The three major types of vertical marketing systems are corporate contractual and

What is a Vertical Marketing System?

A vertical marketing system is a marketing system where the three key distribution channels, i.e. producers, wholesalers, and retailers, work in a combined fashion. This reduces costs and increases profits. Additionally, it gives the company/cooperation complete control over the process of production to selling.

Role of Vertical Marketing System

Marketing is crucial for selling your product/service to many customers. The reach of a brand/business depends on its marketing strategy.

Amidst the heavy competition, how you present your product/services in the market matters. It needs to grab and retain the attention of your customer. If it tickles their curiosity, they are more likely to buy it.

There are many interesting challenges to modern-day marketing. For example, in supermarkets, all products are displayed together, which makes it difficult to stand out as a brand. Often it is observed that since the producer, wholesaler, and retailer work separately, they maximize their profit at each other’s expense.

Hence, combining the efforts of producers, wholesalers, and retailers makes modern marketing more manageable. This is the core of vertical marketing.

Three types of vertical marketing systems

There are three main types of vertical marketing systems. Have a look at them and decide which suits you best.

Corporate

A corporate vertical marketing system has centralized control over

• the processes

• budgets 

• deadlines of its producers, wholesalers, and retailers.

Here the corporation is responsible for the entire production and distribution process.

For example - Apple Inc. Apple produces its products and sells them too. Apple is a ripe (pun intended) example of a corporate vertical marketing system.

Contractual

In a contractual vertical marketing system, producers, wholesalers, and retailers come together to work towards the same goals and objectives, but here each entity is septate from the other. They are bound by a contract but have full freedom to work however they want. There is no centralized controlling authority. 

For example- Dunkin’ Donuts franchise store, or any other franchise. The store owner must purchase a license and follow the organization's guidelines as prescribed in the legal contract. But will run the store with autonomy.

Administered

In an administered vertical marketing system, one member has more control than the others. This may be because of the large size and/or greater market influence. There is a formal agreement like in a contractual vertical marketing system, but each entity (producer, wholesaler, and distributor) does not have autonomy like in the former. The terms of working such as branding, price, etc, are more commonly dictated by the most influential out of the 3.

For example- Walmart is a sizable and influential retailer that dominates small companies.

How to choose the right vertical marketing system for you?

1. Consider your resources

The vertical marketing system you choose should be based on your existing resources. If you have the capital and investment in developing your production you should go for a corporate vertical marketing system.

If you don’t have the capital or the experience, you can consider partnering up in a contractual vertical marketing system. 

Finally, if you have considerable influence in your field of business you can consider starting an administered vertical marketing system.

2. Define your goals

To start your vertical marketing system, you will need to research thoroughly and plan carefully, keeping your revenue and resources in mind. A vertical marketing system can benefit you if you need more resources and wish to eliminate competition.

3. Hire a consultant

Consider hiring a consultant if you are unsure which vertical marketing system is best for you. A consultant can help you evaluate all the monetary aspects and make a sound decision. Don’t rush this decision. Take your time and decide carefully.

Importance of Vertical Marketing System

•  Economies of scale

• Increased profit margins 

• Brand image expansion

• Increased customer base

• Easy to manage

Advantages of Vertical Marketing Systems

• Efficient control

• Consistent marketing message

• Combining resources

• Competitive Pricing 

Disadvantages of Vertical Marketing Systems

• Exploitative for small firms

Vertical marketing systems come in place when more traditional marketing systems fail or lack. Marketing is an ever-expanding industry that is evolving every day. There is ample space for new strategies and systems. If you run a business and are considering adopting a vertical marketing system, I suggest you carefully research and compare your options before committing to anything,

I hope this article was interesting and informative. 

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