Types of Vertical Marketing System

Vertical marketing systems came into being to manage channel behaviour and manage channel conflict. Now we look at three major types of VMSs: contractual, corporate and administered. Particular uses a different means for setting up leadership and power in the channel. Now we take a closer look at each type of VMS.

a. Corporate VMS

A corporate VMS combines successive stages of distribution and production under single ownership. Coordination and conflict management are gets through regular organizational channels.

b. Contractual VMS

A contractual VMS consists of independent firms at several levels of production and distribution who joins together through contracts to get more economies or sales impact than each could gain alone. Coordination and conflict management are gets through contractual agreements amongst channel members. There are three kind of contractual VMSs: retailer cooperatives, wholesaler-sponsored voluntary chains, and franchise organizations.

In wholesaler-sponsored voluntary chains, wholesalers arrange voluntary chains of independent retailers to help them compete by large chain organizations. The wholesaler develops a program in which independent retailers standardize their selling practices and gain buying economies that allow the group compete effectively with chain organizations. In retailer cooperatives, retailers organize a new, combined owned business to perform wholesaling and perhaps production. Members purchase most of their goods through the retailer co-op and plan their advertising jointly. Profits are passed back to members in proportion to their purchases. A channel member called a franchiser links several stages in the production-distribution procedure, in franchise organizations. There are three forms of franchises. First form is the manufacturer-sponsored retailer franchise system, as found in the automobile industry. The second kind of franchise is the manufacturer-sponsored wholesaler franchise system, as found in the soft drink industry. The third form of franchise is the service-firm-sponsored retailer franchise  system,  in  which system a  service  firm  licenses  a  system  of  retailers  to  carry  its  service  to consumers. The fact that most consumers cannot tells the differentiation between corporate and contractual. VMSs indicate how successfully the contractual organizations compete with corporate chains.

c. Administered VMS

An administered VMS coordinates successive stages of distribution and production, not through general ownership or contractual ties but through the power and size of one of the parties. leadership  is  supposed  by  one  or  a  few  dominant  channel  members in an administered  VMS . Manufacturers of a top brand can get strong trade support and cooperation from resellers.