• Home
  • Finance
    • Financial Management
    • Strategic Management
    • Investment Analysis and Portfolio Management
    • Project Management
    • Islamic Banking & Finance
    • Auditing
  • Marketing
    • Principle of Marketing
    • Marketing Management
    • International Marketing
    • Advertising & Promotion
    • Commercial Challenges
  • HRM
    • Human Resource Management
    • Principles of Management
    • Training & Development
    • Employee Performance Management
  • Others
    • Introduction to Business
    • Business Communication
    • Banking & Finance
    • Entrepreneurship
    • Economics
  • Personal Skills
  • Tips & Tricks
  • About Us
    • Contact US

Business Study Notes

B.Com, M.Com. BBA & MBA Exam Study Online

  • Home
  • Finance
    • Financial Management
    • Strategic Management
    • Investment Analysis and Portfolio Management
    • Project Management
    • Islamic Banking & Finance
    • Auditing
  • Marketing
    • Principle of Marketing
    • Marketing Management
    • International Marketing
    • Advertising & Promotion
    • Commercial Challenges
  • HRM
    • Human Resource Management
    • Principles of Management
    • Training & Development
    • Employee Performance Management
  • Others
    • Introduction to Business
    • Business Communication
    • Banking & Finance
    • Entrepreneurship
    • Economics
  • Personal Skills
  • Tips & Tricks
  • About Us
    • Contact US
Home » Vertical Marketing System and Types

Vertical Marketing System and Types

By Richard Daniels Reading Time: 3 mins
Updated March 18, 2021

Vertical Marketing System

Before going towards the vertical marketing system and the it’s types, let’s talk about the links of distribution channels. A number of independent businesses are linked with each other in the form of distribution channels. Previously these links were loose and each intermediary focuses primarily on its individual goals. Although, general distribution channel members do not fully cooperate with one another. That resulted in the overall poor performance.

One main reason for this poor performance was the lack of leadership in the whole channel. That had created conflicts between the members. The members of the conventional distribution channel efforts to seek personal profit. Even at the expense of overall profit of the whole channel. Moreover, there is no proper system of roles and duties assigned to each member. Also, no nominated bodies to resolve the conflicts.

The conventional distribution channel led the foundation of highly specialized distribution channel structures called vertical marketing systems (VMS). This system is composed of manufacturers, wholesalers and retailers, who work as a unified system.

The member of the system owns the products of others and works for the fulfillment of the overall benefits of the channel. Each member also has sufficient power to exert control over the channel activities. It is dominated by the manufacturer, wholesalers and retailers. So, that the channel behavior and conflicts are tackled effectively.

Types 

It is further divided into the following three types on the basis of different means of power and leadership in the channel.

  • Corporate 
  • Contractual 
  • Administered 

Each one is discussed below.

Corporate 

Sequential stages of production and distribution are combined under single ownership is called a corporate vertical marketing system. There are regular organizational channels through which coordination and conflict between different structures are managed. In order to get the smooth working of the overall chain.

Contractual 

In contractual VMS, different independently working firms of production and distribution are combined each other. Hence, through certain contracts, so that larger economies of scale or increase in sales can be obtained. These advantages cannot be obtained by working independently. Therefore, they make contracts to work together as a unified channel. Coordination and conflicts among members are managed by the contractual agreements.

Contractual VMS is further divided into the following three types.

  1. Wholesaler Sponsored Voluntary Chains
  2. Retailer Cooperatives
  3. Franchise Organizations
  • Wholesaler Sponsored Voluntary Chains

In this type of contractual VMS, voluntary chains of independent retailers are organized by the wholesalers. To get help for competing large chain companies. For this purpose, a program is initialized by the wholesaler in which the independent retailers are agreeing. To buy their purchases from that wholesaler at discounted rates and standardize their selling practices. So, that the whole group can compete with the large chain companies effectively.

  • Retailer Cooperatives

Retailer Cooperative is such a kind of contractual VMS in which a new business is organized by the retailers. Also, for the wholesaling purposes and even for production. All members of the contracting group purchase their goods through the retailer cooperatives and advertising. All the profits are distributed back to the retailers, according to their proportion of purchases.

