Question

Both ABI Beer Company and MC Brewery control about 80 percent of the U.S. beer market. Most of the beer distributed by these two companies is sold through independent beer distributors who, in turn, sell the beer to retailers, restaurants and bars. ABI Beer Company made several strategic acquisitions that involved small competitors including craft beer manufacturers. These acquisitions while increasing the company’s market coverage, also added to its operating costs. The company has decided to embark on a cost-cutting program. One key cost focus for ABI is distributor margins. ABI’s distributors historically received about $1.00 for each case of beer distributed to retail channel members compared to $.85 paid by MC Brewery to distributors. By eliminating that 15-cent difference in margin, ABI estimates it could save about $200 million per year. But ABI’s distributors, many of whom had decades-old relationships with the brewer, are unlikely to be happy with the new payment structure as it would directly impact their own profitability. would this be a conventional marketing channel or vertical marketing system?

Answer 1