A Vertical Marketing System includes parties like wholesalers, producers, and retailers acting as an integrated system. A VMS is a tightly coordinated distribution channels designed specifically to improve operating efficiency and marketing effectiveness. One channel member, the channel captain can be the producer, wholesaler, or retailer.

VMS’s arouse because strong channel members tries to manage the channel behavior and eradicate the clash that consequences when individual channel members practice their own objectives. VMS’s attains economies through elimination of duplicated services, bargaining power, and size.

Types of VMS

1. Corporate VMS:

A firm at one level of the channel possesses a firm at the next level or at successive levels or it may possess a complete channel. VMS here unites consecutive stages of production and distribution under single ownership, giving more control to the producer.

2. Administered VMS:

The coordination of the system is protected through the power and size of one of the members. Producers of leading brands will be able to secure strong trade co-operation from the channel intermediaries in terms of shelf space, displays and support from the sellers. Companies are able to command a high level of co-operation from their channel intermediaries.

3. Contractual VMS:

This VMS includes autonomous firms at diverse levels of production and distribution, incorporating their programs on a contractual basis to gain more sales impact or economies, than they would accomplish alone. They are fast growing and one of the most significant developments in the economy. There are three types of contractual VMS.

i) Wholesaler sponsored voluntary chains:

These chains of autonomous sellers assist to compete with large chain organizations. The wholesaler builds up a plan in which autonomous retailers homogenize their selling practices and attain trade economies that facilitate the group to fight efficiently with retail chains.

ii) Retailer cooperatives:

Retailers take the lead and form a fresh business unit to continue the wholesaling and probably some production. Members focus their purchases through the retailer co-operative and plan their marketing jointly. Profits are shared by the members in ratio to their purchases.

iii) Franchisee organizations:

A channel member known as a franchisor may connect some consecutive stages in the production-distribution process. The conventional franchising method is the manufacturer sponsored retailer franchise. Another is the manufacturer sponsored wholesaler franchise. A new method is the service firm sponsored retailer franchise.