies and relationships as part of infotainment


Why? Actually, it's about Nissan's recognition that traditional media and consumer engagement face more challenges as well as expense amid a growing range of choice. Meanwhile, internal communications, often constituting corporate media or house TV units until now, have expanded from a parochial approach to include more content for mass distribution. The relationship with broadcasters and print media, who often have their own on-line presence, has evolved to include video embeds, undeniably showing return on investment versus the cost of similar paid media exposure. Use by the blogosphere or consumers also has powered the metrics of successful marketing, as “shares” and “likes” offer potential for viral exposure.

It seems that every organization may perceive Monozukuri in a different way. However, "Many names now describe the trend such as brand journalism, corporate narrative or 21st Century Kotozukuri, but all require more sophisticated storytelling and delivery, making ties to traditional agencies"  (Dan Sloan, Nissan Global Media Chief).

Back to storytelling

Storytelling is a well known and ancient art form. Persona-focused storytelling is essential to branding. When it comes to creating a powerful brand narrative, the persona – the articulated form of the brand’s character and personality – comes first, and all other elements unfold from there. A compelling brand starts with a strong, well-drawn, and quickly recognized persona, the essential connection between what a company says and what it does.

This brand persona creates a long-lasting emotional bond with the audience because it is instantly recognizable and memorable, it is something that people can relate to, and it is consistent. Nike, McDonald’s, FedEx are all examples of brands with personas that fit these criteria. In each case, there is a clear personality associated with the brand. These companies understand that it is their clear articulation of their brand persona and their discipline in placing that persona into stories that work with and help strengthen that brand persona is what makes the difference between strong and weak brand associations.

That long-lasting and implicit trust is what distinguishes the great brands from the rest of the pack. It will also protect the brand when it makes a misstep. Nike has a strong brand persona that is all about performance and winning. Their long-used tagline, ‘‘Just do it,’’ is instantly recognizable as is their logo, the swoosh. In 2006, Nike teamed up with skier Bode Miller, which seemed like a good idea at the time. After all, he had won two silver medals at the Olympics in 2002, four gold medals and a silver medal at the World Championship in 2003, and in 2005, he became the first American in 22 years to win the World Cup title. His performance trajectory was clear. If anything, it seemed that the difficulty would be in finding words to match his expected performance.

There was no shortage of words: in TV spots for the 2006 Winter Olympics, Miller was shown talking about performance, talking about his attitude, and talking some more. But there was not much ‘‘doing’’ – he fell short in all five medal attempts. Worse, he did not even seem concerned with winning, an attitude that did not match well with the Nike brand persona. This created a disconnect between the audience and the brand, since the fit between Bode and Nike clearly was not right. Monozukuri here, as a unique value proposition for the consumer, through storytelling, went wrong.

Brand my brain

Brain studies have shown dramatic effects of branding. In one famous study, researchers used functional magnetic resonance imaging (fMRI) to see how subjects’ brains responded when they were given Coke or Pepsi. Some of the subjects were given the soda without knowing which brand it was, and were asked to give their preference on taste alone. Others were given the soda and then an image of Coke or Pepsi was flashed at them before they took a sip.

The result? The blinded tasting resulted in no preference for one brand over the other in the group, some preferred Pepsi, others preferred Coke, but they did not know which was which, so the overall results were what you would expect in two chemically and physically similar drinks. The unblinded tasting was something else altogether. While there was no influence of brand knowledge for people who thought they were drinking Pepsi, there was a very strong brand influence when they were shown an image of Coke. Their belief that they were drinking Coke actually altered their experience to the point where some areas of the brain lit up only when they believed it was a Coke that they were drinking. Clearly, branding is a real, measurable effect. Coke lit up the hippocampus and the dorsolateral prefrontal cortex, areas of the brain related to memory, control of action, and self-image. Our brains love Coke even more than our taste buds do.

How is it connected to storytelling? Actually, a lot of it has to do with the fact that Coke has been telling a good story, using an exciting yet accessible brand persona that people easily relate to. Storytelling has been engaging listeners and readers for ages and Coke figured out how to make that work to their advantage. Researchers have shown that successful storytelling (as a correct Monozukuri version) strengthens the connections consumers have to brands to a great extent.


