A vertical marketing system occurs when the same company or business owns the production, wholesale and retail portions of selling a product. This type of marketing system, as is the case with any type of marketing system, has its advantages and disadvantages. The primary advantage is the big picture view the company has for the entire marketing process. The primary disadvantage is that it may be too much responsibility for one company to take on its shoulders.
An example of a vertical marketing system is an auto parts company. The company may buy or own the manufacturing plant that creates the part and the retail outlets that sell the parts. In this type of marketing system, the auto parts company would also be the wholesaler because it would be distributing the auto parts from the manufacturing plant to the retail store shelves.
The primary advantage of a vertical marketing system is that the business retains complete control of the process. Because the company has complete control of the business, the business also maintains a complete or big picture view of the marketing system from beginning to end.
Controlling the entire process allows the business to identify any problems that are occurring or could arise at any point. Since the business has a big picture view, it can head off problems before they become issues or quickly react to problems when they occur. Overall, this permits the business to be much more efficient than if each of the processes were separate.
Being involved in a vertical marketing system, which means being involved in all of the aspects of the business, can also be the downfall or major disadvantage of the system. Being responsible for and in complete control of each step of the vertical marketing system process can overwhelm the business.
In some cases, it creates an inefficiency. This is because the company ends up having to manage each aspect of the business without ever necessarily becoming the master or expert at one or more of the processes in the system. For example, a business may be really good at the production of the auto parts, but does not understand and know how to efficiently and effectively sell the parts to retail customers. Instead, these types of business may need the wholesale company as its buffer to truly make the system work.