A Definitive Guide on Vertical Marketing System and How To Use It
Companies use either a horizontal or vertical marketing system to make and deliver their products to customers.
A vertical marketing system is a form of collaboration between the different parts of a supply chain. It involves a manufacturer, distributor, and retailer joining forces to provide goods to their customers. Such an arrangement seeks to increase efficiency and create cost savings through economies of scale.
In contrast to VMS, a horizontal marketing system emphasizes collaboration between companies operating at the same level of the supply chain. This collaboration can take the form of partnerships, joint ventures, or strategic alliances. We will consider the difference between VMS and HMS in more detail below.
Different types of vertical marketing systems
There are three main types of vertical marketing systems. The main differences between them are in the level of control and coordination among the members of the distribution channel.
A corporate VMS is a single entity that oversees the entire supply chain from production to distribution and retailing. This type of system is prevalent in the retail sector, where one organization owns numerous labels and has control over all aspects of their products’ journey. An example of this is Apple Inc., which designs, makes and sells its merchandise through its own chain of outlets.
A contractual VMS is an arrangement between different parties in a distribution chain. It involves signing an agreement to define each party’s responsibilities and roles. A classic example of this type of system is franchising, where a business (the franchisor) provides products and services to franchisees who run their own businesses with the franchisor’s support and within their guidelines. The two entities remain separate but collaborate together.
An administered VMS is a type of partnership where one entity in the distribution channel holds more power over the others. Typically, the dominant entity would be either a producer or a retailer. It can dictate the actions of the remaining members, such as distributors or wholesalers. The dominant entity manages the operations of the other members without a strict, formal agreement. Procter & Gamble is an example of an administered VMS. It has significant power in the consumer goods industry and works closely with its suppliers and retailers to ensure the efficient distribution of its products.
|Type of VMS||Key Characteristics||Examples|
|Corporate System||A single entity owns and controls all stages of the distribution channel, from production to retailing.||Apple Inc.|
|Contractual System||Different businesses that form part of the supply chain interact through a legal agreement outlining their respective roles, duties and requirements.||Franchise systems|
|Administered System||One member of the distribution channel has more power and control than others, and coordinates the activities of the other members.||Procter & Gamble|
Vertical vs horizontal marketing systems
Vertical and horizontal marketing systems are two different approaches to organizing the distribution of goods and services. While both systems can offer benefits to businesses, they are different in nature and may be better suited for different types of businesses or industries. The table below illustrates the differences between the two.
|Aspect||Vertical Marketing System||Horizontal Marketing System|
|Focus||Focuses on serving a particular industry or market segment, usually through a specific distribution channel or supply chain.||Focuses on serving a broader range of customers across different industries or markets, typically by offering complementary products or services.|
|Players||Companies at DIFFERENT levels of the supply chain work together to achieve a common goal. It involves manufacturers, wholesalers, distributors, and retailers.||Two or more companies at the SAME level of the supply chain work together to satisfy customer needs. This implies that both companies provide similar goods and cater to a similar clientele.|
|Example||Zara owns and controls all elements of the production and sales process, from design and manufacturing to distribution and retail sales.||Nike and Apple collaborated on the Nike+iPod sports kit. It allowed runners to track their workouts using Apple’s iPod and Nike’s shoes.|
|Benefits||VMS enables companies to control and coordinate different stages of product production and distribution. This can result in more efficient use of resources, decreased expenses, and improved product quality.||Increased market share and customer loyalty by creating partnerships between different companies.|
|Target demographic||Targets a narrow market segment where consumer needs and interests are strongly linked to an industry or niche.||Targets a wide range of customers who may want the same product, even though they have different needs and preferences.|
The benefits of using a vertical marketing system
A vertical marketing system has numerous benefits that can improve efficiency, sales, communication, and innovation.
A vertical marketing system offers the advantage of increased efficiency. With the VMS, all members of the supply chain can share information and resources to optimize their operations. This leads to quicker lead times, fewer stockouts and ultimately reduced costs for everyone involved.
More effective sales messaging and branding
Since the marketing efforts are targeted to a particular group of customers, it enables companies to create a central message that is more likely to be recognized by their target audience. Moreover, businesses can leverage their expertise in providing specialized products to position themselves as authorities in the industry.
