Marketing
Vertical Marketing Systems
Vertical Marketing Systems (VMS) are collaborative arrangements between different levels of a distribution channel, such as manufacturers, wholesalers, and retailers, to improve efficiency and effectiveness in reaching the end consumer. VMS can take the form of corporate, contractual, or administered systems, and they aim to streamline distribution, reduce costs, and enhance overall market performance.
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4 Key excerpts on "Vertical Marketing Systems"
eBook - PDFMarketing Management N5 SB
TVET FIRST
- J Wiehan I Govender(Author)
- 2018(Publication Date)
- Macmillan(Publisher)
You have seen how, in a basic distribution channel, intermediaries on the different levels – such as producers, wholesalers and retailers – work for themselves to maximise their own profits. You know that this can cause conflict. In a vertical management system, however, channel members on the different levels come together, to act in a coordinated way for all the members to benefit. In vertical distribution systems (VMS): • Producers and manufacturers may merge with businesses that were once its customers, such as wholesalers and retailers. This is known as forward integration . vertical distribution system: also known as a vertical marketing system (VMS); when intermediaries on different levels of the channel (such as producers, wholesalers and retailers) join together (merge) and work as one unified business 91 • Businesses may merge with suppliers further back in the process. For example, a fresh fruit juice producer may merge with a farmer. This is known as backward integration . There are three types of vertical distribution systems, as Figure 2.19 shows.
eBook - PDF- William Pride, O. C. Ferrell(Authors)
- 2019(Publication Date)
- Cengage Learning EMEA(Publisher)
24 In an administered VMS, channel members are independent, but informal coordination achieves a high level of interorganizational management. Members of an administered VMS may adopt uniform accounting and ordering procedures and cooperate in promotional activities for the benefit of all partners. Although individual channel members maintain autonomy, as in conventional marketing channels, one channel member (such as a producer or large retailer) dominates the administered VMS so that distribution decisions take the whole system into account. A contractual VMS is the most popular type of vertical marketing system. Channel mem- bers are linked by legal agreements spelling out each member’s rights and obligations. Fran- chise organizations, such as McDonald’s and KFC, are contractual VMSs. Other contractual vertical channel integration Combining two or more stages of the marketing channel under one management vertical marketing system (VMS) A marketing channel managed by a single channel member to achieve efficient, low- cost distribution aimed at satisfy- ing target market customers Copyright 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. PART 6: Distribution Decisions 416 VMSs include wholesaler-sponsored groups, such as IGA stores, in which independent retailers band together under the contractual leadership of a wholesaler. Retailer-sponsored coopera- tives, which own and operate their own wholesalers, are a third type of contractual VMS.
eBook - PDFStrategic Marketing Management in Asia
Case Studies and Lessons across Industries
- Syed Saad Andaleeb, Khalid Hasan(Authors)
- 2016(Publication Date)
- Emerald Group Publishing Limited(Publisher)
Vertical integra-tion is accomplished through forward or backward integration. • An Administered VMS coordinates successive stages of pro-duction and distribution through the size and power of one of the members. One member emerges as dominant in the channel. Brand leaders or market leaders in a certain product category practice trade cooperation through this system. • A Contractual VMS consists of independent firms at different levels of production and distribution integrating their pro-grams on a contractual basis to obtain more economies than they could achieve alone. For example 1. Wholesaler-sponsored voluntary chains 2. Retailer cooperatives 3. Franchisee organizations. To understand the three types of VMS, let us look at what ITC Ltd. has done with its strategic business units. ITC Ltd. , owner of some of the very big brands in India, runs its business pro-cess by following the aforesaid dynamics of the marketing channels. ITC Ltd. is famous for its different strategic business units like FMCG, hotels, paper-board & specialty papers, packaging, agribusiness, and information technol-ogy. ITC runs its lifestyle brand “ Wills Lifestyle ” through exclusive retail stores or corporate Vertical Marketing Systems. Since ITC is the unanimous market leader in the tobacco segment, it enjoys the administered VMS among the numerous tobacco sellers across India. Wills Lifestyle, apart from running their exclusive retail stores, has started invading tier 2 and 3 cities by opening up stores under franchisee model, that is, under contractual VMS line. Horizontal marketing systems (HMS) : Horizontal marketing system is a merger of firms on the same level in order to pursue market-ing opportunities. By working together, companies can combine 412 SAROJ KUMAR DATTA AND SHAMINDRA NATH SANYAL their capital, production capabilities, or marketing resources to achieve more than any one company could alone. Companies might join forces with competitors or non-competitors.
eBook - PDF- Alexander Hiam, Linda G. Rastelli(Authors)
- 2015(Publication Date)
- Wiley(Publisher)
Informally organized and ran, these channels share no common goals. The problems with conventional channels are that tasks can go undone, power struggles can be rampant, and ineffective channel relationships can persist for years. It some cases, however, the problems can be worked out. ▲ Vertical Marketing Systems: When a member of the channel, typically the manufacturer, takes a leadership role and coordinates the efforts of the channel so that mutually beneficial goals can be attained Vertical Marketing Systems, or VMS, have emerged to solve the problems of conventional channel structures. VMS has three forms: ▲ Administered VMS: Very close to the conventional network, but informally guided by goals and programs developed by one or a few firms in the exist- ing channel. The channel captain can be the driving force of the channel. Dominant brands such as Proctor & Gamble are able to get this kind of cooperation. The advantages are higher profits, greater product exposure, better-organized inventory management and promotional activities, and better-functioning channels. Yet a single person cannot always handle the responsibility of managing it, and channel members can become polarized when some try to remain independent of the system. ▲ Contractual VMS: If channel members formalize their relationship with a contractual agreement, the most popular form of VMS occurs. It creates additional control by spelling out the marketing functions to be performed by all members of the channel. ▲ Corporate VMS: If channel members on different levels are owned and operated by one organization, it’s known as a corporate vertical marketing system. There are two variations: • Forward integration: When a manufacturer owns the various mem- bers of its channel network • Backward integration: When a retailer takes over the wholesaling and manufacturing tasks Manufacturers who have integrated through to the retail level are Dannon Yogurt and Pepperidge Farms.
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