Vertical Marketing Systems
Simply referred to as VMS by most people, vertical marketing systems are business systems whereby suppliers in a product chain work in an arrangement of co-operation that is designed for all businesses to acquire the maximum benefit. This kind of co-operative arrangement exists between the distribution channels that are available in various levels with different members that work together. Vertical Marketing Systems contrast with conventional marketing systems whereby every business in the supply chain is independent.
Vertical marketing systems can be applied by both small and even large scale business investments. In these systems, the value or share of the supply chain that is owned by a given business is based on its level of vertical integration. For instance, in case a writer owns the publishing company that does the printing of his or her books, and also owns the website or online platform where the finished books are sold, she would have a higher level of vertical integration in the business. In the event that a writer uses a vertical marketing system in publishing and selling of his products individually, he will lose very little profits in the form of commissions paid to printers, agents and even booksellers.
Vertical marketing systems are mainly made up of three components that include producer, wholesaler and retailer. The producer can be considered as the manufacturer whose duty is to make the product. The wholesaler usually buys the products from the producer and manages the distribution to retailers. Retailers make up the price of the products based on the cost incurred in obtaining them from the wholesaler. Retailers act as the last link between the producer and the consumers or final users of the products.
There are three kinds of Vertical marketing systems; corporate, contractual and administered. A corporate vertical marketing system streamlines the process by bringing all the elements of the distribution channel including manufacturing, wholesale and retailing under the ownership of a single business. An ideal example of such a system is Apple that does all the activities beginning with the manufacturing and final delivery of all its products to the end users in the market.
Contractual vertical marketing system is whereby the pieces of the distribution channel continue to run as individual entities. This means that the manufacturing, wholesale and retailing is each done by an individual entity. However, the businesses enter into formal contracts with other elements in the distribution channel. A good example of a contractual vertical marketing system is franchising.
An administered vertical marketing system does not employ formal contract obligation or even corporate ownership of the distribution avenue. Instead, one of the members of the distribution channel has enough power to exercise the effective control over the activities of other members. This is a responsibility that is reserved for larger businesses with the muscle to exert the necessary influence for running such a system. Smaller businesses are usually incapable of exerting the great influence. A perfect example of this form of vertical marketing system is Wal Mart.
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