Introduction
The first and foremost aim of marketing implies spreading knowledge about the value of a product and raising awareness with the purpose of selling it to consumers. It is done through marketing channels, which consist of producers, wholesalers, and retailers, where each of them is a separate independent business pursuing the maximization of their profits and performing separate marketing functions.
None of the channels has control over other members, they do not tend to cooperate with each other, and these are the basics of the conventional marketing channel. However, this model is rather rigid and cannot always succeed in meeting contemporary challenges, so there have emerged two other developments, namely vertical and horizontal marketing systems.
Main body
The main distinction of a vertical marketing system (VMS) is that its participants group together to work as a whole. It helps to avoid frequent disagreements and competition among the members of the channel. Moreover, it is often the case that in conventional marketing wholesalers, producers and retailers might try to achieve their goals at the expense of their partners, and this is what this model manages to eliminate. For a channel to start operating as a VMS one of its participants should be designated as a leader, who is supposed to take risks and generally has the power of authority within the group.
Depending on the type of relations between its participants, VMS can be of three kinds: corporate, contractual and administered. Corporate VMS is characterized by total control over two or more traditional marketing channels gained by one participant. The integration can go both ways: either a producer initiates it by purchasing its wholesaler and retail outlets, or a retail outlet might become the owner of the other two members of the channel.
Apart from the greater channel efficiency, this system provides direct access to supply and demand control for the owner of the channel. Many contemporary companies are operating this way, among them are Apple Inc., Procter & Gamble, Zara, and Amway, which develop their products and distribute them in their own authorized stores, thus maintaining control over their goods at all stages.
Contractual VMS suggests that relationships and obligations of channel members are regulated by contractual agreements and thus it distributes authority, duties, and risks among the participants. According to this model, every participant works individually, integrates their actions on a contractual basis, and holds certain liabilities towards their partners. In its turn contractual VMS is also divided into three most common types: franchises, voluntary and co-operative groups. In franchising, the manufacturer gives distributors the right to sell its product under the brand name for a fee. This model is most popular with chain-restaurant like McDonald’s, Pizza Hut, Burger King, and so on.
Voluntary and co-operative groups appeared to counteract the widespread popularity of chain stores. Lancaster explains that “the scope of co-operative effort has expanded from concentrated buying power to the development of programs involving centralized consumer advertising and promotion, store location and layout, financing, accounting and a package of support services” (284). The point is that the wholesaler holds authority in the group which is provided by a brand name as well. In voluntary groups, some of its members have lost their autonomy being dependent on wholesalers. Grocers Alliance Food Stores is a fine example of a voluntary chain. One of their advertisements promotes all the retailers thus a common name, and similar facilities help retailers save on advertising costs.
Administered VMS is partially similar to the conventional marketing channel because unlike the other two systems there are no legal agreements between the participants and no total control. The system works under the influence of one of the members and all the rest admit its authority and decision-making power in all the activities, for example, Marks & Spencer illustrates this system well as a large retail organization.
Horizontal marketing system (HMS) usually connects companies that are not competitors but which work on the same level, and when joining their forces, they can explore innovative marketing strategies and cover wider audiences, thus being able to capitalize on new opportunities. There are several examples of such collaborations among brands from different niches; one of them is Nike and Apple making a partnership for Nike+ footwear to be connected to an iPod. Similarly, the online phone service Skype cooperated with Nokia, and now the phones of the latter offer its buyers Skype services by default, and both companies are entitled to a part of each other’s audiences.
Conclusion
Compared to the conventional marketing channel, vertical and horizontal marketing systems allow for more flexibility and opportunities, unobtainable with the conventional channel alone. The most significant advantage of VMS is that it raises the level of involvement, fosters cooperation among all participants of the chain, and makes long-term partner relations a priority. As for HMS, it gives way to creative collaborations and innovations between companies from different niches, which are crucial for winning more attention and customers on the market.
Work Cited
Lancaster, Geoffrey, and Massingham, Lester. Essentials of Marketing Management. Routledge, 2017.