When it comes to brand development, a unique perception of Monozukuri for each organization may lead our audience in the brand story and its actions. Marketing strategists should always perceive and apply Monozukuri in the optimum way to genuinely connect with the audience and ultimately convert them into loyal customers.

Tuesday, October 08, 2013

Competitive dynamics for marketing strategists

Time for strategic decisions.

Strategic marketing primarily revolves around the application of a great deal of common-sense. Dealing with a limited number of factors, in an environment of imperfect information and limited resources complicated by uncertainty and tight timescales. Use of classical marketing techniques, in these circumstances, is inevitably partial and uneven. For most of their time, marketing managers use intuition and experience to analyze and handle the complex, and unique, situations being faced, without easy reference to theory. A good marketing strategist should be drawn from market research and focus on the right product mix in order to achieve the maximum profit potential and sustain the business. The overall strategy, coupled with the knowledge of the customer which has been absorbed almost by a process of osmosis, will determine the quality of the marketing actions implemented.

Strategic Marketing Planning Process

Strategic decisions

Directional (sub)strategies

Portfolio Planning Tool 1
BCG Matrix (1970) - Strategic framework for resources allocation

Portfolio Planning Tool 2
GE model

Portfolio Planning Tool 3
Shell/A&H 3*3 Matrix

Back to the basics:Porter's competitive strategies

Requirements for generic strategies

Applying the best marketing strategy for every different situation

Back to the basics again: Ansoff for diversification

Critical factors for success/KPI's


Competitive position strategy

Failure, an unknown word 

Tuesday, September 17, 2013

A Facebook for my Brand : Fan Pages and KPI's

Facebook fan pages can be regarded  as a virtual brand community. They are specialized, non geographically bound communities and they are based on a structured set of social relations among admirers of a brand. Therefore the theoretic explanations for a brand community are also suitable for explaining the fan page phenomenon. Social identity and  symbolic interactionism theories show that interaction with members of a reference group can lead to a strong feeling of belonging to this group (in this case the brand community) which in turn can lead to stronger buying behavior and positive brand attitude.

But how can we be sure that being a member of a facebook fan page has an impact on a brand admirer's buying behavior and brand attitude? Researchers from the University of Mannheim actually designed an experiment and assumed that members of the BMW fan page show stronger buying behavior and brand attitude than non-members and that within members, buying behavior and brand attitude are even stronger for active members than for passive ones.In order to carry out the experiment they conducted an online survey among 840 BMW admirers.

The BMW Fan Page Survey

Membership and interaction were expected to influence psychographic dependent variables (brand loyalty, brand commitment) and economic dependent variables (purchase intention, willingness to cross-buy and  positive word of mouth). Willingness to cross-buy was polled in three categories, which were lifestyle products (e.g. apparel), financial services (e.g. leasing or insurance offers) and original BMW spare parts. Purchase intention was polled in two categories, which were automobiles and BMW car repair services. In order to analyze the influence of membership and interaction, two separate experiments were carried out. In the first study, respondents were split into  members (n=210)  and  non-members (n=630) according to the membership of the German BMW fan page. The non-members became the control group and members became the experimental group.

Furthermore, members had to answer questions about their usage of the BMW fan page . Using these responses, a weighted interaction level was determined for each member. A cut-off value was then applied to the weighted interaction level to classify members of the BMW fan page either in passive or active members. While passive members don't or rarely interact with the fan page, active members display a higher level of interaction.

Influence of Membership

In order to analyze the influence of membership on the dependent variables,  the nonmembers and members of the Facebook fan page were compared with each other. Non-members (n=215) were recruited in BMW internet forums to make sure they are admirers of the brand. In order to be able to analyze variances of members and non-members, the groups need to be about the same size (max factor 1.5). That is why a sample of n=315 was randomly drawn out of the total number of the BMW fan page members (n=630).

Then the data was analyzed using a multivariate analysis of variance (MANOVA) in order to examine differences between the responses of the two groups. The mean values were calculated and compared between the groups to evaluate whether membership and interaction do have an influence on the dependant variables. The F-Values of MANOVA indicate that there are differences between the groups. These values ranged from F = 23,608 to 89,195 woth significant values of p=0.00, allowing to proceed with the interpretation of MANOVA.

