A vertical marketing system (VMS) is one in which the main members of a distribution channel—producer, wholesaler, and retailer—work together as a unified group in order to meet consumer needs.
There are three different types of vertical marketing systems : a corporate system , a contractual system , and an administered system . Let’s take a look at how each system could be beneficial to a business.
Contractual Vertical Marketing This system allows companies to benefit from economies of scale and marketing reach. These relationships are a popular form of vertical marketing . Franchising , retail sponsored and wholesale sponsored are forms of a contractual vertical marketing system .
The purpose of a vertical marketing system is to dictate how all of the crucial cogs in your company should work together to earn ownership of a specific vertical market .
A vertical market is one in which all of your customers are in one particular industry , regardless of where in the food chain they are. A horizontal market is one in which all of your customers use your product to do the same thing, regardless of what industry they are in.
The three types of vertical marketing systems are contractual, corporate and Administered.
Broad examples of vertical markets are insurance, real estate, banking, heavy manufacturing, retail, transportation, hospitals and government.
When professionals talk about industries , they are referring to a broad group of companies that operate in the same general space. An industry vertical , however, is more specific and describes a group of companies that focus on a shared niche or specialized market spanning multiple industries .
Distribution system whereby a supplier enters into (vertical) agreements with a limited number of selected dealers in the same geographic area. Selective distribution agreements, on the one hand, restrict the number of authorised distributors .
While members of a conventional distribution channel seek to maximize their own profits, members of a vertical marketing system all cooperate because either one member owns the others, one has contracts with the others, or one wields more power than the others.
The process of selling directly to the end buyer without any intermediary is called direct marketing channel . The internet and new media are perfect for direct marketing . For example the business model followed by low cost airlines where the customers book the tickets directly over the internet.
A horizontal conflict refers to a disagreement among two or more channel members at the same level. For example, suppose a toy manufacturer has deals with two wholesalers, each contracted to sell products to retailers in different regions.
discord among members at different levels of a marketing channel , for example manufacturer-wholesaler or wholesaler-retailer discord. See Channel Conflict ; Inter-Type Channel Conflict ; Horizontal Channel Conflict .
Multichannel marketing refers to the practice of interacting with customers using a combination of indirect and direct communication channels – websites, retail stores, mail order catalogs, direct mail, email, mobile, etc. –
In marketing: Management of channel systems. Finally, multichannel conflict occurs when a manufacturer has established two or more channels that compete against each other in selling to the same market.