A Definitive Guide on Vertical Marketing System and How To Use It

A Definitive Guide on Vertical Marketing System and How To Use It
03 May, 2023 • ... • 3977 views
Irene Dmitrieva
by Irene Dmitrieva

Marketing is all about reaching the right audience with the right message. A vertical marketing system is a type of marketing strategy that can help businesses do just that. This article will explain a vertical marketing system, its various types, and how businesses can benefit from it.

What is a vertical marketing system?

Vertical marketing system definition

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.

Corporate system

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.

Contractual system

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.

Administered system

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.

Better efficiency

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.

More resources

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:

  1. 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.
  2. 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.
  3. 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.

For example, Zara is a fashion retailer that targets young, fashion-conscious consumers who are looking for trendy and affordable clothing. Zara’s target audience is primarily women aged 18-35 who are interested in fashion and willing to pay a fair price for quality clothing. By understanding the needs and preferences of this target audience, Zara can develop products and services that meet their specific needs.

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.

What does Zara do? Zara caters to shoppers who are on the hunt for fashionable clothes. One of the major issues they have to confront is that fashion trends change rapidly. To overcome this, Zara has established an efficient supply chain which enables them to introduce new items promptly. This allows them to be in tune with emerging styles and provide their shoppers with up-to-date fashions at reasonable prices.

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.

Zara uses social media to showcase their latest fashion trends and promote their products to their target audience. They have a strong presence on platforms like Instagram and Twitter, where they engage with their customers. They also use their website and email marketing campaigns to keep customers informed about upcoming sales and promotions. This helps them build a loyal following and generate buzz around their brand.

To outshine in a competitive environment, make sure your content is of top-notch quality and showcases your industry expertise. It is important to keep an eye on emerging trends and adopt inclusive marketing practices to build a strong customer base.

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.

Monitoring the effectiveness of your marketing campaign enables you to verify that your content is effective, you’re sharing it in the most appropriate venues, and that you’re utilizing the appropriate channels for optimum results.

Final thoughts

  1. 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. 
  2. VMS comes in three types: corporate systems, contractual systems and administered systems.
  3. A vertical marketing system (VMS) offers many advantages that can help to increase effectiveness, sales performance, and communication.
  4. 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.
03 May, 2023
Article by
Irene Dmitrieva
As a marketing copywriter, I have experience creating compelling content for websites and social media posts. My background in market research helps me ensure that my copy is both on-brand and data-driven. I am excited to bring my skills and experience to Selzy team and help drive success for this company.
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