  • Franchise Organization

In franchise organization, stages of production and distribution process are linked by a channel member called franchiser.

The franchise is further divided into the following three forms:

  • Manufacturer Sponsored Retailer Franchise System
  • Manufacturer Sponsored Wholesaler franchise System
  • Service Firm Sponsored Retailer Franchise System

Manufacturer Sponsored Retailer Franchise System

Automobile industry is composed of this form of the franchise system.

Manufacturer Sponsored Wholesaler franchise System

Soft drink industry adopts this form of the franchise system.

Service Firm Sponsored Retailer Franchise System

In this form of franchises, certain retailers are given license by the service firm. To provide the services of that firm to the consumers.

There is an important fact in the success of the contractual VMS. That is many customers cannot make a difference between contractual and corporate systems.

Administered 

In an administered system sequential stages of production and distribution are coordinated. Not only on the basis of ownership or contracts, but also on the reality of the power and size of the member in a chain. Leadership is considered by one or few dominant members of the channel. Resellers provide strong trade cooperation and support to the manufacturer of a top brand.

 

Author at Business Study Notes
Richard DanielsAuthor at Business Study Notes

Hello everyone! This is Richard Daniels, a full-time passionate researcher & blogger. He holds a Ph.D. degree in Economics. He loves to write about economics, e-commerce, and business-related topics for students to assist them in their studies. That's the sole purpose of Business Study Notes.
Love my efforts? Don't forget to share this blog.

Related Posts:

  • What is the Process of Motivation? Explain in detail
    What is the Process of Motivation? Explain in detail
  • Process of MBO (Management by Objectives) - Explained with…
    Process of MBO (Management by Objectives) - Explained with Examples
  • Marketing Intermediaries | Functions and Levels
    Marketing Intermediaries | Functions and Levels
  • Communication Strategies Definition | Types of Communication…
    Communication Strategies Definition | Types of Communication Strategies
  • Strategic Leadership Model
    Strategic Leadership Model

Filed Under: Marketing, Principle of Marketing Tagged With: Types of Vertical Marketing System

Related Posts

System-Views-of-Management-image

System Views of Management

System Views System views of management associates with the Management division of the organization and it assumes that all of the organizations are … [Read More...]

Leadership Theories

Situational Leadership Theories

Situational Leadership Theories Situational model of leadership is a factor that emphasizes the behavior of the leaders regarding different situations. … [Read More...]

Behavioral Leadership Model

Behavioral Leadership Model

Leadership  Leadership is the most critical and complex responsibility across any organization. It is because the leadership requires to be realistic, … [Read More...]

career development process in hrm

Career Development Process

Career Development Process Today's career development process has become a threat for students, especially a question that may stun many students who have … [Read More...]

Strategic leadership

Strategic Leadership Model

Strategic Leadership Model The strategic leadership model is basically the study of the leadership style. It describes the ways of modernizing an … [Read More...]

Types of Managerial Decision Making

Types of Managerial Decision Making

Managerial Decision Making Decision Making is an art of selection of one feasible alternative decision from many. Therefore types of managerial decision … [Read More...]

Quantitative-management-approach

Quantitative Management Approach

Quantitative Management Approach The quantitative management approach is used to enhance decision making power by using quantitative tools. As well as … [Read More...]

Effective-business-messages-image

Effective Business Messages

Effective Business Messages The process through which business messages are effectively prepared that have the potential to create desired results from … [Read More...]

Search the Site

ADVERTISEMENT

Business Study Notes

Business Study Notes is all about business studies or business education. Visit us to find here free business notes of all the subjects of B.com, M.com, BBA & MBA online.

Disclaimer

All the images and videos present on the Business Study Notes are not owned by us, if you found anything under copyrights, please Contact Us, we will remove it ASAP.

Categories

© Copyright 2023 Business Study Notes. All rights reserved. Privacy Policy, Sitemap.  
DMCA
PROTECTED