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VERTICAL MARKETING SYSTEMS
Matching Supply with Demand
VMS:Vertical Marketing System
Vertical
Marketing
System
Corporate
Contractual
Administered
Compiled by author from source: bizfluent.com
What is aVertical Marketing System?
A vertical
marketing
system is a form
of cooperation
between
multiple levels
of a distribution
channel
 The members work together to
promote efficiency and economies
of scale in the way products are
promoted to customers
Compiled by author from source: bizfluent.com
What are Distribution Channels?
A distribution channel is the
network of individuals and
organizations involved in
getting a product or service
from the producer to the
customer
 Distribution channels are also known
as marketing channels or marketing
distribution channels
Compiled by author from source: searchitchannel.techtarget.com Image Source: Google Images
Primary Distribution Channels
Direct
 With the direct channel, the vendor
of a product or service sells directly
to the customer
Indirect
 The indirect channel, in contrast,
offloads sales activities to individuals
and organizations known as
intermediaries
Conventional Marketing Systems:
In conventional marketing systems:
• Producers
• Wholesalers
• Retailers
Try to maximize their profits Individually
Compiled by author from source: bizfluent.com
Vertical Systems Addressing Conflict
When the effort of one channel member
to maximize profits comes at the
expense of other members, conflicts can
arise that reduce profits for the entire
channel
Vertical marketing
systems address this
problem
Compiled by author from source: inc.com
3 Components of aVertical Marketing
System
The Producer
The
Wholesaler
The
Retailer
 The producer = the manufacturer
who physically makes a product
 The wholesaler purchases products
from the producer and manages the
distribution to retailers
 Retailers in turn mark up the price
and sell products to consumers
Compiled by author from source: bizfluent.com
Corporate
Vertical
System:
An example would be Apple who
designs and manufactures its own
products and they are sold in the
retailer shops of the company itself
A corporate vertical
marketing system involves
the ownership of all levels
of the production or
distribution chain by a
single company
™
Compiled by author from source:
product2market.walme.com Image Source: Google
Images
Contractual
Vertical
System:
 Franchising is a common form of a
contractual vertical marketing
system
A contractual vertical
marketing system involves
a formal agreement
between the various levels
of the distribution or
production channel to
coordinate the overall
process
Arrangement where one party (the
franchiser) grants another party (the
franchisee) the right to use its trademark or
trade-name as well as certain business
systems and processes, to produce and
market a good or service according to
certain specifications
Compiled by author from source: bizfluent.com
Administered
Vertical
System:
An example of this type of system
could include a large retailer such as
Wal-Mart establishing standards for
makers of smaller products
An administered vertical
marketing system is one in
which one member of the
production and distribution
chain -- due to its sheer size
-- is dominant and
organizes the nature of the
vertical marketing system
Compiled by author from source: bizfluent.com
Image Source: Google Images
Coordination
Through vertical marketing,
retailers, transport firms,
wholesalers, distributors and the
factory all collude
If they are brought under one
roof -- then the firm must
constantly coordinate their
activities
This kind of coordination is not a
market, but a bureaucratic form
of control
Markets stress efficiency and
innovation, while bureaucracy
stresses standardization, coercion
and conformity
Compiled by author from source: smallbusiness.chron.com
Disadvantages ofVertical Marketing
The less competition, the
higher the average price
There is little pressure
from competitors to keep
the prices low
Or, to attract new
customers
Disadvantages:
– Poor quality
– Lack of innovation
– Lack of initiative
– Higher prices
Compiled by author from source: smallbusiness.chron.com
Service
Unhappy
customers were
able to go to the
separate firms to
increase pressure
on the company for
change
Customer service
may be diminished,
as the distribution
firms are absorbed
into a
conglomerate
Vertical marketing means
that the distribution side
of the company's life has
fewer moving parts
With vertical marketing,
there is now only one firm;
eliminating places for
customers to complain
Compiled by author from source: smallbusiness.chron.com Image Source: Google Images
Flexibility
Smaller firms specializing in retail or transport can move
quickly to react to market changes
A larger firm controlling its own distribution and retail
might have less initiative and less ability to change
rapidly
If the distribution networks are all under a single
corporate bureaucracy, then expecting rapid changes if
the market quickly changes is unrealistic
Compiled by author from source: smallbusiness.chron.com
Oligopoly
All integrationist schemes,
whether dealing with distribution
or production, all share the same
problem of oligopoly and oligarchy
 This refers to a state of economic
affairs where only a few firms control
-- and hence rule -- an entire market
Compiled by author from source: smallbusiness.chron.com Image Source: Google Images
Establishing a System
 Which vertical marketing system
your business establishes will
depend a great deal on:
 Size
 Resources
 Market share
Other Determining Factors:
Gaining an
objective
overview of
the sector in
which you
operate
The
prevailing
economic
climate
Determining
whether your
business will
take on a
leadership
role
Forging
cooperative
relationships
with other
elements of
the
distribution
channel
Compiled by author from source: linkedin.com
Contact Us for the Full Presentation:
Mediacontact USA Inc.
