Vertical Marketing: Concept, Types, and Strategies

Vertical marketing is an approach to marketing when a single sales system operates, consisting of a producer, sellers, wholesalers, and retailers selling products to the end customer.

What is Vertical Marketing?

Vertical marketing is a system of group efforts of the main members of distribution channels to meet the needs of consumers. Examples of vertical markets include fast food sector, in which livestock producers, meat packers, and retailers join forces to maximize the benefits for all. Vertical marketing can be very beneficial by promoting brand recognition and reducing consumer value. Conversely, the shortcomings of strategies for implementing a vertical marketing arise when top managers on the vertical spectrum cannot work together effectively to promote the brand.

The Concept of Vertical Marketing

In a vertical marketing system, all participants in the production chain work together as a single group to advertise and sell the product to consumers. Usually, this includes the manufacturer, wholesaler, and retailer, but may include many other players depending on the industry. In non-vertical marketing campaigns, each member of the network works as an independent business that seeks to maximize profits. The concept of vertical marketing excludes competition and unites all participants together with a single goal.

Vertical Marketing Benefits

Brand recognition is one of the main advantages of vertical marketing, as consumers see the same brand, image or logo sold by several market participants, which leads to a steady brand loyalty. Another advantage is that with all participants involved in all stages of development, it is easier to identify and isolate problem areas, visualize the whole picture and improve the effectiveness of the marketing campaign.

Vertical Marketing Shortcomings

In the concept of vertical marketing, all participants in production and sales work closely with the ultimate goal of maximizing profits. This means that all participants must agree on a marketing strategy that often leads to conflict and personal clashes. Many experts propose to establish close relations with members of the vertical chain before entering into a marketing agreement to ensure that all participants can work effectively together when promoting the brand.

Strategies for Implementing a Vertical Marketing

Strategies for implementing a vertical marketing system depend in part on the nature of the industry and its customers. Certain principles apply to all vertical marketing strategies, starting with consumer needs research and market analysis. When the audience is studied, companies will be able to directly access consumers through e-mail, social networks, etc. Vertical marketing covers many forms, including a managed marketing system, where one company manages all participants. the most common type of contractual vertical marketing system is a situation in which each company has its own autonomy, but under the contract is obliged to make its contribution to marketing for the best interests of the group.

Types of Vertical Marketing

Vertical marketing systems are a marketing network consisting of a supplier (vendor) and its intermediaries (dealers, distributors, retailers, and wholesalers) that function as a single whole system. The vendor has influence either due to the fact that all intermediaries belong to it by right of ownership, or work under a franchise, or, most often, "obey" its economic power, which guarantees a mutually beneficial partnership. This method of cooperation is more economical than other marketing systems, it represents the most successful option for finding business partners and creating a stable partner system in which duplication of efforts is eliminated. It is not at all fortuitous that in the largest markets of the US and Europe vertical marketing systems account for up to 80% of all entities. To date, vertical marketing systems are divided according to the level of organization.

The corporate VMS. In the framework of such systems, all the work on the production, promotion, and delivery of goods to the consumer is in the possession of one owner. Examples are the company Sherwin-Williams (one of the world's largest manufacturers of paint and varnish products), which owns more than 2,000 retail outlets, Sire Corporation, which has more than half of sales from its own stores or from companies whose shares belong directly to Sire.

The contractual VMS consists of independent entities that coordinate partnerships through contractual obligations. Thus, all participants of the distribution network become an integral system and achieve significant savings and greater commercial successes than they could achieve in case of independent work. This type has received special distribution in recent years and occurs in three variations:

Voluntary associations of retailers under the auspices of wholesale intermediaries or vendors when wholesalers or manufacturers develop a single program of trade practices, ensuring a constant volume of purchases, which allows them to compete effectively even with large corporate units.

Cooperative associations of retail traders are an independent association of retail intermediaries in a chain that begins to engage in wholesale purchases and imports, and in some cases also in production. All members of the association make purchases through a cooperative and jointly plan a marketing strategy and commercial expenses.

Associations of holders of privileges. In this case, in the channel, one of the subjects is the holder of privileges: he manages the production process, promotion of the product or its distribution.

Managed (administered) VMS. In an administered vertical marketing system activities are coordinated thanks to the power and influence of one of the links in the distribution network, rather than the ownership of all companies by the same owner. This type of cooperation is most often encountered when producers of leading branded products take on the expansion of the distribution network: for example, General Electric, Procter & Gamble, Kraft are working very closely with intermediaries, both in the promotion of goods, the formation of high-quality service, and in the field of formation of final prices.

Thus, vertical systems help to more closely establish the link between all elements of the distribution network, reduce the margin for products, save a significant part of the financial resources for promotion and advertising of goods, achieve healthy competition even in markets with already operating large marketing networks.

The modern approach to marketing

Currently, an integrated approach is being applied, in which the technologies of both vertical and horizontal marketing are organically combined. A modern model involves the participation in the marketing process of a group of marketing managers who are under the control of the heads of organizations.