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Vertical Marketing Systems
A Vertical Marketing System or VMS is a channel structure that aims to achieve economies of scale and increase cost efficiency by uniting producers, wholesalers, and retailers into a cohesive system.
There are three main types of Vertical Marketing Systems: corporate, contractual, and administered.
A Corporate VMS consolidates all stages of production and distribution under single ownership.
For instance, the fashion brand Zara uses IT systems to manage the in-house design, production, and retail operations to control every stage of the supply chain.
In a Contractual VMS, independent wholesalers and retailers collaborate through contractual agreements at various distribution stages.
Ford exemplifies this as it licenses exclusive dealerships for product distribution and establishes a contractually coordinated distribution chain.
Lastly, an Administered VMS is a distribution system where one dominant member, usually a manufacturer or retailer, coordinates and oversees the activities of other members due to its size and influence.
For example, Walmart acts as the dominant force in the value chain because of its high purchasing volumes. This enables them to negotiate lower prices from suppliers.
Vertical Marketing Systems
A Vertical Marketing System (VMS) is the distribution channel arrangement in which producers, wholesalers, and retailers collaborate as a unified system with the goal of enhancing efficiency and effectiveness. This organizational structure allows for better coordination and collaboration between different entities, resulting in increased cost efficiency and economies of scale.
There are three main types of VMS: corporate, contractual, and administrative. Each type has its own unique characteristics and benefits.
VMS provides a multitude of benefits, including:
Improved efficiency can be achieved by enhancing communication and coordination among various entities in the distribution channel.
Improved management of production and distribution processes leads to enhanced quality control.
The unified system empowers us with increased bargaining power when dealing with suppliers.
It reduces duplication and improves the speed of inventory management, leading to cost savings.
It ensures a uniform customer experience and brand message across all levels.
Still, VMS presents its own set of drawbacks, including:
- • The potential for conflict and power struggles among different entities in the system.
- • Lack of flexibility and autonomy for individual members.
VMS is still popular for companies as it enhances efficiency and reduces costs. Companies select VMS types based on industry, market conditions, and business goals.