ADMINISTERED VERTICAL MARKETiNG SYSTEM
iN A DEVELOPING ECONOMY: AN EMPIRICAL
STUDY iN TURKEY
Tunç Erem. Ph.D.Professor of Marketing and lnternational . Business and
. Haydar Aksoy, Ph.D.
Ass. Professor of Marketing and Logistics Marmara University, İstanbul, Turkey Paper Presented at The Second
lnternaltional Conference on Marketing and Development
Kari Marx Universlty of Economic Sciences July 10-13, 1988
Budapest, Hungary
ABSTRACT
Purpose of this research is twofold. First, it is designed to review the Administered Vertical Marketing System and second it investigates the channel relationships as a factor in development. The system is exami-ned from the standpoint of dealer/distributor, dealer/consumer relations and the national economy. The results of the study provide evidence that AVMS has some disadvantages w8ich hinders the channel relations. Thus, it is difficult to find significant relationships between the system and the economic development process in LDCs.
INTAODUCTION
One of the neglected areas of the neglected areas of Marketing and Economic Development which _requires tehe attention of scholars and prac-titioners is the advantages and drawbacks of Administered Vertical Mar-keting Systems (AVMS) in developing countries. Berides, the normative theory on economic· aevelopment and marketing has focused on the
oe-nefits to be derived from improving Less Developed Countries (LDCs) dist-ribution activities (Wood and Viteıı; 1985).
Constrasting the experience of developed and developing countries, AVMS has considerable internal benefits and significant compettive ad-vantages .in developed economies. However, this has not been the case in developing countries (Kaynak and Çavuşgil, 1982). Besed on this as-sumption, an empirical research model has been developed by the aut-hors to evaluate these arguments. Therefore, the purpose of this research is twofold. First, it is designed to review and explore AVMS and second, it examines the channel relationships asa factor in development. One sho-uld alsa note that the study is limited to AVMS. According to this limitation conventional channels, horizontal marketing systems, corporate and cont-ractual systems have been excluded and we have focused our attention
on a topic that was hardly ever treatded in LDCs. The empirical research reviewed in this paper is a country specific analysis and it deals with distri-bution structure and channel relationships of the Turkish Private Sector
İndustry in the mid 1980's.
ADMINISTERED VERTICAL MARKETiNG SYSTEM (AVMS) AND ITS IMPACT ON DEVELOPMENT: AN EMPIRICAL INVESTIGATION Theoretical and Conceptual lssues
Arguments with regard to distribution issue~ in developing economies are related to the formation ofa Vertical Marketing System which responds ,
to the needs of the individual firms and consumers. Apparently most of the existing research on this subject argue that the conventional marke- ,
ting systems are being displaced by vertically integrated channels in LDCs. The development of such channel relationships is based on mutual trust and acknowledgement of the Jact thar all of the units must work together in a centrally coordinated system. in other words, sellers at one level must be concemed about resellers at other levels and also with the needs of consumers. This issue is considered to be the highest achievement in mar-keting science. However, it is this last factor which is eften missing in veloping economies (Savitt, 1973). Guzek (1986) pointed out that the de-velopment of vertical integration was depenent on the management system of economy and market conditions. Cole (1967). and Harrigan (1984) ilust-rated and summarized niany of the advantages and risks associated with vertical integration ·in developing economies. Davidson (1970) and Bower-sox, Cooper, Lambert and Taylar
f
1980) argued on the recent rapid and expected growth of vertiçal marketing· systems which was evident by the performance of three major types of distributive systems with high veriti-cal programming potential-corporate, contractual and administered systems.Research Methodology
The aproach used by the authors to test the arguments regarding the · channel relationships in this empirical research is primarily based on
Dea-lership Arrangements. Therefoe, a pilot study has been conducted on a regional bases in the city of İstanbul and white · goods of the household Electirical Appliance lndustry have been examined. Products selected for this purpose are namely three and they are refrigerators, washing machi-nes and ovens. Since the production of dishwashers and dryers is still at a very low stage, these items are excluded from this study. in the system being examined two manufactures (Arçelik and AEG) two main distribu-tors and fo,ur hundred eighty five dealers were designated as the univer-se.
As ilustrated in Table 1 the industry we examined was dominated by these two firms. Therefore we conducted this research . using data from
The market shares of those two manufacturers are as follows: Table ı
Market Share %
Manufacturer Refrigerator Washin& Mac hine O ven
Arçelik 53 74.5 30.3
AEG
47 25.5 12.4TOTAL
100 100.0 4L7Source: Dünya Newspaper, Supplementary Edition on White Goods (1986).
the distribution system of -these two large manufacturers who had been the market share leader~ for several years.
