What are vertical and horizontal marketing systems?

A vertical marketing system (VMS) is one in which the main members of a distribution channel - producer, wholesaler, and retailer work together as a unified group in order to meet consumer needs.
Horizontal Marketing System is a merger of firms on the same level in order to pursue marketing opportunities.
By working together, companies can combine their capital, production capabilities, or marketing resources to accomplish more than any one company could alone.

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• Definition Of Horizontal Marketing System
• Advantages of Horizontal Marketing System
• Developing a Horizontal Marketing Strategy
• Vertical Marketing System
• Multichannel Distribution System
• Merits of Multichannel Distribution System
• Demerits of Multichannel Distribution System
• Multichannel Marketing 
• Merits of multichannel marketing
• Multi channel Marketing Examples
• What is a vertical marketing system?
• What is horizontal marketing system with examples?
• What are the 3 types of vertical marketing systems?
• What is horizontal marketing?

A vertical marketing system (VMS) is one in which the main members of a distribution channel - producer, wholesaler, and retailer work together as a unified group in order to meet consumer needs.
Horizontal Marketing System is a merger of firms on the same level in order to pursue marketing opportunities.
By working together, companies can combine their capital, production capabilities, or marketing resources to accomplish more than any one company could alone.

Definition Of Horizontal Marketing System

Horizontal marketing system refers to the act where two or more companies unrelated to one another standing at the same level come together to take the advantage of the economies of scale. 

HORIZONTAL MARKETING SYSTEM

Usually, this method of marketing system is opted by the companies who either want to grow or lack human resources, capital, marketing programs, production techniques and afraid of incurring losses. 

As a result, to compensate the companies to collaborate either as a joint venture, merger, acquisition, production of a new product etc.

 The collaboration can be in different forms: +2 Manufacturers: To make optimum utilization of scarce resources +2 Wholesalers: To cover a large area for the distribution of goods and services +2 Retailers: To provide in bulk quantities in a different area

Advantages of Horizontal Marketing System

This must be noted that companies engaging in the horizontal marketing system will have a diverse range of customers. However, this approach explains anyone can be a customer without spending an extra penny in finding the target audience. As a result, the advantages of the horizontal marketing system are as follows:

Advantages Of Horizontal Marketing System

Sales opportunities are unlimited

Firstly, horizontal Marketing system helps to connect with a large range of demographics. 

For example: When Apple partnered with Starbucks, they appealed to the coffee drinkers who relaxed or worked at their MAC in the nearby cafe. Likewise, Apple reached an entirely different set of customers while collaborating with Nike.

Cost reduction

 Horizontal marketing system provides more diverse offerings and operates on a larger scale. This explains that the company has to spend less on marketing tools. 

Brand awareness build-up

 After developing a new brand, it becomes difficult for the company to build trust and awareness. In this case, however, the vertical marketing system can turn out to be costly while horizontal industries can boost the reach must faster. Reaching new customers and building a brand name becomes easier when making a team with the company already dealing with the same backgrounds.

Developing a Horizontal Marketing Strategy

Although there can be challenges faced in developing a horizontal marketing system. However, by finding companies who can aid in making a connection with the customer base, one can gain exceptional results without spending drastically. 

Also, the other company may even offer similar products that do not overlap with the portfolio. As a result, to ensure that horizontal marketing strategy is right, the following steps must be kept in mind:

Horizontal Marketing Strategy

Define business goals

While sales become an apparent objective, the company needs to know what they want to achieve or a guiding decision from a horizontal marketing system. Success can be tracked easily if the aim is thought in advance.

For example: If the company wish that the target audience looks at them more ethically. In that case, partnering with charities will boost its reputation.

Knowing the new audience

Getting a new audience does not mean that the company ignores to understand the customers. As the expansion takes place, new marketing plans may need to develop to increase the promotional strategies. As a result, research work must be done for better results.

For example: Using specific language or jargon for the sales pitches.

