Types of Contractual Vertical Marketing Systems

By Lanee' Blunt

It is a distribution channel where companies come together to achieve channel economics by integrating their efforts which makes them operate on a greater functional marketing level than they would have achieved alone. It consists of producers, wholesalers, and retailers intergrading to achieve maximum economies. Vertical marketing systems are professionally managed marketing channels that are designed to achieve greater efficiency and marketing impact.

Contractual Vertical Marketing System
A contractual vertical marketing system is a system where firms at different levels of production and distribution work together to achieve greater economies or sales than they would on their own. These firms coordinate their strategies through contractual agreements in order to eliminate channel-conflict that may arise out of individual objectives.

Wholesaler-Sponsored Vertical Marketing System
A chain of retailers organized by a wholesaler unite into a voluntary chain of stores. The stores are owned independently but they sign an agreement to work in the chain and they all agree to use the same name. The wholesaler buys large quantities of merchandize for the retailers, it ensures buying economics for products, and enables this chain of retailers to compete with large organizations. A wholesale sponsored vertical system is a system which works to unite voluntary chains of stores to compete independently with large organizations. For example, Coca-Cola bottler’s is a manufacturer-sponsored wholesaler.

Retailer Cooperatives
Retailers join together to organize a new wholesaling business. The new jointly owned wholesaling company renders their service to the members. The retail members must accept to purchase their goods from this wholesaler. The members in the retail organization use a name that is common among all of the retailers so that they can have their own private product brands and jointly advertise their brands. For example, retailer cooperatives are popular for food industries corporations.

A franchise is a contractual company that makes an arrangement between a franchisor, a parent company and a firm or an individual, a franchise allows the franchisee to run a business under the parent companies name. This franchisee must follow the rules of the franchise and is granted rights to sell certain goods and services in their specific area. The franchise obtains distribution at retail level and through their dealers, but maintains control over how the service will be merchandised. For example, Ford Motor Company is a manufacture sponsored retail franchise system.

Idea Today’s: Vertical Marketing Systems; The Wisest; 2011

University of Texas at Dallas: Marketing Channels and Wholesaling

Business Dictionary: Vertical Market System

Nashville State Community College: Channels of Distribution, and Wholesaling

Google Books; Strategic Marketing: Making Decisions for Strategic Advantage; Musadiq A. Sahaf; 2008


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