from marketing91.com
Definition
(Physical distribution) A vertical marketing system is a long-term channel relationship in which two or more firms acknowledge and desire interdependence.
(Channels of distribution) Vertical marketing system refers to the channel systems consisting of horizontally-coordinated and vertically-aligned establishments that are professionally managed and centrally coordinated to achieve optimum operating economies and maximum market impact.
There are three types of vertical marketing systems:
- An administered vertical marketing system is one designed to control a line or classification of merchandise as opposed to an entire store’s operation. Such systems involve the development of comprehensive programs for specified lines of merchandise. The vertically aligned companies, even though in a non-ownership position, may work together to reduce the total systems cost of such activities as advertising, transportation, and data processing.
- A corporate vertical marketing system is a form of vertical marketing system in which all or most of the functions from production to distribution are at least partially owned and controlled by a single enterprise. Corporate systems typically operate manufacturing plants, warehouse facilities, and retail outlets.
- contractual vertical marketing system (see below)
Contractual Vertical Marketing Systems
In retailing, a contractual vertical marketing system is one in which independent firms at different levels in the channel operate contractually to obtain the economies and market impacts that could not be obtained by unilateral action. Under this system, the identity of the individual firm and its autonomy of operation remain intact.
In distribution, a contractual vertical marketing system is a marketing channel that achieves vertical coordination between independent firms at different channel levels through the use of contractual agreements.
The three principal types of contractual system are:
- franchise system
- retailer-sponsored cooperative – an example of backward integration. Independent retailers organize contractually to form a cooperative that gives them greater market power in dealing with suppliers.
- wholesaler-sponsored cooperative – an example of forward integration. Retailers achieve vertical system advantages by affiliating with a sponsoring wholesaler.
References
- American Marketing Association, AMA Dictionary.
- Common Language in Marketing Project, 2021.