Marketing is an effective tool for any business to expand its reach and impress its customers. The customer base and revenue heavily depend on how a business deploys its marketing strategy.
The burgeoning population is using it as an opportunity to fulfill their dream of owning their own business.
But it also led to terrible competition, which is crucial for businesses to find a way to grab customers’ attention and market their products in a unique way.
In the past, franchises and organizations used to prefer a conventional marketing system, which was the leading cause of conflicts between partners and reduced ROI. To avoid such consequences, companies started switching to vertical marketing systems.
Today most franchise businesses use vertical marketing systems to streamline their goals, improve revenue, and ensure a seamless workflow distribution.
However, before we get into the vertical marketing system, its types, and its benefits, let’s talk about marketing in general and its types for a more comprehensive understanding.
Let’s get started!
What Is A Marketing System?
A marketing system is a set of procedures that initiate and nurture customer relationships to maximize lifetime value and generate revenue.
It is a step-by-step process in which buyers, sellers, and other parties collaborate to sell a product or service. It consists of processes and actions that let companies market their goods and services to people.
A marketing system may consist of a variety of processes like sales, advertising, and promotions for business development, and all the contributors know their responsibilities and functions throughout the marketing system, including suppliers, distributors, and advertisers.
Also Read: Franchise SEO Vs PPC: Which One Is For You?
Types Of Marketing Systems
There are four marketing systems we are going to discuss here:
Horizontal Marketing System
A horizontal marketing system is a form of distribution channel in which two or more unrelated companies of the same level work together to achieve economies of scale.
To put it simply, several businesses help in marketing other new businesses’ products or services.
The horizontal marketing system is usually followed by companies that lack capital, manpower, production technology, and marketing programs and run the risk of incurring losses.
To overcome these limitations, companies join forces with other large corporations in the form of temporary or permanent joint ventures or mergers to market their products.
Vertical Marketing System
A vertical marketing system is a business concept in which companies work together to streamline the marketing for an entire distribution channel.
The main member of the distribution channel includes manufacturers, wholesalers, distributors, and retailers.
The goal of vertical marketing is to reduce the cost, increase profit and achieve overall coherence while delivering the products to clients.
The system also ensures that the parties involved are devoid of competition and focus on achieving their own goals.
All the distribution channels consist of a few levels, each focusing on something different, ensuring their efforts are aligned, which is beneficial to the brand in question.
The firms can collaborate on both official and unofficial marketing tasks.
Hybrid Marketing System
Hybrid marketing is an advertising strategy that includes both traditional and digital marketing.
Instead of focusing on online platforms and personal touchpoints, hybrid marketing combines the two to create a more effective and complete outreach strategy. It combines the marketing strategies of both groups.
It usually starts with defining the target audience of the company and the end goal of the brand.
With the help of hybrid marketing, businesses can use all advertising channels by creating a middle ground and developing advertising strategies that satisfy both channels.
Cooperative Marketing System
A collaborative marketing system allows participants to sell each other’s products. The company can work together to design marketing and sales approaches. The members of a joint distribution system are usually manufacturers.
The main advantage of working together is that it brings economies of scale and offers advantages not available to smaller business owners. The suppliers can access each other’s resources which reduces costs and waste.
The cooperative marketing system also oversees aspects of the vertical marketing system. This may include overseeing the distribution of finished goods or providing raw materials to manufacturers.
Selling Coca-Cola with a McDonald’s burger at a lower price than the whole is an example of a co-marketing strategy.
Vertical Marketing: The Marketing System Followed By A Franchise Organization
Vertical marketing is an alternative to a traditional marketing system. It guarantees the collaboration between several companies and helps them meet customers’ needs, generate more profits and minimize costs by obtaining a more significant market share; here are some key characteristics of a vertical marketing system and what it offers:
- Chosen by smaller markets
- Focused on only one industry
- Highly competitive with other businesses
- Specialization of a role and product for their market
- Deliver exclusive and specialized products
- Need detail-oriented customer purchases
Role Of Vertical Marketing System
A vertical marketing system is often used by small-scale businesses and involves three major players in the distribution channel: retailers, wholesalers, and manufacturers.
One of the channel members owns, contracts, or influences to the extent that other members need to cooperate.
In the traditional marketing model, manufacturers, wholesalers, and retailers worked independently to maximize their respective profits, even if it meant competing with each other.
This may lead to constant disagreements among distributors, and the company’s profit declines as well.
A vertical marketing system is vast and complex; the better coordination between its members, the greater the overall outcome.
Small business owners can work with different parts of the supply chain to expand. In addition, small business owners can build better relationships with members involved in their supply chain.
This allows franchisees to expand their customer base by attracting more sales contacts. In addition, their joint marketing plan reduces manufacturing costs and increases enterprise productivity.
Examples Of Vertical Marketing
You can find plenty of vertical marketing examples among modern companies because systems allow organizations to manage the costs and logistics of a distribution channel to improve their productivity and cut production costs.
- Take the example of Zara, the brand that has full control over all supply chain activities of the supply chain, which prevents the company from having any conflicts. Zara owns all of its stores and follows the same marketing strategy in all its stores. Integrating all activities eliminates conflicts between channels and promotes maximum efficiency.
