Vertical Marketing System (VMS) and Horizontal Marketing System (HMS) are two distinct approaches to marketing that help attract the right consumer to maximise the profits of the firm. Businesses usually struggle with marketing strategies. It is essential for the marketer to choose an approach that is best suited for the specific business and the target market.
What is Vertical Marketing System (VMS)?
Vertical Marketing System is a channel arrangement where various levels of the distribution channel, such as manufacturers, wholesalers, and retailers, work together as a unified system to meet customer needs. One member of the channel owns the others, has contracts with them, and has so much power that all of them must cooperate. The primary goal of a VMS is to improve efficiency, reduce costs, and enhance overall control over the distribution process. There are three types of VMS:
- Corporate VMS: It involves a single entity/member that owns and operates multiple levels of production and distribution. For example, a company may own manufacturing facilities, distribution centers, and retail stores.
- Contractual VMS: Independent firms at different levels of the channel join together through formal agreements to achieve economies of scale and coordination. Examples include franchise systems and retailer-sponsored cooperatives.
- Administered VMS: A dominant player in the channel coordinates activities without ownership or contractual relationships. This occurs when a manufacturer holds significant influence over wholesalers and retailers.
What is Horizontal Marketing System (HMS)?
Horizontal Marketing System refers to collaboration or partnership among firms at the same level in the distribution channel to combine their resources, expertise, and market presence. The focus of an HMS is to expand market reach, pool resources, and enhance competitive advantage. Some examples of HMS are:
- Co-branding Partnerships: When two or more companies collaborate to create a product or service that combines the strengths of each brand, it is known as a co-branding partnership. This allows them to reach a wider audience and leverage their respective expertise.
- Joint Ventures: Companies form a new entity to pursue a specific business opportunity, sharing resources and risks. This allows them to combine their strengths and enter new markets.
- Cross-Promotions: Companies collaborate on marketing campaigns or initiatives to promote their products or services together. This creates synergy and allows them to reach a broader audience.
- Strategic Alliances: Companies form partnerships to pursue common goals, such as expanding into new markets or developing new products. They share resources, knowledge, and distribution channels to achieve mutual benefits.
- Consortiums: Multiple companies in the same industry join forces to address common challenges or pursue shared opportunities. They collaborate on research, development, and marketing activities to achieve collective goals.
Difference between Vertical Marketing System and Horizontal Marketing System
|
Basis |
Vertical Marketing System (VMS) |
Horizontal Marketing System (HMS) |
|---|---|---|
|
Meaning |
A marketing system whose basic objective is to attract and reach businesses that are operating in the same industry. | A marketing system in which businesses at the same level join together to gain economies of scale. |
|
Structure |
It involves coordination and cooperation between different levels of the distribution channel. | It involves collaboration among firms at the same level. |
|
Components |
The three components of a Vertical Marketing System are Manufacturer, Wholesaler, and Retailer. | A Horizontal Marketing System has either one of these components. |
|
Focus |
VMS aims to improve efficiency, reduce costs, and enhance control over the distribution process. | HMS focuses on expanding market reach, pooling resources, and enhancing competitive advantage. |
|
Demographic |
Firms using Vertical Marketing System tries to appeal to a specific demographic. | Firms using Horizontal Marketing System try to appeal to a wide demographic. |
|
Partnership Opportunities |
Vertical Marketing System does not provide a partnership environment. | Horizontal Marketing System provides opportunities for partnerships. |