Vertical Marketing System

Group members

• M Hasnain

• Sheramullah

Introduction

A vertical marketing system is a contained business unit where the manufacturer, distributor and retailer work together to sell products to the end consumer. There in which the three elements of a channel work independently to achieve the goal of moving product.

DefinitionA 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.

Types of Vertical Marketing Systems

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Corporate System

In a corporate VMS, production and distribution

stages are combined under single ownership, in

order to manage cooperation and conflict

management

for example, manufactures tires and owns the

service centers that sell the tires to customers.

Administered System

A vertical marketing system that coordinates production and distribution stages, not through common ownership or contractual ties, but through the size and power of one of the parties e.g. Procter & Gamble

Massive retail chain stores, such as Walmart, often preside over administered vertical marketing systems.

Contractual System

contractual VMS is a retailer cooperative, in which a

group of retailers buy from a jointly owned

wholesaler

For example, if 15 independently owned restaurants

enter into an agreement with a produce wholesaler,

the total costs go down for everyone thanks to bulk

ordering and shipping.

Sheramullah roll no 79BBS M2

Wholesaler-Sponsored Vertical Marketing System

A chain of retailers organized by a wholesaler unite into a voluntary chain of stores. The stores are owned independently but they sign an agreement to work in the chain and they all agree to use the same name.

For example, Coca-Cola bottler’s is a manufacturer-sponsored wholesaler.

Retailer Cooperatives

Retailers join together to organize a new wholesaling business

known as a retailer cooperative. The new jointly owned

wholesaling company renders their service to the members. The

retail members must accept to purchase their goods from this

wholesaler.

For example, retailer cooperatives are popular in food industries corporations

Franchising

A franchise is a contractual company that makes

an arrangement between a franchisor, a parent

company, and a firm or an individual; a franchise

allows the franchisee to run a business under the

parent companies name.

For example, Ford Motor Company is a

manufacturer-sponsored retail franchise system

Advantages of VMS

Eliminate competition and conflict

A centralized management has direct control over all aspects of the business

Provide clear lines of authority and a tight span of control as a company can control all of the elements of producing and selling a product, which can lead to high operating efficiency.

Disadvantages of VMS

Employees at the bottom of a vertical structure may feel less valued than those higher up in the chain.

It can also take a great deal of time for top management decisions to filter down through multiple layers, reducing the organization's ability to react quickly to a rapidly changing business climate.

Because of the centralized control of power, weak leadership at the top can hamper the effectiveness of the entire organization.