13575 58TH Street North #160
Clearwater, Fl. 33760
T: 727 538 4112
E: contact@mcusa.co
www.mediacontactusa.com
Sources Cited:
■ Dontigney, Eric. "ThreeTypes ofVertical Marketing Systems |Chron.com." Small Business - Chron.com. N.p., n.d.Web.
29 Jan. 2018. <http://smallbusiness.chron.com/three-types-vertical-marketing-systems-64258.html>.
■ Iannuzzi,Alessandro. "Types ofVertical Marketing System | LinkedIn." LinkedIn: Log In or SignUp. N.p., 31 July 2014.Web.
1 Feb. 2018. <https://www.linkedin.com/pulse/20140731145900-41390803-types-of-vertical-marketing-system/>.
■ Johnson,Walter. "The Disadvantages of aVertical Marketing System |Chron.com." Small Business -Chron.com. N.p., n.d.
Web. 2 Feb. 2018. <http://smallbusiness.chron.com/disadvantages-vertical-marketing-system-25165.html>.
■ Mello, James. "3Types ofVertical Marketing Systems." Product2Market. N.p., 3 Mar. 2014.Web. 29 Jan. 2018.
<https://product2market.walkme.com/3-types-vertical-marketing-systems/>.
■ Richards, Leigh. "ThreeTypes ofVertical Marketing Systems." Bizfluent. N.p., 26 Sept. 2017.Web. 29 Jan. 2018.
<https://bizfluent.com/info-8367821-three-types-vertical-marketing-systems.html>.
■ "Vertical Marketing System - Encyclopedia - BusinessTerms." Inc.com. N.p., n.d.Web. 29 Jan. 2018.
<https://www.inc.com/encyclopedia/vertical-marketing-system.html>.

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Vertical marketing

  • 3. What is aVertical Marketing System? A vertical marketing system is a form of cooperation between multiple levels of a distribution channel  The members work together to promote efficiency and economies of scale in the way products are promoted to customers Compiled by author from source: bizfluent.com
  • 4. What are Distribution Channels? A distribution channel is the network of individuals and organizations involved in getting a product or service from the producer to the customer  Distribution channels are also known as marketing channels or marketing distribution channels Compiled by author from source: searchitchannel.techtarget.com Image Source: Google Images
  • 5. Primary Distribution Channels Direct  With the direct channel, the vendor of a product or service sells directly to the customer Indirect  The indirect channel, in contrast, offloads sales activities to individuals and organizations known as intermediaries
  • 6. Conventional Marketing Systems: In conventional marketing systems: • Producers • Wholesalers • Retailers Try to maximize their profits Individually Compiled by author from source: bizfluent.com
  • 7. Vertical Systems Addressing Conflict When the effort of one channel member to maximize profits comes at the expense of other members, conflicts can arise that reduce profits for the entire channel Vertical marketing systems address this problem Compiled by author from source: inc.com
  • 8. 3 Components of aVertical Marketing System The Producer The Wholesaler The Retailer  The producer = the manufacturer who physically makes a product  The wholesaler purchases products from the producer and manages the distribution to retailers  Retailers in turn mark up the price and sell products to consumers Compiled by author from source: bizfluent.com
  • 9. Corporate Vertical System: An example would be Apple who designs and manufactures its own products and they are sold in the retailer shops of the company itself A corporate vertical marketing system involves the ownership of all levels of the production or distribution chain by a single company ™ Compiled by author from source: product2market.walme.com Image Source: Google Images
  • 10. Contractual Vertical System:  Franchising is a common form of a contractual vertical marketing system A contractual vertical marketing system involves a formal agreement between the various levels of the distribution or production channel to coordinate the overall process Arrangement where one party (the franchiser) grants another party (the franchisee) the right to use its trademark or trade-name as well as certain business systems and processes, to produce and market a good or service according to certain specifications Compiled by author from source: bizfluent.com
  • 11. Administered Vertical System: An example of this type of system could include a large retailer such as Wal-Mart establishing standards for makers of smaller products An administered vertical marketing system is one in which one member of the production and distribution chain -- due to its sheer size -- is dominant and organizes the nature of the vertical marketing system Compiled by author from source: bizfluent.com Image Source: Google Images
  • 12. Coordination Through vertical marketing, retailers, transport firms, wholesalers, distributors and the factory all collude If they are brought under one roof -- then the firm must constantly coordinate their activities This kind of coordination is not a market, but a bureaucratic form of control Markets stress efficiency and innovation, while bureaucracy stresses standardization, coercion and conformity Compiled by author from source: smallbusiness.chron.com