A comparison of the mean values of the two groups proved that there are significant differences between non-members and members  of the BMW fan page for all 10 dependent variables. Specifically, membership has a strong positive influence on the affective variables brand  trust, brand  loyalty, brand commitment and positive word of mouth (∆ between +0.646 and +0.733, average ∆ = +0.675). Its influence on the conative variables brand satisfaction, purchase intention (for both product and repair services), and willingness to cross-buy (for lifestyle products, financial services and spare parts) is also strong (∆ between +0.395 and +0.985, average ∆ =  +0.682). The highest difference of mean values exists for  purchase intention (∆ =  0.985)  and willingness to cross-buy (∆ = 0.923).

Influence of Interaction

Having analyzed the influence of membership, the next step was to look more closely at the members of the BMW fan page, with the objective of determining whether the level of interaction on Facebook fan sites has any impact on the dependent variables. For this purpose, the four types of interaction with the fan page (writing posts, clicking the “Like” button, uploading photos or videos and sharing photos or videos with other users) were weighted to determine the level of interaction. Based on this level, members of the BMW fan page with a low level were then classified as passive and with a high level of interaction as active members.

The two groups were also analyzed using a MANOVA. Unlike the first pass, the second one did not deliver significant F-values for all 10 constructs. While most of the constructs had values between F = 4,815 to 23,668, purchase intention (for both product and repair services) and brand satisfaction failed to deliver satisfying p-values (p = 0.065, 0.758 and 0.425).

The comparison of the mean values of the two groups makes it clear that the significance of the MANOVA F-tests stem from the differences between the groups. Specifically, interaction has a positive influence on the affective constructs brand trust, brand loyalty,  brand commitment and positive word of mouth (∆ between +0.160 and +0.316, average ∆ = +0.233). Its influence on the conative variable willingness to cross-buy (for lifestyle products, financial services and spare parts) is  also positive (∆ between +0.164 and +0.379, average  ∆ =  +0.248). An influence on brand satisfaction and purchase intention (for both product and repair Services) was not observable as can be seen from the p-values. Highest mean value differences were seen in willingness to cross-buy for lifestyle products (∆ = 0,379) and brand loyalty (∆ = 0,316).

These two KPI's

The results show that being a member of a Facebook fan page has a strong influence on both affective and conative variables. Non-members show lower brand attitude and buying intention than members do. Membership as a key performance indicator can thus be used to assess intended buying behavior (conative component) and emotional affinity of customers to the brand (affective component).

Interaction has an influence on the affective dependent variables as well as partly on willingness to cross-buy. But while membership has an influence on all dependent variables, an influence of interaction on purchase intention and brand satisfaction was not observable. Interaction lacks a significant influence on the conative dependent variables. It can be assumed that interacting with a Facebook fan page does not influence such variables like purchase intention and brand satisfaction since there are other factors playing a more important role in buying a car or being satisfied with it. In the case of brand satisfaction, it is likely that whether a  customer is satisfied with the brand or not depends on the  performance  of the  brand  and not necessarily by how he interacts with the fan page. If the brand performs above the customer's expectation then brand satisfaction will follow. Interaction as a key performance indicator can thus only be used to assess emotional closeness to the brand BMW but not intended buying behavior of members.
The findings of this survey also show that membership and interaction do have a strong influence on brand admirers. The number of members of a fan page and the level of their interaction can therefore be considered as key performance indicators which actually have an economic value for the company using them. The findings also have implications for companies wanting to use a fan page on Facebook. Companies need to implement and monitor these two KPIs in order to evaluate whether their efforts on Facebook are successful or not. This means that companies need to follow these two KPIs closely when conducting a marketing campaign on Facebook in order to evaluate whether said campaign was successful or not. Companies should also focus on acquiring new members for their fan pages since it has been shown that membership has an impact on brand attitude and buying behavior.

