vertical and horizontal marketing system

1. VERTICAL AND HORIZONTAL
MARKETING SYSTEM
Submitted by : Deepak Kumar
MBA - 1st Sem

2. Distribution channels
• Distribution channels are intermediaries
used by the producers to bring their
products to the market.
• For example :- sells its car to
customer through dealer .
• So , Here dealer act as intermediate
between producer and customer .

3. WHY ??
• Intermediaries bring greater efficiency in
making goods available to target markets.
• In other words, they matches the supply with
the demand.
• Most important benefit of using intermediaries is
that they provide economies. They reduce the
amount of work that must be done by both
producers and consumers.

4. Number of Channel Levels :
a direct marketing channel ;
 Has no intermediary levels.
 Here, the producer sells directly to consumers
 For e.g. sells its products door to
door or through home parties.

5. An indirect marketing channel ;
 contains 1 (retailer) ,2 (wholesaler +
retailer)
or
 3 (wholesaler + jobber + retailer)
intermediary levels.

6. Channel Behavior
• All channel firms should work together to be
successful.
• Each channel member is dependent on
others.
• a Ford dealer (retailer) depends on the Ford
Motor Company to design cars that meet
consumer needs.
cont.....

7. • In turn, Ford depends on the dealer to
attract consumers, persuade them to buy
Ford cars, and service cars after the sale.
• The Ford dealer also depends on the other
dealers to create a good overall reputation
for the entire distribution channel.

8. Conflicts …
• Although channel members are dependent
on one another, they often concentrate on
their short-term benefits.
• Channel conflict occurs when disagreement
among channel members on goals and roles
.

9. – Horizontal conflict; occurs among firms at the
same level of the channel. In other words,
one dealer may complain about the other.
– Vertical conflict; occurs among different levels
of the same channel. In other words, the
producer may complain about its dealers or
vise versa.
– Eg : Between wholesaler and Retailer .

10. So there are conflicts at all levels ……
To eradicate conflicts , Modern channel
management has evolved to develop
vertical marketing systems (VMS)

11. Vertical Marketing Systems
• Vertical Marketing Systems (VMS) consists of
producers, wholesalers, and retailers acting as a
unified system - that seek to maximize profits for
whole channel.
• 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.

12. A conventional marketing channel versus a vertical marketing system

13. Types of Vertical Marketing Systems
Corporate
VMS
Wholesaler-
sponsored
voluntary
chains
Retailer
cooperatives
Franchise
organizations
Contractual
VMS
Administered
VMS
Vertical
marketing
systems (VMS)

14. Corporate VMS
 Combines successive stages of production and
distribution under single ownership.
 Breweries and petrol stations are examples.

15. Contractual VMS
• Independent firms join contractually at different
levels to create efficiencies and economies .
• 3 types :
• Wholesaler-sponsored voluntary chains of
independent retailers organised to compete against
large organisations.
Eg: Coca-Cola bottler is a manufacturer-sponsored
wholesaler.
• Retailer co-operatives
• Franchisee

16. – retailer cooperatives; are contractual marketing
systems in which ;
– retailers organize a new or
– jointly owned business to carry on wholesaling and
possibly production.
– Eg ; Indian Coffee House , Mother Dairy , Karnataka
Milk Federation (KMF).

17. – franchise organizations; are contractual marketing
systems in which a channel member, called a franchiser,
links several stages in the production-distribution process.
There are three forms of franchisees;
• manufacturer-sponsored retailer franchisee system e.g.
Ford licenses dealers to sell its cars. The dealers are
independent business people who got sponsered by
manufacturer.
• manufacturer-sponsored wholesaler franchisee system e.g.
Coca-Cola licenses bottlers (wholesalers) in various markets
who buy Coca-Cola syrup concentrate and then carbonate,
bottle and sell the finished product to retailers in local markets.

18. • service-firm-sponsored retailer franchisee
system in which a service firm licenses the
retailers to bring its service to consumers.
• Example;

19. Administered VMS
• One member of the channel is large and
powerful enough to coordinate the
activities of the other members without an
ownership stake.
• Examples ;

20. Vertical Advantages…
• High operating Efficiency .
• Each layers has clearly defined functions
and responsibilities.
• Closely monitor and control .

21. Horizontal Marketing Systems
• Horizontal marketing systems is a channel
arrangement in which two or more
companies at one level join together to
follow a new marketing opportunity.
• The major benefit is that companies
combine their capital, production
capabilities, marketing resources and
therefore accomplish more.

22. • E.g. Coca-Cola and Nestle formed a joint
venture to market ready-to-drink coffee
and tea worldwide.

23. Horizontal Advantages
• Greater satisfaction due to greater
freedom and autonomy .
• Provides streamline due to absence of
multiple structured layers .

24. THANK YOU