Advantages & Disadvantages of Vertical Marketing Systems

In many cases, independent businesses handle the manufacture, distribution and retail sales of products. A shoe company, for example, may make the shoes and then sell them to a wholesaler that, in turn, sells the shoes to a variety of retailers. An alternative to the independent businesses approach entails a single business owning the production facilities, the distribution outlets and the retail outlets. This single-business approach, called a vertical marketing system, yields certain advantages and disadvantages.

A key advantage to a vertical marketing system is that it allows a single entity to maintain control of the product from manufacture to sale. The business retains access to information from the moment the assembly lines roll to the moment the product sells, which positions it to manage problems quickly. If a shipment gets damaged, for example, the company can send a new shipment more quickly or order more of the product manufactured without the communication delays and financial quibbling that often accompanies such problems.

Manufacturers and retailers sometimes aim to sell a product in different ways. A manufacturer may wish to brand a product as a luxury item, while a retailer would prefer to move more items by price reduction. In a vertical marketing system, the business controls the brand messaging from product conception to final sale to the end users. The retailers will stay on message because the marketing message comes from inside the business and no brand inconsistency arises.

Owning a vertical marketing system effectively means running multiple businesses simultaneously. Each business will suffer from the normal problems of any other business, such as proper accounting, and bring with problems unique to that industry. A business that handles distribution, for instance, will need to manage client relationships, while a manufacturer in a vertical marketing system will face material acquisition issues. Managing all of the elements of all of the businesses may stretch or exceed the knowledge and energy of any one person.

Communication between the different businesses within the vertical marketing system plays a crucial role in the success or failure of the business. If the retailers place orders with the distributor or wholesaler, but the wholesaler fails to relay those orders to the manufacturer in a timely manner, retailers may run out of stock and alienate end-users. If personality issues arise between key players in different areas of the vertical marketing system, it could also lead to a breakdown in communication as these players jockey for position.