Tuesday, September 03, 2013

5+1 mistakes B2B marketers should avoid


Many marketing campaigns are simply targeted at the wrong people. Completely understandable, given that the companies we are marketing into may have a hundred thousand employees or more. Being a "data junkie” is the key here – make sure you’re obsessed by the data the campaign will be sent out to. Its relevancy and its quality.
In a B2B company, LinkedIn and sometimes Facebook and Twitter are necessary; these channels are so popular that most people assume a company doesn't exist if they are not on social media.
Also, take the time to build a brand strategy. You may be on all the right channels, but you may not have an identity consistent enough for people to relate to. A brand strategy will help you decide who your target audience is and how to best speak to them.


With all the talk about the importance of engagement, many marketers get so caught up in sharing that they forget to speak for their own brand.  Yes, we need to engage, but we also need to have an identity. Think of it as a conversation. You want to contribute to the conversation by listening and talking, not just one or the other. Make sure that you, and every other employee, are clear on what your brand identity is and start promoting it.


Sometimes, the sales team will commit to follow up on your campaigns themselves. As they get busy, or as other leads turn into bids, the salespeople can become distracted and drop the lead follow up. We need to have a plan if this starts happening. Furthermore,develop a strategy for “slow burners”, also known as the people who have expressed an interest but are not ready to move forward yet. How will the campaign keep them warm until they are ready to buy?


Personalization has always been a very effective marketing strategy to nurture and relocate potential customers. If a potential customer and the brand have a relationship, then personalization is helpful and thoughtful.
However, personalization should be voluntary. Making personalized outreaches to a customer who does not give permission destroys trust and invades privacy. A recent study shows that before a relationship is built up, if the dissemination of information of a brand is too personal, it will do harm to the brand.


Partnerships are marketing gold and yet many businesses fail to take advantage of them. Let's partner with a charity, a like-minded company or local businesses and both parties will reap the benefits. With social media, B2B partnering is easier than ever. Simply create a place on your website that talks about your partnership and then both parties will use social media to promote one another. This will lead to greater exposure for everyone and showcase that our company is committed to helping others succeed.


The convenience and low cost of social media offer the most advantageous opportunities for cost-effective, high-performance customer service and customer relationships since the inventions of the internet and customer relationship management (CRM) software. Companies can offset the cost of social media implementation by re-engineering.

Sunday, September 01, 2013

Synergistic Marketing Campaigns

There are probably two important developments that helped evolve the media mix concept into what we now think of as multi-channel synergistic marketing campaigns:

 A transition by marketing and advertising professionals toward integrated communications. 

This marked a shift in focus from transactions to customer relationships. Even outside the marketing arena, engineers and statisticians were contributing by following the lead of successful Japanese industries that re-engineered business processes around customers’ needs. Power was then shifting to the consumer and the management of  communication processes was being elevated to strategic levels to help build customer relations and drive business results.  In addition, other market realities continued to fuel the trend toward relationship marketing through expanded communication and sales channels, such as:

  1. Competition increased while the cost to acquire new customers soared, making it increasingly important to establish solid customer relationships, especially with those who projected high lifetime values.
  2. Customers in a satisfied business relationship became clearly recognized as the best source of new business.
  3. Privacy concerns and governmental actions placed greater focus on establishing true relationships rather than trying to blindly attract buyers with hit or miss, mass-communication tactics.

 The number of channels available to marketers increased. 

Not only was there now recognition of the importance of building customer relationships and integrating communications, but new electronic media such as web sites and e-mail also added channels. What’s more, there was less distinction between pure communication channels and sales channels. Increasingly,the two were becoming one and the same. What is evident is that consumers prefer personalized communications:


The New Era of Marketing: Personalization Über Alles

New methods of marketing are emerging that seek to more effectively use prospect and customer data to filter target lists, construct personalization rules and produce and execute marketing campaigns across and among the full range of media  channels available. The most successful campaigns reach consumers in a sequenced and extremely consistent manner. This creates an indirect benefit of enforcing and enhancing corporate branding.Therefore, organizations that can harness the power of other marketing channels and produce more personalized communications could put themselves in a good position to capture market share from those that don’t. There are two critical components to effective multi-channel marketing campaigns: Creating relevant offers via personalization and coordination and management of multiple marketing channels.

In a multi-channel marketing context (emails, newsletters, printed brochures, social media, etc.) personalization means using what is known about the recipient to create the offer, customize the messaging and deliver it to them in the form at requested. For channels other than telemarketing, this can include personalized greetings, relevant messages based on demographics and compelling graphics. Actually, response rates increase dramatically with an increase in the number of personalization elements. As the number of personalization elements increases from one to seven ,the click through rate more than triples, increasing from 4. 7% to 14. 8 % .