Whether the current tone matches the personality of new customers 

Any language issues while moving into a new country

Benefit on both sides with a focus on strategies partnerships

While deciding the companies to collaborate with, long term goals and share value must be kept in mind. Connections made must be appropriate for the brand the company is trying to build. There is a give and take where both the companies must benefit from the partnership.  

For example, An environment-friendly company focusing on sustainability will not connect with an oil mining company. 

Developing the plan of execution

After deciding the strategy, the partner to connect with, and the audience to be reached, the company executes the plan of the horizontal marketing system. This includes: 

• Choosing marketing channels for a new audience
• Way of connecting existing promotional techniques with new advertising campaigns
• Way the personality and values of the company stay while entering the new markets

1. Firstly, Apple partnered with Starbucks, to connect iTunes music to consumers having their coffee drinks. Moreover, it collaborated with Nike to aid athletic customers who wish to improve their performance by iWatch. It also adds up the feature of sensors attached to their Nike shoes.
2. Secondly, Johnson and Johnson collaborated with Google, to develop efficient and affordable robots which can assist in routine surgical works.
3. Coca-Cola partnered with the new sector in 1982 of its market where they noticed the urge for fitness and introduced Diet Coke. As a result, this adds up to the scope of looking for new trends.
4. Likewise, Facebook and Instagram were not direct competitors. However, the acquisition of Instagram helped Facebook to widen its reach of new customers.
5. Uber turns out as a strong horizontal marketing system example. The company first started its service from a single city before tapping into locations around the world. After analyzing the desire for more smartphone oriented service, it expanded using horizontal market with ‘Uber Eats’.

Horizontal Marketing System Examples

Vertical Marketing System

A vertical marketing system refers to the situation where the major distribution channel partners namely, wholesaler, producer and retailer work together to serve the customer needs as the unified group.

However, to overcome the conflicts of the conventional marketing system(unlike horizontal marketing system), the firms started with the vertical marketing system where they work to accomplish the objective as a whole. As a result, the profits increases for all included in the channel of distribution.

Types of VMS with examples

There are 3 types of vertical marketing system as follows:

• Contractual
• Corporate
• Administered 

Contractual Vertical Marketing System

This type explains that each member in the channel works independently, after which they integrate the activities on a contractual basis for greater profits, earned while working in isolation. The most common Contractual vertical marketing system is franchising.

For example, Dominos, MC-Donalds, Pizza Hut etc are termed as common franchise working on Contractual VMS basis.

Corporate Vertical Marketing System

Under this method unlike horizontal marketing system, one member from the distribution channel i.e either producer, wholesaler or the retailer owns the other members. Briefly, having all the elements of distribution and production working under single ownership. 

For example, Amway, American cosmetic company manufactures its products and sell them only through their authorized stores. As a result, the ownership of distribution and production lies with the company.

Administered Vertical Marketing System 

In this VMS(unlike horizontal marketing system), there is no link between the members but the activities get influenced by the power and size of any one member. Briefly, the influential member dominates the other channel members activities.

For example, brands like ITC, P&G, HUL, etc demand cooperation from the retailers for shelf space, display, promotional schemes and pricing policies.

Multichannel Distribution System

Multichannel distribution system(part of a horizontal marketing system) refers to the structure or a method where a single company sets two or more marketing and sales channels to reach more customer segments. However, this is done through a mortar store, a large retailer, direct marketing, resellers, wholesale, or an online marketplace( eBay or Amazon).

For example, Starbucks initially stared with an offline store in Seattle and now by 2017 availed the purchase via subscription or their website.

Why is it necessary to have a multichannel distribution system?                                          Nowadays customers are informed and search for different ways to get the same product. This strategy helps them with the same. As a seller using several channels allows them to reach a range of customers. Moreover, the multichannel distribution system(part of a horizontal marketing system) helps them to earn more profits, equal and constant development of channels.

Merits of Multichannel Distribution System

Customer demand and expect product availability in more places, which makes the investment in multichannel strategy(part of horizontal marketing system) worthy. Therefore, Sellers gain benefits as follows:

Merits Of Multichannel Distribution System

Improved customer perception

Brands providing seamless buying experience gain customer loyalty. They are understood as ones who are attentive to customers desires, digital savviness and purchasing habits. Also, a multichannel distribution system(part of a horizontal marketing system) helps to differentiate the companies for convenience.

