There are various systems to run the business and develop its products and systems. Usually, companies employ horizontal and vertical marketing systems. The vertical marketing system allows retailers, wholesalers, and producers to collaborate with each other and increase their profitability. Today, we’ll discuss what is vertical marketing system; its various types, advantages, disadvantages, and examples.
What is Vertical Marketing System?
A vertical marketing system (VMS) happens when retailers, wholesalers, and producers collaborate with each other to meet the demands and wishes of customers. It helps businesses and companies to have control over the whole production and selling process of goods.
Traditionally speaking, there is no coordination among retailers, producers, and wholesalers in the horizontal marketing system. They all work separately for profitability in order to amplify their profit, and every entity would have independence and freedom. It would result in the form of more competition, conflicts, and low profitability for every entity.
Types of Vertical Marketing Systems
Some of the main types of vertical marketing systems are as follows;
Corporate
The corporate VMS has complete control over the budget, operational and production processes, and deadlines of its retailers, wholesalers, and producers. It comprises developing products, marketing, and promotion, and then selling them to the target customers. However, it allows businesses and companies to distribute and deliver their products to end users without relying on others.
Example: John’s Dairy Freeze
The company has its own dairy farms, produces its ice cream in its own production facility, and sells many items to the end target customers by employing an in-house distribution system.
Contractual
Contractual VMS is a type when retailers, wholesalers, and producers collaborate with each other to amplify their profitability, but their goals and objectives would remain separate. The contractual agreement bound companies to meet the goals and objectives of the company regarding the product, scheduling, and cost; but they would maintain control over the management and administrative process.
Often, companies develop partnerships to lower overhead costs and offer competitive prices. While working with them, businesses could amplify their market reach and exploit each other capabilities.
Example: John’s Dairy Freeze
John’s Dairy Freeze follows the franchising business model, the brand issues franchise license to various stakeholders to sell the company’s products under its brand name at various location points. The branches have the control process, budget, and workflow of their location point, and the parent brand would remain the managing original owner.
Administered
Administered VMS is a type when the production and distribution chain has seniority and it implements more power. It happens due to the market influence and larger size. However, the parent or the senior company would manage the marketing system without any formal agreement. Small businesses and companies plan to work under their terms and conditions regarding stock, pricing, and branding.
Example: John’s Dairy Freeze
John’s Dairy Freeze is a large brand and they plan that all of its location points should have at least 100 gallons of ice cream annually.
Advantages of Vertical Marketing System
Some of the pros and advantages of a vertical marketing system are as follows;
New Ideas
It is much easier for companies to gain a better insight into the preferences of customers and create innovative products and services in the VMS. Often, companies employ VMS to offer groundbreaking solutions to their clients.
High Resources
When companies are sharing their goals and objectives, they would have more access to resources. Instead of communicating with the 3rd party distributing company, they have the resources to distribute it by themselves. However, the company has got more power over the shipping expenses and delivery times.
Efficiency
Retailers, wholesalers, and producers collaborate with each other to achieve their goals and objectives. It offers them an opportunity to develop a more efficient system.
Branding & Sales Messaging
When you focus on the particular target customer with a particular marketing message, then it amplifies their probability of brand recognition. When you offer a special product to the customers in the market, then it puts you in the market leadership position in the market.
Disadvantages of Vertical Marketing System
Some of the cons and disadvantages of the vertical marketing system are as follows;
No Coordination
When you are working in a company, then it requires coordination among various departments, and VMS sometimes faces the problem of limited coordination. With the inclusion of the 3rd party partners, they would follow their own profiteer goals and objectives. It results in the form of limited coordination and collaboration.
Limited Quality Control
When a company has control over its various departments, then it becomes difficult for the management to analyze the performance of all the departments. It would result in the form of limited quality control, inefficient processes, lower employee appreciation, and an unhealthy environment.
Low Perspective
When the company is working to achieve its particular goals, it won’t see its inefficiencies and ineffectiveness. While working with 3rd party suppliers, production, and other operational processes, they would implement their own methods and strategies.
Example of Vertical Marketing System
Zara
Zara is a fashion brand and the company has got control over its entire supply chain and other operational activities. It allows the brand to avoid conflicts, and the company owns a majority of its stores, and they follow the same marketing and promotional strategy through VMS.
Conclusion: What is Vertical Marketing System? Types, Benefits, Examples
After an in-depth study of what is vertical marketing system; its various types, advantages, disadvantages, and examples; we have realized that VMS is significant for businesses and companies. If you’re planning to implement a VMS strategy, then you should keep in mind the abovementioned guidelines and types.
Ahsan Ali Shaw is an accomplished Business Writer, Analyst, and Public Speaker. Other than that, he’s a fun loving person.