Objective: Specifically this field study was intended to investigate three main objectives: (1) The advantages and disadvantages of AVMS from the standpoint of dealer/distributor relations. (2) The advantages and disad-vantages of AVMS from the standpoint of dea-ler/consumer reletions and finally. (3) AVMS is discussed from the standpoint of national economy and. growth.
To achieve these objectives, a field study was designed by the authors and the market survey was based on the data collected from the dealers. Hypothesized effects of AVMS were not measured in this survey, but per-sonel interviews were conducted using a structured questionnaire to gat-her the dealers perceptions of their channel relationsh ips.
Saruple and Data Source:
To illustrate the area sampling technique that was used in this study İstan
bul was divided into 19 districts or geographic subdivisions. The number ot dealers for each disfrict was determined by distributors based on the inceme and the population of these districts. Data. tor this study were ob-tained from a survey (personal interview) of a random sample of 66 dea-lers operating in these 19 geographic subdivisions. Consequently a regio-nal 13.6% probabilitiy sample was drown which led to the increased vali-dity ot_ the findings. The sample included respondents (dealers) of diffe-rent sizes, ages and residential areas. The data collected included infor-mation about dealers opinions and attitudes conceming the AVMS in qu-estion. Apparently, the administered questionnaire included questiöns
per-tajning to our 3 objectives (see Appenclix). 66 usable questionnaires were obtained from the personal interviews conducted by 5 interviewern and the response rate was 100 percent. The autlıors decisions to collect the drıta only from the dealers was mainly influeııced by the constraints on rnanu-facturer/distributor relationships and their mutual interests within the clıan nel. For this reason and because of unreliable sources. these channel mem-bers were excluded and only the dealer side of the charınel was exarni·· ned. Another point wtıich needs to be explained is related to the variables. The two types of variables that have been used in our research are marke-ting mix· and marketing environment variables.
Results, Analysis and lmplications: The results of our survey are
pre-sented in Tables il, 111 and iV. but pertinent data about the operation and effects of AVMS have been collected from the respondents accepting the problems arising fronı their dıannel relations. Percentages presented in the Ratio Analysis illustrate the relative importarıce of eaclı problem rela-ted to our three objectives.
Table ı ı u - su.~ sı - ıurı~ ;---··-···-· ····- -·---, , . - -- - -C. ··-····"\ Prmhıct - rrnrfııct rliı1<'rsifir·0li"!l ·-··- - - (7f!:t) - lı!lın] ,-,q l o rr i r:P-; --- ··- ( /Tı:() - p.1ynıı:rıt. ~.r'rm<; ·-- ---.. - - - · · - - - - · (G71;) rromnt ion ·· prrnıınl:irın:oı\ r:-ırı•p:-ıiqıı<: · ·----·--·---···--- (7r;1'.)
-··--.· ··- ----··---·---·--·--····---·-·- (7•;1,)
Disl:rihı.ıtiorı - rlPlivPry ----·-- - -··---·-· - - - ·---·---··--· (7'i1.)
Minor problemes are observed in' AVMS reg;ırdinq rroduct diyersifica-tion and wholesale pricing in dealer/distributor rel;.ıt!ons . However. there are .significant disadvantages with regard to pny'rnpııt t"0r rns. prornotional
carnpaigns, sal es management and delivery terrııs D0alp; s' rn.ırketing rnix variables (operating metlıods. inventory policies ;ınd theiı pı_ırdıases) arp totally influenced by distriburtors. Because the rlıstriht.ıtnrs lrnvP tlıe ultir-mate channel power, this analysis cRn be cmrclr:--ıtPri wıtlı the studiPs of Diamantopoulos(1985), Lusch and Brown (198?J. Grıski arırl f\.Jevirı (1985) and our results show us that mutual deperırierıce dnes ııot exist v:ithir~ thı:> · distribution channels.
Minor problems are observed in AVMS about hu=ırıd ıc1y0lty ;:ınrJ ırı\''-,~ı tory requirements in dealer/consumer relations. However. trır~rp ;ıre c:;iqnı ficant disadvantages with respect to payrnent temıs. re1.gıl rırıc0s. s;1IPs
Table 111 Mi ıırır Pro~ı) pmc; O - SU;( ':"ıl -· l(](l~ ·--····---·- ···---·--- , , --·-····-·-·--····-- . ··.--- -·--·-""' Prndur:t. hr:ırırl lny,-,Jl.y ···--·- - (J!ı';( Pt irr> p:ıyrıır>rıt. tnrı11c:; · ----·-·--·-··--·----·---·-···· · ···----·· · - (8 3l) t<'l.:ıi 1 pri.rnr, ···-·---·----···· ·-·---··----·---· - --- - - (81 %) rrr:ınırıt.inrı - r;:ı]nr; rırrıınnl. irırı ··"---·--- -··'--·--·- - - (mı'.t)
Olst.rihut.irırı ·- ın'1irıhirıirırı iıı•ırııf,~ry ---- (Jn~)
· t.r'1rıc:r"•rt. - - · - --- -···--···-·--·- (t1t11,)
- rnıı:ıiır; :ıııd r.nn<ir·n ··-·-·---·--· --··-··-·-··---·---·---·-- (7tı~)
promotion and after sales service. This objective has been analyzed ma-inly from the standpoint of dealer/consumer or member satisfaction (Mic-hie and Sibley, 1985). Our rnserırctı results and the problem areas in the marketing rnix variables irnply tlı;ıt !lıpre is ~rn urısatisfactory clıannel per-forrnance which nrny ultinı(lf Pty lr'!::ıd to a reexamination of existing
relati-onstıips.
