Enterprises have two approaches to produce and sell their products to consumers: horizontal or vertical marketing system. In a VMS, manufacturers, wholesalers, and retailers collaborate to enhance their profits and operate more efficiently. If you want to gain knowledge on how businesses manage their operations, it can be beneficial to learn about VMS. This article from Viindoo provides an explanation of what is it entails, identifies the three primary types, discusses the advantages and disadvantages of implementing a VMS, and offers guidance on selecting a VMS for a business.
What is a vertical marketing system? And Why it is important?
Vertical marketing system definition
A vertical marketing system (VMS) is a coordinated distribution channel strategy where the entities in the supply chain, including manufacturers, wholesalers, and retailers, work together to efficiently and effectively bring products or services to the end consumer. Unlike a traditional supply chain, a VMS integrates the various entities involved in the distribution process into a cohesive and aligned system.
Unlike a traditional supply chain, a VMS integrates the various entities involved in the distribution process into a cohesive and aligned system
Importance of VMS
- Better Coordination: By understanding VMS, companies can better coordinate their distribution efforts to ensure they are operating efficiently and cost-effectively. This can result in improved customer satisfaction and increased profits.
- Improved Conflict Resolution: Vertical integration can lead to conflicts between entities in the supply chain. By understanding VMS, companies can better identify and resolve conflicts, which can ultimately result in improved business relationships.
- Enhanced Efficiency: VMS can lead to greater efficiencies in the distribution process by reducing duplication of effort and streamlining operations. By understanding VMS, companies can identify areas for improvement and optimize their operations accordingly.
- Competitive Advantage: In today's highly competitive business environment, companies that can effectively implement VMS strategies can gain a competitive advantage over their rivals. Understanding VMS can help companies develop and execute effective distribution strategies that set them apart from the competition.
Inclusion, understanding VMS is critical for companies looking to succeed in today's marketplace. By implementing VMS strategies, companies can optimize their distribution efforts, reduce costs, improve customer satisfaction, and gain a competitive edge.
Understanding VMS is critical for companies looking to succeed in today's marketplace
Types of Vertical Marketing Systems
Corporate Vertical Marketing System
In a CVMS, a single company owns and controls all aspects of the distribution process, from manufacturing to retail. This type of VMS is often used by larger companies that have the resources to manage the entire distribution process. Examples of companies that use CVMS include Apple and Ford.
Contractual Vertical Marketing System
With a CoVMS, two or more entities in the distribution process agree to work together under a contractual arrangement. The terms of the contract define the roles and responsibilities of each entity and the specific requirements for the distribution process. Examples of CoVMS include franchise agreements and retailer-supplier agreements
Administered Vertical Marketing System
AVMS is a loosely aligned system where a dominant company or entity in the supply chain has the power to coordinate and direct the activities of the other entities. This type of VMS is typically used when one entity has a significant market share or brand recognition. Examples of AVMS include Walmart and Amazon.
Each type of VMS has its own advantages and disadvantages, and the appropriate type will depend on the specific needs and circumstances of the business. Companies need to carefully consider their options before choosing a VMS and ensure that they understand the implications of each choice.
Companies need to carefully consider their options before choosing a VMS
Advantages and Disadvantages of VMS
Better control over distribution: VMS allow companies to have greater control over the distribution process, from manufacturing to retail. This can lead to more consistent product quality, better pricing, and improved customer service.
Cost savings: VMS can help reduce costs by eliminating duplication of effort and streamlining the distribution process. This can result in lower production costs, lower prices for customers, and increased profitability for the company.
Improved communication: VMS can facilitate better communication between the various entities in the distribution process, which can lead to more efficient operations and better decision-making.
Lack of flexibility: VMS can be less flexible than omni channel marketing. This can make it more difficult for companies to respond quickly to changes in market conditions or customer needs.
Potential for conflict: When entities in the distribution process have different smart goal marketing or priorities, conflicts can arise. This can lead to inefficiencies and decreased profitability for the company.
Limited market coverage: VMS can limit a company's ability to reach new markets or expand into new geographic areas. This can be particularly challenging for small businesses that lack the resources to establish their own distribution channels.
Find out more: 7+Omni Channel Marketing Platforms to Improving Customer Experience
Each type of VMS has its own advantages and disadvantages, and the appropriate type will depend on the specific needs and circumstances of the business
Vertical marketing system example
Here are some possible explanations of how Apple Inc., McDonald's Corporation, and Ford Motor Company use it effectively:
Apple Inc. is a well-known example of a CVMS. Apple designs, manufactures, and sells its own products, including hardware (such as iPhones, MacBooks, and iPads) and software (such as iOS and macOS). By controlling every aspect of the distribution process, Apple is able to ensure that its products are of high quality, consistent, and widely available.
In Apple's case, it designs and manufactures its products (such as iPhones, iPads, and MacBooks) in-house, has its own retail stores, and also sells its products through other retail channels
McDonald's Corporation is an example of a CoVMS. McDonald's has agreements with franchisees, who operate individual restaurants under the McDonald's brand. The franchise agreement outlines the roles and responsibilities of each entity, including the requirements for purchasing equipment, supplies, and ingredients.
McDonald's has agreements with franchisees, who operate individual restaurants under the McDonald's brand
Ford Motor Company is an example of an AVMS. Ford has a dominant position in the automotive market and has the power to coordinate and direct the activities of its suppliers and dealers. Ford works closely with its suppliers to ensure that the necessary parts and components are available when needed, and it also provides marketing and advertising support to its dealers.
Each of these companies has implemented a different type of this marketing system to meet its unique needs and circumstances. By understanding the advantages and disadvantages of each type of VMS, companies can choose the approach that works best for them.
Ford has a dominant position in the automotive market and has the power to coordinate and direct the activities of its suppliers and dealers
In summary, VMS are an important distribution strategy that can offer many benefits to companies. By using marketing software platforms to control the distribution process, companies can improve product quality, reduce costs, and enhance customer service. However, there are also potential drawbacks to VMS, including limited flexibility and the potential for conflict.
Choosing the right type of VMS is crucial for companies:
Corporate vertical marketing systems (CVMS): may be appropriate for companies with the resources to manage the entire distribution process, while contractual vertical marketing systems (CoVMS) may be a better fit for companies that want to work with partners to distribute their products.
Administered vertical marketing systems (AVMS): may be suitable for companies with a dominant position in the market.
Overall, companies need to carefully consider their options before choosing a vertical marketing systems and ensure that they understand the implications of each choice. Using our comprehensive Viindoo marketing software platforms to make your strategy go-live effectively.
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