What is Vertical Marketing System? Types, Importance and Application

A vertical marketing system is a marketing system which unites all members in a chain of production and distribution, to be able to give the customer what they want and achieve the desired business objectives.

With a vertical marketing system, there is cooperation and knowledge sharing amongst the members of the channel. Vertical marketing systems work where traditional marketing systems fail because every member of the channel shares the same interest.

What is a Vertical Marketing System?

It's very difficult to get all the pieces of an effective marketing system to work together. Vertical marketing is when each level of distribution channel, from producers to retailers, are so directly involved as to be able to provide a considerable amount of profits with less money spent. It can be difficult at times for a single person to make all three levels function properly.

Consider a market where there are two shops and one has a connection to the producer. Although they are two entities, since they are together or linked into one larger organization, they will have more chances of being able to reach the objectives.

At first, the retailer only thinks of new markets and expand once they are sufficiently successful. However, those who sell their product wholesale may eventually want to open up a retail shop.

With a single boss, retailers and wholesalers are gone under one roof with the producer. This raises the customer base for businesses and lowers the costs for corporations. Businesses need to change their structure to meet the changing market.

Role of Vertical Marketing System

Marketing is an important part of business strategy and has a large impact on customer base. Compared to the past, there are more opportunities today because of how the population is booming.

What can make a company standout is the way that their products are delivered to customers. There needs to be one clear idea for marketing that grabs attention and makes a customer want to buy it.

The rise of supermarkets means that it is difficult for one product to stand out amongst the crowd (of other products). There could be many challenges at the wholesalers or customers end.

You can make the process of tracking issues in an industry more efficient by combining the total effort of people involved. Combined efforts of producers, wholesalers and retailers with a strategy like vertical marketing will be simpler than trying to track all the issues that arise individually.

Vertical Marketing System Vs Conventional Marketing System

A vertical marketing system means the inclusive working of all key distribution channel partners--producer, wholesaler, and retailer--to serve the needs of an organization's or business' customers.

Over time, the conventional marketing systems have been working on being more and more efficient, but they have found that they are struggling to apply AI to them.

In vertical marketing, the distribution chain partners are all one unit and generate profits together. Conventional marketing revolves around profit-making of each distribution chain partner separately.

When there's a whole chain of people involved in the marketing process, if one person does something that increases his profits but decreases everyone else's, it can lead to conflict and reduce profits for everyone

Vertical Marketing channels address problems inherent to supply chains and provide solutions to the business owner, who benefits from higher profits.

Types of Vertical Marketing Systems

There are two main types of this system, but it is most commonly employed in three ways. The third type is an extension to the first two; however, it can also be seen as the next category.

1. Corporate vertical marketing system

In this type of marketing, either the retailer or the wholesaler or the producer has ownership of the whole business. The Tupperware company is a great example: it makes and distributes its own products, but falls back on distributors to get those products to the customers.

2. Administered vertical marketing system

Simply put, here one entity, the producer or distributor, dominates the other. There is no formal contract between them but their behavior is influenced by the power and size of the entity they are linked to. Big brands acting as distributors may exploit this relationship with smaller ones in order to get their goods onto shelves or into shops where they have outlets.

3. Contractual vertical marketing systems

Contractual vertical marketing systems are characterized by contracts at one level that are entered into between the higher level and the lower. For example, a wholesaler may enter a contract with a producer for the purchase of certain products at a certain price. This system is based on the franchise model.

Importance of Vertical Marketing System

There are many advantages to doing business with a clubbed entity. Forward integration and backward integration are major benefits that happen when you form a vertical marketing system.

Below are some reasons that vertical markets are important.

1. Economies of scale

Making things in bulk and minimizing costs could be a profitable venture. There is only one chain, only one set of middle-men brackets.

2. Profit margins increase

If a small number of people collaborate, the margin on their profit is greater than before. The margins for each individual are decreased, but all together the profit margin increases.

3. Brand image expansion

Products from a brand that only has a physical outlet increase customer trust and are more authentic to the customer. This increases the reliability of the brand, resulting in increased sales and more popularity.

4. Enhanced customer base and satisfaction

Every customer prefers to purchase products at the cheapest price possible. If they are smarter, they understand that buying from grouped stores could be cheaper than if they buy from the individual store. This can yield more customers and increases customer satisfaction.

5. Tracking becomes easier

It's easy to keep track of a single system, and it's more stable. The owner of the system can settle disputes easily too.

6. Less fuel consumption

With accurate information on the product, customers can contact retailers to find out its availability. This will lead to having less traffic and trucking needs related to demand.

Steps to Implement a Vertical Marketing System

The key promotional mechanisms for vertical marketing systems

- Setting your business goals

- Identifying the needs of the target audience or the end-user

- Providing your staff with training courses

- Developing and marketing your solutions

- Tracking the performance

Applications of Vertical Marketing Systems

For marketing purposes, most businesses will want to use a system like Copymatic. Here are examples of its uses:

Large firms can acquire or merge with other agencies to simplify their process and have less competition.

There are firms that have efficient manpower who will work efficiently with both the big firms and small firms to get the right partners. This can lead to successes in any area.

Advantages of Vertical Marketing Systems

Some of the notable advantages of a vertical marketing system are:

1. An administered system with efficient control

With a VMS, you can better manage the work of other sales managers by increasing collaboration and team management.

2. Consistent marketing message

VMS aids in promoting businesses and brands. Their service optimizes marketing materials, while producers, retailers, wholesalers also use their promotional materials.

3. Combining resources

All the employees have a unified goal and help the company achieve success.

4. Competitive pricing

Ensuring a business' competitiveness will make sure they are competitive in pricing. All channel members of a supply chain rely on each other, so a business may benefit if they already have these partnerships.

Disadvantages of Vertical Marketing Systems

Although the robot-educated content model has so much in its favor, there are still some disadvantages with it. These are:

1. Bad for small firms

Smaller firms might be able to engage in marketing, but they can't employ this strategy to overcome issues and competition.

2. Focus hazed out

If two partners are competing with each other, it may be difficult for one of them to focus on the areas they need to improve. This problem may occur at any level and make it difficult for their ideas to stand out.

3. Personality issues

Sometimes, a business can fail because of the changing behavior of one party. For example, the owner, who may have personal issues, isn't getting the desired outcome.

Examples of Vertical Marketing System

Companies often use value minimum spanning trees to identify products that earn the most profit. And, if they have enough human workers at a location, they might try backward integration by acquiring a plant for raw materials.

Zara controls all aspects of their supply chain by owning the retail stores, ensuring a seamless experience for customers and more profits.

Conclusion

In order to market a company's product, the owner must have vision and the ability to do so. The owner should have a clear picture of what the marketing strategy is and clarify all points with potential partners before entering any contracts.

One must have the correct mindset to unleash the profits from this novel marketing strategy. In the near future, this will prove to be very profitable in a difficult business environment.

Frequently Asked Questions (FAQ)