In a VMS, the different parts of the supply chain work together to pool their resources and expertise. For example, a manufacturer can collaborate with distributors and retailers to optimize production, transportation, and inventory management. Also, the VMS can provide greater access to a wider range of resources, such as market intelligence, marketing expertise, and customer data.
Develop new ideas
A VMS can also provide a platform for innovation and new product development. By working together, members of the supply chain can share ideas and insights to create new products and services that meet customer needs. By leveraging the expertise and resources of each member of the supply chain, a VMS can help to drive innovation and growth.
The potential drawbacks to be aware of
While the vertical marketing system has some advantages, there are also several drawbacks:
- Dependency on intermediaries. In a VMS, manufacturers are highly dependent on intermediaries to distribute their products. This dependency can be risky because if an intermediary decides to stop carrying the manufacturer’s products or goes out of business, it can disrupt the entire distribution channel.
- Conflicts of interest. In a VMS, conflicts of interest can arise between manufacturers, wholesalers, and retailers. For example, retailers may want to lower prices to attract more customers, while manufacturers may want to maintain higher prices to protect their profit margins. These conflicting interests can lead to tensions and disagreements between the parties involved.
- Limited market reach. VMSs may not reach all potential customers because they rely on a limited number of intermediaries to distribute products. This can be a disadvantage for manufacturers who want to expand their market reach and sell their products in new regions or countries.
How to start your own vertical marketing strategy
A vertical marketing strategy can be an effective way to reach a specific audience and increase your business’s success. There are some steps to follow when starting your own vertical marketing strategy. Using examples from businesses such as Zara, we’ll delve into these steps in detail.
Determine your target audience
The first step in creating a vertical marketing strategy is to determine your target audience. Think about who your desired customers are and why you want to target them. Do you have expertise that can be leveraged? Are there key figures that can help you reach your goals? This involves researching and identifying the needs, interests, and preferences of your niche market. Consider factors such as age, gender, occupation, location, and other demographic data that can help you tailor your marketing approach. Account-based marketing can also be used to target specific businesses or groups of people.
Define key problems and work around them
To create an effective vertical marketing strategy, it is important to identify the needs and issues of your target audience. This may include conducting market research, asking current customers for their feedback, and keeping track of conversations related to your industry on social media. To better understand your customers’ needs, it would be helpful to learn about the buyer’s journey.
Once you know who the intended audience is and what their problems are, create profiles for them so that you can determine effective solutions for their needs.
Develop content strategy
A key component of any effective marketing strategy is content creation. In the case of a vertical marketing system, your content must address the needs of specific groups of customers. This means creating and sharing valuable content that engages your target audience and provides them with useful information. Your content strategy needs to have a variety of content formats. These can be blog posts, social media updates, videos, infographics, case studies, news articles, and others. These formats should be in line with your business objectives and appeal to your audience.
To be effective, you must clearly communicate its purpose, benefits, and potential outcomes. You should also provide customers with clear instructions on how to use it. Offer expert advice, industry insights, and practical tips that help your audience overcome their challenges. Create calls-to-action that encourage your audience to engage with your brand, such as signing up for a newsletter, downloading a whitepaper, or requesting a free consultation.
Increase your visibility
To get your message in front of your target audience, you need to increase your visibility across multiple channels. This might include optimizing your website for search engines, building a social media presence, utilizing email marketing and leveraging influencer partnerships.
To successfully market your product, you need to find out where your audience often goes and focus your marketing on those places. For example, if you have a B2B marketing strategy, you can use LinkedIn, go to industry events, set up meetings, attend conferences, and join specific forums.
Measure the results
Finally, it’s important to measure the results of your vertical marketing strategy to see what works and what does not. Use analytics tools to track your website traffic, social media engagement, and lead generation. Analyze your data to identify trends and insights that inform your future marketing efforts. Adjust your strategy as needed to optimize your results and continue to grow your brand’s presence in your target market.
- A vertical marketing system involves different members of a distribution channel working together in order to provide the best possible service to an end customer.
- VMS comes in three types: corporate systems, contractual systems and administered systems.
- A vertical marketing system (VMS) offers many advantages that can help to increase effectiveness, sales performance, and communication.
- To get started with VMS, you need to:
- Determine who your target audience is.
- Identify their key issues.
- Create content that speaks to them.
- Increase your visibility across multiple platforms.
- Keep tabs on the impact of your strategy.