- Another classic example of a vertical marketing system is Walmart. The parties involved in a managed vertical marketing system do not have formal contractual relationships and do not own distribution channels. Instead, an individual’s size and strength influence the activities they engage in
Types Of Vertical Marketing Systems
There are three types of vertical marketing we are going to share in detail:
Contractual Marketing Systems
It is a type of marketing system in which all partners maintain their independence and operate as individual companies while working together for a common goal to achieve greater efficiency.
Businesses develop contracts with several distributors to help sell more and stay competitive.
It is also referred to as a value-added partnership, as all parties work together to help form values for the parties involved.
When buying a franchise, the franchisee enters into a contractual agreement to ensure the business brand is uniform through various stores.
The franchisor has full control, and the franchisee has to utilize the name, products, or services, training, operation standards, and any other guidelines the franchisor sets. The franchise is then divided into three forms:
- Manufacturer-sponsored wholesaler franchise system (Fizzy drink industry)
- Manufacturer-sponsored retailer franchise system (Automobile industry)
- Service firm-sponsored retailer franchise system (specific retailers chosen by firms)
Example
Examples include cooperatives and franchises. Here is an example for better comprehension Jean David, a French hairdressing company with a global network of over 1,000 units.
Some other examples of franchises include Dunkin’ Donuts, Pizza Hut, and McDonald’s.
Administered Marketing Systems
In this system, every member of the distribution channel is free from any official corporate ownership or contracts, and the activities are affected by the size and power of one of them.
Simply put, big companies with the most influence dominate the activities of distribution channel members, such as product prices, branding, and stocking, although there is no contract.
Example
An example could be the known consumer goods corporation Procter & Gamble, which commands a high level of competition and cooperation from its retailers when it comes to pricing, promotions, shelf life, and display.
Corporate Marketing Systems
Cooperate vertical marketing is a type of marketing where a single business acts as the distributor, supplier, and producer of its supplies.
This marketing applies when a company acquires a part of a supply chain under one organization.
The marketing strategy involves backward integration, where retailers get manufacturers, or forward integration, where the manufacturer owns the retailers.
Example
An example is Zara, which manufactures its own products and sells them through authorized dealers.
The company also controls various business processes, including marketing, hiring, and management of all distribution channel members.
Benefits Of Vertical Marketing System
There are many benefits of a vertical marketing system, but here we are going to discuss major ones.
Access To More Resources
Companies are more likely to succeed by working with more organizations working towards the same goal.
For example, you have the option to ship your products, so you don’t have to deal with outside shipping companies, saving you time and money.
Now that the company has access to this resource, it can better manage shipping costs and delivery times.
Develop New Ideas
A vertical marketing strategy makes it easier to learn more about your market with insights from specific customers and potentially come up with new products and services that you think have a better market value. Brands mostly use vertical marketing to deliver groundbreaking solutions.
Efficiency
A vertical marketing system brings manufacturers, dealers, and retailers together toward a common goal. This facilitates the ability to design unique and effective methods. This gives companies a comparative advantage over their competitors.
Better Communication
Effective communication is usually better when everyone works together. Manufacturers, wholesalers, and retailers can share updates frequently and stick to the same rules. All of these can lead to higher profits, better results, and happier consumers.
Effective Branding And Sales
By targeting your marketing efforts to specific subsets of prospects and sectors, you can refine your main message and increase the likelihood that people will recognize your brand.
If your company offers a specialty product, you have the opportunity to establish yourself as an authority in your industry.
Engaged Buyers At Every Step
Our vertical strategy is based on proven inbound marketing techniques. A vertical approach creates value at every stage of the customer’s journey.
Buyers may already be interested in blogs about the rise of cloud computing, but this content focuses on how cloud architectures are impacting specific industries today and how they will impact in the next five years.
Focus on what predictions you are making about the sector and which buyers in this sector are far away. They are more likely to open the door for you.
Final Words
A vertical marketing system is a unique approach with several benefits over a traditional marketing system.
It ensures that multiple companies can cooperate while fulfilling the needs of the consumers, increasing profit, and reducing expenses.
However, it may or may not be the best option depending on your franchise needs, and to unlock the benefits of this interesting marketing method, you need to be aware and have the right vision.
You need to have a precise idea of this strategy and only sign a contract after certain things are clear.
Always do your homework, target the most suitable audience and refine your sales messaging within a vertical marketing system to create specific user personas and find solutions to their problems.
If utilized properly, a vertical marketing system could prove very beneficial and has the potential to take your franchise to the next level.
Amit Gupta is an experienced expert in digital marketing and co-founder of DrFranchises. With more than 11 years of knowledge in franchise digital marketing, SEO, email marketing, and social media marketing, Amit has helped many brands achieve incredible success online. As a passionate entrepreneur and owner of 7 franchises, he continues to study franchise models, looking at costs, revenue, and profitability to guide brands toward profitable growth. When he’s not working on digital marketing, Amit enjoys spending time playing with his beloved dog.