Contractual Vertical Marketing System


(retailing definition) A contractual vertical marketing system is a form of vertical marketing system 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.

(channels of distribution definition) 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 systems are:

  1. franchise system
  2. 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.
  3. wholesaler-sponsored cooperative – an example of forward integration. Retailers achieve vertical system advantages by affiliating with a sponsoring wholesaler. [1]



  1. ^ American Marketing Association, AMA Dictionary.

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