The other critical element lies  in the design and execution of campaigns that coordinate among the full breadth of channels available to reach prospective buyers. Much like personalization, this requires strategic and tactical planning. When marketers can sequence communications and “hit” prospective customers with consistent communications through various media channels, the effectiveness of campaigns increases greatly.

Data and Content Management

More than half the battle in effective marketing campaigns is acquiring and maintaining good prospect and customer data. It is important for sellers to build a repository that allows them to effectively utilize unique attributes to segment prospects and customers. Using these attributes, marketing managers can build the personalization rules and determine which prospects should receive proscribed offers, and more specifically, which messages. Once the campaign is designed, in many cases the seller (and often a third-party service provider such as an advertising agency) creates the content to support the marketing campaign.

Traditionally, sellers have created content specifically for each campaign in a tactical fashion, failing to leverage the messaging and graphical elements for other channels. Sellers are increasingly developing and managing content in a more strategic, collaborative fashion that enables content to be shared not only among media channels, but also across campaigns.

Strategies for Synergistic Marketing Campaigns

The Customer is King 
Just as an oil company would not blindly drill small holes in the earth in search of oil, your organization shouldn’t contact millions of consumers blindly, banking on a very small portion accepting your offer. Rather, seek out or build a repository that identifies which consumers are more likely to find your offer compelling.

Get Customers to Opt-in  
Companies that can build their own opt-in lists, or use qualified industry opt-in  resources, are  in  a  better  position to  communicate  and  market to  both  consumers and businesses. Explore methods, such as periodic e-mail newsletters, that provide valuable information and purchase opportunities simultaneously.

Invest in Personalizing Communications
The overwhelming response to the “do not call” registry underscores consumer frustration with intrusive, irrelevant communications. Research shows that by a ratio of over 3:1, recipients prefer personalized communications. Research also shows that the more personalized an offer is, the higher likelihood of response. It will require an increased investment in creating content and designing campaigns, but you can expect double-digit response rates.

Leverage More Effective Customer Channels 
Design and execute new marketing campaigns that leverage the full spectrum of marketing channels. Personalized direct mail, permission-based e-mail and Int e r n e t technologies can be employed to dramatically increase the returns on the marketing dollar. Coordinate marketing  campaigns using multiple  channels and take advantage  of the “multiplier effect.”

Simplify the Transition by Using Service Providers 
Personalizing communications and running multi-channel campaigns can be a challenge for those selling organizations that do not currently have the technology or process infrastructure to develop multi-channel strategies, manage customer data, manage marketing content and execute integrated campaigns. Sellers will find that there are several service providers that can help them transition from their current practices to leverage more effective marketing practices.

Saturday, August 31, 2013

Vertical Marketing Systems and Retail Industry

Vertical integration in a distribution channel places into focus the factors of cooperation such as the distribution of income among partners, the distribution of risk depending on the marketing functions and activities assumed, as well as margin increase through the cost reduction. The problem is to identify the model which is, from a theoretical point of view, based on gradation of integration and the retailers’ power. For efficient retail, it is necessary to adjust the retailer’s and the supplier’s distribution models, and this homogeneous structure represents a unique model of cooperation between the suppliers and the retailers, which will be discussed here. There are two basic functions that suppliers or mediators perform, them being the satisfaction of supply and demand. Other functions can be divided into the exchange of the market information, the presentation of suppliers to the market, technical back-up and help with product selling to the end user.

The development of retail with the purpose of forming the optimum cooperation among the participants in the distribution, places into focus the question what has to be improved, in what way the mutual cooperation should be modeled and in what way does a retailer influence the physical flow of the goods through the channel. There is a need for considering the mutual relationships among the distribution channel participants, i.e. the business subjects which distribute products and provide services with an emphasis on the cooperation of a retailer with other participants. The greater the income of the retailer, the greater their influence on the distribution channels and the greater their control over the flow of the goods and services, without taking the ownership of the channel. Retail management controls the suppliers, who, then, have to increase the level of their services, take over more marketing functions and activities, reduce the price and improve assortment in stores.