  • 13. Disadvantages ofVertical Marketing The less competition, the higher the average price There is little pressure from competitors to keep the prices low Or, to attract new customers Disadvantages: – Poor quality – Lack of innovation – Lack of initiative – Higher prices Compiled by author from source: smallbusiness.chron.com
  • 14. Service Unhappy customers were able to go to the separate firms to increase pressure on the company for change Customer service may be diminished, as the distribution firms are absorbed into a conglomerate Vertical marketing means that the distribution side of the company's life has fewer moving parts With vertical marketing, there is now only one firm; eliminating places for customers to complain Compiled by author from source: smallbusiness.chron.com Image Source: Google Images
  • 15. Flexibility Smaller firms specializing in retail or transport can move quickly to react to market changes A larger firm controlling its own distribution and retail might have less initiative and less ability to change rapidly If the distribution networks are all under a single corporate bureaucracy, then expecting rapid changes if the market quickly changes is unrealistic Compiled by author from source: smallbusiness.chron.com
  • 16. Oligopoly All integrationist schemes, whether dealing with distribution or production, all share the same problem of oligopoly and oligarchy  This refers to a state of economic affairs where only a few firms control -- and hence rule -- an entire market Compiled by author from source: smallbusiness.chron.com Image Source: Google Images
  • 17. Establishing a System  Which vertical marketing system your business establishes will depend a great deal on:  Size  Resources  Market share Other Determining Factors: Gaining an objective overview of the sector in which you operate The prevailing economic climate Determining whether your business will take on a leadership role Forging cooperative relationships with other elements of the distribution channel Compiled by author from source: linkedin.com
  • 18. Contact Us for the Full Presentation: Mediacontact USA Inc. 13575 58TH Street North #160 Clearwater, Fl. 33760 T: 727 538 4112 E: contact@mcusa.co www.mediacontactusa.com
  • 19. Sources Cited: ■ Dontigney, Eric. "ThreeTypes ofVertical Marketing Systems |Chron.com." Small Business - Chron.com. N.p., n.d.Web. 29 Jan. 2018. <http://smallbusiness.chron.com/three-types-vertical-marketing-systems-64258.html>. ■ Iannuzzi,Alessandro. "Types ofVertical Marketing System | LinkedIn." LinkedIn: Log In or SignUp. N.p., 31 July 2014.Web. 1 Feb. 2018. <https://www.linkedin.com/pulse/20140731145900-41390803-types-of-vertical-marketing-system/>. ■ Johnson,Walter. "The Disadvantages of aVertical Marketing System |Chron.com." Small Business -Chron.com. N.p., n.d. Web. 2 Feb. 2018. <http://smallbusiness.chron.com/disadvantages-vertical-marketing-system-25165.html>. ■ Mello, James. "3Types ofVertical Marketing Systems." Product2Market. N.p., 3 Mar. 2014.Web. 29 Jan. 2018. <https://product2market.walkme.com/3-types-vertical-marketing-systems/>. ■ Richards, Leigh. "ThreeTypes ofVertical Marketing Systems." Bizfluent. N.p., 26 Sept. 2017.Web. 29 Jan. 2018. <https://bizfluent.com/info-8367821-three-types-vertical-marketing-systems.html>. ■ "Vertical Marketing System - Encyclopedia - BusinessTerms." Inc.com. N.p., n.d.Web. 29 Jan. 2018. <https://www.inc.com/encyclopedia/vertical-marketing-system.html>.

Editor's Notes

  1. https://bizfluent.com/info-8367821-three-types-vertical-marketing-systems.html
  2. https://bizfluent.com/info-8367821-three-types-vertical-marketing-systems.html
  3. http://searchitchannel.techtarget.com/definition/distribution-channel
  4. http://searchitchannel.techtarget.com/definition/distribution-channel
  5. https://bizfluent.com/info-8367821-three-types-vertical-marketing-systems.html
  6. https://www.inc.com/encyclopedia/vertical-marketing-system.html
  7. https://bizfluent.com/info-8367821-three-types-vertical-marketing-systems.html
  8. https://product2market.walkme.com/3-types-vertical-marketing-systems/
  9. https://bizfluent.com/info-8367821-three-types-vertical-marketing-systems.html
  10. https://bizfluent.com/info-8367821-three-types-vertical-marketing-systems.html
  11. http://smallbusiness.chron.com/disadvantages-vertical-marketing-system-25165.html
  12. http://smallbusiness.chron.com/disadvantages-vertical-marketing-system-25165.html
  13. http://smallbusiness.chron.com/disadvantages-vertical-marketing-system-25165.html
  14. http://smallbusiness.chron.com/disadvantages-vertical-marketing-system-25165.html
  15. http://smallbusiness.chron.com/disadvantages-vertical-marketing-system-25165.html
  16. https://www.linkedin.com/pulse/20140731145900-41390803-types-of-vertical-marketing-system/