VERTICAL MARKETING SYESTEM

CONVENTIONAL MARKETING SYSYTEM

● Conventional marketing systems- producers,

wholesalers, and retailers are separate businesses.
● Main motto of channel members - maximize profits.
● Each wants to retain his independence.
 CHANNEL CONFLICT

Channel conflict is a situation of discord or

disagreement between channel members from the
same marketing channel system.
 TYPES OF CONFLICT

i) Horizontal Conflict
- Occurs among same level of channel
-Happens when one distribution channel offers lower
prices than the other members
- Eg: Retailer to retailer, wholesaler to wholesaler.
ii) Vertical Conflict
- Occurs among different levels of same channel.
- Goals of manufactures maybe in conflict with that of
distributors
- Eg: Retailer to wholesaler, Producer to Retailer
iii) Multi-Channel Conflict
- Exist when the manufacturer has established two or
more channels to sell to same market.
- Eg: Newspaper industry
 VERTICAL MARKETING SYSTEM
● Vertical Marketing Systems (VMS)- Channel members
act as a unified system.
● Here, one channel members-
- owns the others
- has contracts with them or
- use so much power that they all cooperate.
● Such systems occur to control channel behavior and
manage channel conflict.
CMS vs VMS
 ADVANTAGES OF VMS

● Eliminate competition and conflict

● Centralized management
● Tight span of control
● High operating efficiency
● Each layers has clearly defined functions and
responsibilities.
 DISADVANTAGES OF VMS

● Employees at the bottom of a vertical structure may

feel less valued.
● Reduces the organization's ability to react quickly to
a rapidly changing business climate.
● Because of the centralized control of power, weak
leadership at the top can hamper the effectiveness of
the entire organization.
 CORPORATE VERTICAL MARKETING
SYSTEM
● In CVMS, successive stages of production to
distribution are under single ownership
● Example: ROLEX, APPLE, OPPO
 ADMINISTERED VERTICAL MARKETING
SYSTEM
● One member of the channel is large and powerful
enough to coordinate activities of other members
without a ownership stake.
● Big brand can easily obtain trade cooperation.
● Example :- Walmart , huge retailer available in the
market. Coca Cola producers.
 CONTRACTUAL VERTICAL MARKETING
SYSTEM

● Channel members operate under contracts

specifying how they will try to improve the
effectiveness & efficiency of their distribution.
● Also called ‘value -added partnership’.
 DIFFERENT TYPE OF CONTRACTUAL VMS

1) Wholesaler-sponsored voluntary chains

– A chain of retailers organized by a wholesaler.
–The stores are owned independently but they sign an
agreement to work in the chain.
–Wholesaler buy large quantities for the retailers which
ensures economically buying
– For example- Kinley
 DIFFERENT TYPE OF CONTRACTUAL VMS
(CONTI..)
2) Retailer Cooperative
– Retailers join together to organize a new
wholesaling business.
– Retailers use same name so that they can have
their own private product brands and jointly
advertise their brands.
– For example, popular in food industries -Indian
Coffee House
 DIFFERENT TYPE OF CONTRACTUAL VMS
(CONTI..)
3) Franchising
–An arrangement between a parent company, and a firm
or an individual(franchisee)
– A franchise allows the franchisee to run a business under
the parent companies' name.
– This franchisee must follow the rules of the franchise and
is granted rights to sell certain goods and services in their
specific area.
 TYPES OF FRANCHISING
a) manufacturer-sponsored retailer franchisee
system
–Manufacturer licenses dealers to sell its product
subject to various sales and service conditions.
–Eg: Car companies- Ford etc...

b) Manufacturer Sponsored wholesale system

–Manufacturer allows wholesalers to purchase the
product and promote, distribute, and alter it anyway
they chose
–Eg: Coca-Cola, FMCG
c) Service Sponsored retail franchising
Provided by firms that have designed a unique
approach for performing a service and wish to profit by
selling the franchise to others