The structure of the Vertical Marketing System

The vertical marketing system is an inter-organizational structure which is based on contracts or trust, where each subject has a limited control over this mutual relationship. The purpose of the vertical marketing system is to connect, to a certain level, the marketing advantages of two or more separate organizational units which have different marketing interests and owners. The difference between the distribution channels are manifested in a different range of marketing functions, each with its own expenses, which especially come into focus if we are talking about outscoring marketing activities. If two or more levels of the distribution channel merge into one unit which is supervised and managed by a single managing structure, in that case we have vertical integration (Grossman & Hart,1986). These two authors link vertical integration with control and ownership. They also claim that in the case of vertical integration, we have the transfer of control over one’s assets to another subject, while the first subject still keeps the ownership over that assets.

The analysis of the distribution channel has shown that vertical, compared to traditional channels, have considerably greater dynamics, development opportunities and give a better background for a specialization of the marketing functions. With vertical marketing systems, we have a limited independence of the participants, and, under the pressure from the competition, ’looking down on the partners’ transforms into a closer relationship with the leader. The existence of traditional channels comes down to the benefits from a transaction and not from a cooperation which can be more profitable and advantageous in the long run. A vertical marketing channel provides a systematic view of the issue, which was not the case with conventional contracting in that they only dealt with the issue of the contact and the agreement between an end user and a supplier.

Vertical marketing channel is another descriptive, theoretical model of the distribution chain which, as opposed to the Porter’s theoretical model, emphasizes the role of the participant that would order and carry out the necessary functions. Verticalization stands for the process of unification of all the market levels within the channel, where each level is represented by independent business subjects which transfer their result to the next level that is closer to the consumer. What makes the vertical integration specific is the fact that the distribution of marketing activities is based on an agreement, on condition that all participants retain their identity and independence.

Vertical Integration Model Factors.

The performance of marketing functions in the channel depends on the following factors: costs, expected benefits and risks.The purpose of the above picture is to identify the connection of the verticalization of marketing functions in the channel with the limitations, in terms of costs, risks and benefits. The more flexible and looser the verticalization, the more bearing of the costs, the risk and more freedom will be transferred to the other negotiating party. The only phenomenon that can influence the distortion of a dotted line in Figure 1 is the moment of power within the channel. A powerful player puts the pressure on weaker suppliers in that he tries, through their resources, to achieve greater profit by reducing the risk and costs.

The influence of power on vertical marketing system models

The development in the channel manifests itself in the change of relationships within vertical integration, and this occurs if a retailer becomes the holder of a higher value margin in the market economy. The prerequisite for strengthening of a retailer’s position is, above all, the investment in financial assets. This investment is a result of the strategic goals of management and ownership with the purpose of using the acquired means for gaining new resources which should secure higher value margin and the profit in the long run. From the economic point of view, the return to the invested amount means that the capital of a business subject has provided the profit, and is used rationally and economically. In addition, viewed from a broader perspective, we must notice the connection of this financial category with the model of vertical integration. The retailers that get return on the invested capital, make an efficient use of strategic resources, or, in other words, the managing structure integrates and classifies those resources and activities which are profitable and executable.

The comprehension of power refers to putting one party’s interests before the interests of the other, in which case the latter one is unable to change this. Theoretically speaking, power is manifested in the ability of a business subject to, through his behavior and activities influence the course of cooperation and the behavior of other participants whom he interacts with. Since the purpose of cooperation is to make a bigger profit for the organization and the participants, individual striving towards this additional profit that the organization would not otherwise achieve, is always present. The goals of inter-organizational cooperation are set through negotiation, so it is only natural to conclude that what we are dealing with here is the negotiating power or the ability to influence the outcome of the negotiation.

Negotiating power has a great influence on all aspects, from the modeling of the vertical marketing system to the very way of arrangement of the products on the shelves, and that power comes from the volume economy and the growth of the sales potential.The cooperation at the very end of the channel for the distribution of goods and services will probably, in the future time, be ever more controlled by a retailer, while the others, manufacturers and mediators will be forced to accept their rules. The key resources for selling the product to the end user will be, even to a greater extent, under the dominance and the management of retail.