Vertical Marketing System - working for a common goal

Service Business

Are you producing something valuable, but you don't want to outsource your goods to a less trusted distribution company? Or maybe you are a distributor, but you don't have too many orders? Or maybe you are engaged in trade and looking for a chance for too interesting goods? If so, then the vertical marketing system is for you. We will tell you in this text what benefits it brings at all stages of the distribution channel!

What is vertical marketing system?

VMS - vertical marketing system - is a form of cooperation between companies, entities representing three different stages in the distribution channel. At the very beginning there is the manufacturer, then the distributor, and finally - the seller. Such cooperation makes it possible to avoid too much discrepancy between the requirements of each individual. The goal is to reach the customer in the best and most attractive way possible.

Such cooperation is aimed at increasing the benefits of each of its representatives. The offer will be strictly optimized to market needs, especially on local markets. The producer gains sales, the distributor - business continuity, and the seller - customers. The basis of vertical marketing is an agreement between representatives of cooperation.

Vertical marketing system - types

VMS is most often divided into three different types, depending on the type of cooperation undertaken by contractors.

  1. Corporate model - is a kind of vertical marketing system in which all the above-mentioned elements - production, distribution and sales - are concentrated under the aegis of one company. It is co-created by each of the contractors. This is a convenient model, especially for companies that want to become independent from external entities providing, for example, sales services.

  1. Contract model - the contract model is the complete opposite of the corporate model. It is a form of contract between three separate companies - manufacturer, distributor and seller. They decide to establish cooperation in order to increase profits. This form of cooperation usually allows for the production of competitive, attractive prices.

  2. Administered model (administered) - is a vertical marketing system model with one visible guiding company, but not the owner of the other two. It can be both the producer and the seller or distributor. Usually, however, it becomes the seller who controls the production and distribution process of the goods, strictly defining the conditions of the activities of his contractors.

Does vertical marketing have only one meaning?

We are talking about a vertical marketing system, which is a cooperation of representatives of three different stages of reaching the customer - the manufacturer, distributor and seller. The Polish language defines such a phenomenon as vertical (vertical) integration, but one can make a reservation here that vertical integration, by definition, applies only to the corporate VMS model, when all elements operate within one company as departments.

Vertical marketing - vertical marketing - can also be referred to the concept of vertical markets, i.e. markets focused on one industry. Vertical marketing companies target a specialized product to a narrow group of customers. It is an excellent solution for small companies that deal with specialized production, and their product does not find a specific application for a wide audience (as is the case in horizontal marketing). Vertical marketing is often the domain of companies from the medical or IT industry, but often similar activities can also be seen in other industries. In this sense, vertical marketing is similar or even identical to niche marketing.

Vertical marketing system and the vertical market

Let's try to combine both concepts presented here. Would a vertical marketing system be effective in a vertical market? The specificity of vertical markets, similarly to niche markets, is the ease of monopolizing oneself. A company that performs vertical marketing tasks focuses on one selected product or service and fills the market niche quite tightly with it.These markets are quite stable, there are rarely any major changes there - most often they are associated with the saturation of a niche with a given commodity or a change in customer preferences.

VMS would undoubtedly work on the vertical market, but its structure allows, above all, to reduce the costs associated with the implementation of each of the tasks - production, distribution and sales. A feature of VMS is the ability to offer customers competitive prices, so on the vertical market - in the absence of competition - it would not be necessary.