Increment in the customer base

Brands are placing their merchandise in the way of the customers who desire them which can be online, in stores etc. Therefore, the customer reach increases.

Growing in untapped markets

Opting multichannel permits the merchants to expand their products to new or first-time customers. However, this can be done by wide-spreading to different geographies, online, stores or by trying pop-up experiences.

Diversify the risk

Merchants no longer have to rely on a single sales channel. By supply chain management breakdown or suspending the major account, sellers diversifying their channels avoid a hit against their revenue.

Control over the brand’s future

By not relying on a single platform, the merchant can optimize the supply chain on his terms, go creative with the marketing plans ( part of horizontal marketing system)and have greater access to the customer base.

Demerits of Multichannel Distribution System

Although this strategy adds up to brand exposure, there are various drawbacks also to the multichannel distribution system(part of a horizontal marketing system) which are as follows:

Demerits Of Multichannel Distribution System

Higher material and labor costs

Supplying more products to different places means extra suppliers, staff, dispersed warehouses and more shipping costs. As a result, a budget needs to be set for the advertising and marketing area. Moreover, employees may start making cost-oriented mistakes.

Cannibalizing sales

Going online could reduce sales at the physical stores since it becomes convenient for the customers via surfing through the internet.

Cannibalization refers to the loss of sales in the introduction of new sales or product channels that disgraces its pre-existing products instead of increasing overall market share. As a result, it becomes a challenge for retailers while crafting experiences like omnichannel shopping.

Channel conflict

There can be different forms of conflict occurring in the multichannel distribution system (part of horizontal marketing system) like independent distributor v/s direct sales, distributor v/s retailer, channels conflicting for the same customer etc.

Increment in complexity

This strategy, however, turns out to be time-consuming. The company has to provide customer service, manage employees, guarantee delivery in time, manage inventory and SKU’s. Therefore, unhappy customers may arise due to the inability to meet the demand, incorrect displays of stock and slow speed of fulfilling the orders. 

Multichannel Marketing 

Multi channel marketing definition: Multichannel Marketing is termed as the activity of interacting with customers via various combination of direct and indirect communication channels namely, websites, mail order, retail stores, catalogues, email, direct mail, mobile etc. 

As a result, the customers take actions in response like purchasing the product and use the channel of their choice. Multichannel marketing ( part of horizontal marketing system) connects both inbound and outbound marketing to make the customers reach the channel of their choice. 

Therefore, it determines that customers get more choices for getting knowledge of the products. However, the availability of the internet and social media has helped to improve CRMefforts. 

Merits of multichannel marketing

Merits Of Multichannel Marketing

Managing the sales via the feedback

Maximizing the marketing efforts aids in collecting feedback from various customer segments. Moreover, the performance and improvements can be made by using the information like a decrease in operational cost, effective and efficient use of resources etc.

Increase in sales 

By reaching through different channels( part of the horizontal marketing system), a company can mould their personalised image in the mind of customers which increases loyalty and retention.

Gaining an overall review of the customer

Generally termed as the 360-degree view, this point explains that multichannel marketing gives a better vision of the customer needs, expectations, how to improve them and what to offer( often linked with market test). As a result, the company channelizes its efforts to that customer segment. 

Multi channel Marketing Examples

• Oreo 

Sets as an example who manages social media like Twitter, Facebook etc and television with utmost care. The advertisements are referred to with hashtags and promoted on various shows like The Voice, American Idol etc. However, Twitter boosted the club by the following tweet.

Multi channel Marketing Examples

• ASOS 

The next comes is an online retailer which first started with the Facebook community and then with Instagram. After gaining social media attraction, the company opened a speciality app so that users can shop wherever they go. The additional points that make their idea unique are live chat function and touchpoints that create goodwill.

What is a vertical marketing system?

What is horizontal marketing system with examples?

What are the 3 types of vertical marketing systems?

What is horizontal marketing?