Vertical Marketing Systems (VMS)

A vertical marketing system (VMS) is one in which the main members of a distribution channel--producer, wholesaler, and retailer--work together as a unified group in order to meet consumer needs. In conventional marketing systems, producers, wholesalers, and retailers are separate businesses that are all trying to maximize their profits. When the effort of one channel member to maximize profits comes at the expense of other members, conflicts can arise that reduce profits for the entire channel. To address this problem, more and more companies are forming vertical marketing systems.

Vertical integration is the expansion of a company by moving forward or backward within your vertical market or industry.

An example of forward integration might be ITC buying wheat from farmers to produce Aashirwad atta and Sunfeast biscuits recently.

• Corporate VMS - A group of companies performing different tasks under one ownership.
• Contractual VMS - Independent companies that join together for mutual benefit. Producer, wholesaler and retailer have sub-groups.

• Producer/Wholesaler - Franchise operations fall in this category. The manufacturer licenses the wholesaler to distribute the product.
• Producer/Retailer - Another franchise operation where the retailer must meet certain quotas to operate under the company name. Must be a strong company name.
• Retailer/Wholesaler - If the wholesalers are the owners they encourage retailers to band together to buy as a group to receive more desirable pricing. If the retailers are the owners, they are called co-operatives. They buy from the jointly-owned wholesaler and share the profits those purchases generate.

• Administered VMS - The big dog in the meat house concept. Whoever wields the most economic power within the group can force greater cooperation and support from other members of the group.

If you can't go vertical, go horizontal. Horizontal simply means that instead of companies being under your control in a vertical stack. They are beside you as equals. You don't control them, they don't control you. But, you still need each other. If you are a small business or just starting you may need them more than they need you.