Vertical Marketing Systems
A vertical marketing system is whereby the main members of a distribution channel; manufacturer, wholesaler and retailer work together as one faction in order to meet the needs of consumers. In conventional marketing systems, producers, wholesalers and retailers are separate business entities that are all aiming at maximizing their individual profits. In the event that the effort of one member of the channel towards maximizing profits is comes at the expense of other members, there are chances that conflicts may arise that can have negative impacts of cutting down on profit margins for the whole channel. Formation of Vertical marketing systems is the most ideal option for evading such kinds of problems.
When studying Vertical marketing systems, it should be noted that they can take various forms. For instance, in a corporate vertical marketing system, one of the members of the distribution channel controls the ownership of the others. Even though the channels are jointly owned, every company in the distribution chain continues to carry out a different activity. When it comes to the case of an administered vertical marketing system, one member of the distribution chain large and muscled enough to undertake the coordination of all the functions of other members without a stake in ownership.
In the case of a contractual vertical marketing system, there are independent firms that are together by contract for the mutual benefit of both. An ideal example of a contractual VMS is a retailer cooperative, whereby a group of retailers purchase from a wholesaler that is jointly owned. Another example is a franchise firm, whereby a producer licenses a wholesaler for the distribution of its products.
The main concept behind vertical marketing systems is the same as vertical integration, whereby a company expands the scope of its activities through the assumption of the activities of the next link in the distribution circle. However, vertical marketing should not be confused with horizontal marketing, whereby members at a similar level in the distribution chain come together in strategic team-ups or joint ventures to exploit new opportunities in marketing.
It should be noted that vertical marketing systems have their merits and demerits for small businesses. The main benefit of a vertical marketing system is that it can enable a company to control all the elements of products’ manufacture and sales. With this, the marketer is able to see the bigger picture, anticipate problems, effect changes since they become possible, hence increasing efficiency.
Involvement in all the stages of distribution can make it quite hectic for the owner of a small business to keep track of what is going on. Besides, the arrangement can also be unsuccessful in case the people who are managing the various areas fail to fit well together. For small businesses looking into options of forming vertical marketing systems, it is recommended that you begin the process by developing close ties with suppliers and distributors. If applied skillfully, vertical marketing systems can offer many firms great advantages over their competitors.
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