Explain Vertical, Horizontal, Conventional and Multi-Channel Marketing System. Advantage and disadvantages of VMS. Distinguish between- 1) Conventional Marketing System and Vertical Marketing System and 2) Horizontal and Vertical Marketing System
A vertical
marketing system, also called a VMS, is a business system in which suppliers in a
product chain work in a cooperative arrangement designed for all businesses to
receive the maximum benefit. Systems like these are in contrast with
conventional marketing systems in which each business in the supply chain is
independent. Vertical systems are often used by businesses to lower the cost of
producing a product or to better control the production of the product.
This type of
marketing system can be used by both small and large businesses. In the system,
how much of the supply chain is owned by one business entity is its level of vertical
integration. For example, if a writer owns the publishing company that
prints his books and also owns the website where the books are sold, she would
have a high degree of vertical integration in her writing business. When a
writer uses vertical marketing to self-publish and sell a product, she will
lose less profit in commissions paid to printers, agents or booksellers. Vertical
marketing systems generally come in three forms.
Corporate
A corporate
vertical marketing system involves the ownership of all levels of the
production or distribution chain by a single company. An example of a corporate
vertical marketing system would be a company such as Apple, which has its own
retail stores as well as designing and creating the products to be sold in
those retail stores.
Contractual
A contractual
vertical marketing system involves a formal agreement between the various
levels of the distribution or production channel to coordinate the overall
process. Franchising is a common form of a contractual vertical marketing
system.
Administered
An administered
vertical marketing system is one in which one member of the production and
distribution chain is dominant and organizes the nature of the vertical
marketing system informally, due to its sheer size. An example of this type of
system could include a large retailer such as Wal-Mart dictating conditions to
smaller product makers, such as producers of a generic type of laundry
detergent.
Vertical
Marketing System: Producer + wholesaler + Retailer -------- Consumer.
Advantage of VMS: A vertical marketing system, or VMS, is a business system that aims
to achieve better efficiency and economies of scale. In the vertical marketing
system, independent companies within related industries work together and
eliminate conflict. Horizontal marketing systems, on the other hand, represent
agreements across different industries.
Disadvantage Of VMS: One disadvantage to this type of system is that
owning multiple businesses can be fairly complicated. Large businesses with a
built-in management structured for multiple operations can usually handle the
complications involved with running a vertical supply chain, but small business
owners can sometimes become overwhelmed by the commitments involved with
supervising many interoperating businesses. Running multiple businesses with
too little management power to provide adequate supervision can introduce
production problems that may end up worse than buying from an unconnected
wholesaler.