The ernpirir.rıl investig:ıtıon of Avr.JIS from the starıdpoint of national
ecorıomy mıd r!eve!<.,rn10rıt is illustrnt~rl in T able iV and its implications (He 8.SSP.SSP.d t\S follows· /\ Vt"'1S ;:ılc;o has some disadvantages in
develo-ped P.connrıııes. Fen t!ııs rerıson Hı8 lower limit of nıinor problerns (under
25n(-ı) slıould rıcıt be over0n1pl1:ısizerl anrl tlıese problems should be
trea-tc:.ıd cıs ;::ı corıtıibution to ec0n0ınıc developrnent in LDCs. Our findings irnply that /\ VMS tı~s differ prıti3:ıl .cıclvarıt1gp,s partic-ularly in providing time and
plcıce utility within ttıP exıstinq arrc:ıngernents. We slıould also emplıc:ısize
its competitive benefits irı firıcıncirıg and in expertise and its corıtribution
to rmı.rketinq etlıics l he rosı.ılts. l he results also irıdicate the advantages
of AVMS with reqarcJ 10 indııstrfal growttı and suggests the stabilization of supply in clevplopinq courıtri.::•s. On tlıe other side. AVMS has corıside
rnble drawbacks particul8rly with respect to cost reduction, chanrıel coor
-dination and has no positive ırnp;:ı.cts on consumer protection and on regal
remedies. T he ·systern is also irıcapable of regulating the cornmerce and it is irn=.ıffective in creating R competitive environment in LDCs. fr1 view of
the Rbove ~nalysis, we can conclude ttıat from the standpoint of economic
development the. drawb<lcks of the system outweigh its advantages. CONCLUSION
All Vertical M::uketing Systerns are organized with the objective of imp-roving distribution ttırough cornbined efforts in developed economies. in
ttw systenı being examined, however. these objectives are not achieved
Fınd for that reason it is difficuit to find significant relationships between
1\) ~ Tectvlologlcal conslderatlons Utility creation Market characteristlcs Flnancin~ Channel coordination Expertise
Political and legal consideratlons Social considerations lndustrlal growth Consuner protection Market development ~arketirıg productiv~ty Table iV - accUT1Jlation o~ technology - improvement of quality - standardlzation - cost reductlon - time utility - place utlli ty - coırpetltive envlronment - f inanclng and credit system - feed-back
- comıunication
- training
- increased expertlse - legal remedies f or confllct
resoiutlon
- developmont of trede laws end
reguletlon of coııvnerce
- contributlon to buslness and marketing ethlcs
- stebllizatlon of supply - consumar protactlon lews and
regulatlons
- constribution ta market size
- op~rational ef f iciency
Plinor Problems Plajor Problems
o - so%
sı-
ıooı r-~ ' 80%) (B2%) (BO~) (ea~)the AVMS and the development process in LDCs. it is apparent that ba-lanced growth and rationality are essential to improve the.channel perfor-mance in developing countries. That beirig the case, distribution channeis like AVMS should not serve just the interests of the munufacturer and the disctributor, but at the same time; they should also protect the dealer and consumers. As we mentioned earlier, AVMS also exists in the developed
economies~ Neverthelers, because of the intense cornpetition at every
le-vel of distribution, such integration does not create
a
climate of unfair co-mpetition in these countries. in contrast, the regulation of commerce is not sufficient in Turkey and there is no antitrust legislation, Therefore attenti-on should be given to a legal framework in order to achieve the cattenti-onditiattenti-ons of competition within the channels. The creation of a climate of competiti-on is fundamantally. a matter of time. However, ensuring the developmentof compe,tition in a healthy environment is a duty incumbent upon the go-verments. We hope that this researdfwill be a useful tool to formulate new generalizations about the role and importance of marketing channels in LDCs.
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ACKNOWLEDGEMENT
The autlıors wish to thank Dr. lsmail Hakkı Armutlulu and Ali Doğan Öz-tunç for their kind help and they are indebted to Aypar Topkara and Gül Göl tor their research assistance in this study.
