The business paradigm has evolved beyond a man’s imagination, today we have tools and strategies that can fetch leads from mars as well (just kidding). What I mean to say is that the marketing world today has advanced. Back in the day, business and marketing were quite simple, unlike today. Today businesses from across the globe indulge in basically two types of marketing systems, horizontal marketing systems, and vertical marketing systems. And, in this article, we will be discussing the vertical marketing system.
What is a Vertical Marketing System?
The vertical marketing system is when the product manufacturer/producer, wholesaler, and retailer work in synchronization as one entity. Typically, producers, wholesalers, and retailers all work independently to make personal profits which induces competition and conflict along with decreased profits.
What are the Types of Vertical Marketing System?
The vertical marketing system is basically divided into three types,
Corporate: In a corporate vertical marketing system, all the control and authority are held by the company. It controls the production line as well as a distribution line. The company looks after every aspect from producing the product to delivering it to the customer. Typically, these companies don’t rely on a third party to distribute or sell their products. The company sells its products through its authorized outlets only.
Some of the best examples of corporate vertical marketing systems are Apple, Starbucks, and Ikea. These companies choose to control the production, distribution, and sale of their product. For instance, apple designs its iPhone, manufactures them in its production plant, and sells it through its retail shops. This my friend is a classic example of a corporate vertical marketing system.
Contractual: In a contractual vertical marketing system, the production, distribution, and sale are handled by three different entities but are bound together by a contract. Three independent processes working towards the common goal of the company. Large firms sign contracts with distributors to sell their products in the market and stay competitive.
The best possible example for this setup is popular food chains such as pizza hut, burger king, McDonald’s, wherein the franchisor ties up with a third party to distribute their food. Whilst maintaining the company standards and following company practices and guidelines. Franchising a brand is the Best Email List Building Practices example of a contractual vertical marketing system.
In an administered vertical marketing system, one entity holds the ultimate authority across all the processes, often due to its large size and market presence. When one entity from the whole chain wields a major authority, it arranges for such a setup informally in the market due to its influence in the market, this means that the authoritative entity gets to make decisions regarding pricing, stock, and branding.
The best example of administered vertical marketing system is Walmart. Walmart is a large retail chain operating across the globe, smaller businesses align with Walmart since these small businesses cannot afford a distribution of that scale.
Comparing Vertical Marketing System and Horizontal Marketing System
Vertical Marketing System
Horizontal Marketing System
Comprises of three different elements i.e., manufacturer, distributor, retailer.
Has only either one of these elements.
Is meant for a smaller target audience.
Is meant for a larger target audience.
Provides unique and specialized products
Provides generic products
Often competes with other businesses
Often collaborates with other businesses
Advantages of Vertical Marketing System
Effective Branding and Sales Copy
A business can establish itself as an industry expert when it focuses on a specific product. With this marketing system, you have the opportunity to increase your brand awareness by concentrating your marketing efforts on a specific number and type of target audience.
When all the three components from the chain work together towards a common goal (i.e., more profits and market share) the friction between them reduces resulting in fewer conflicts, and more profits for everyone.
Eliminates Communication Gap
Manufacturers, distributors, and retailers all work in a unison to run the business, and the best part about it is that it eliminates the communication gap among all the components in the chain. Enabling the business to keep all its components on the same page and serve its customers better.
Access to More Resources
A business can get access to more resources with all its components working towards a common goal. For instance, it often happens that businesses negotiate with a third-party shipping company to deliver the product. But, under a vertical marketing system, a business has its own resources to ship its product.
Disadvantages of Vertical Marketing system
Now that we have discussed the benefits or advantages of presiding on a vertical marketing system, let us talk about the disadvantages of VMS.
When manufacturers, distributors, and retailers are managed by a single body, one perspective and idea are superimposed on to all three components. This restricts the opportunity to try a new angle or implement new ideas. It often happens when teams are working independently, they tend to bring new and fresh ideas to the table running the business.
Decreased Quality Control
When the company has absolute control over all the processes it becomes difficult for the company to manage all the departments and its processes. Which can result in product quality reduction.
Compared to a horizontal marketing campaign, a vertical marketing campaign is much harder to establish. After all, you are targeting a specific audience that requires more time and focus. Nevertheless, when you dedicate your resources and make sure to maintain consistency in your process and products you can establish yourself as a specialist in your industry.
Everything in this world has its own advantages and disadvantages, just because there exist few drawbacks of a strategy does not mean ignoring all the positive potential it has. As a matter of fact, both VMS and HMS marketing strategies are widely popular across the globe, and both the marketing systems have successful businesses to show. It is up to you to decide which type of marketing strategy suits your business better. Or what system resonates with your future business plans.