Variations of Contractual Vertical Marketing Systems: A Comprehensive Overview
In today’s ever-evolving business landscape, partnerships and collaborations are crucial for success. The concept of vertical marketing systems (VMS) has gained significant attention in recent years, as companies recognize the value of integrating multiple levels of production, distribution, and marketing to create a powerful and efficient marketing strategy. One variant of VMS is the contractual vertical marketing system, which involves a contractual agreement between channel members to work together towards a common goal.
What are Three Variations of Contractual Vertical Marketing Systems?
There are several variations of contractual VMS, each with its own distinct characteristics and benefits. Here are three important variations:
1. Manufacturing-Venting-Wholesaling-Retailing (MVWR) System
The MVWR system involves a contractual agreement between a manufacturer, a vendor, a wholesaler, and a retailer to work together to distribute a product or service. In this system, the manufacturer produces a specific product, which is then sold to the vendor under a contract. The vendor sells the product to the wholesaler, who sells it to the retailer, who ultimately sells it to the end-consumer. The contractual agreement ensures that the product is sold at a predetermined price to each level of the channel, streamlining the distribution process and ensuring uniformity in product quality and branding. (Benefits: Reduced transaction costs, improved product quality, and increased marketability)
| Level of Production | Function | Linkage |
|---|---|---|
| Manufacturer | Production | Makes the product |
| Vendor | Venturing | Buys from manufacturer at a fixed price |
| Wholesaler | Wholesaling | Buys from vendor at a fixed price, sells to retailer |
| Retailer | Retailing | Buys from wholesaler at a fixed price, sells to end-consumer |
2. Agent-Principal-Agent-Terminal (APAT) System
The APAT system involves a contractual agreement between an agent, a principal, a terminal, and an end-consumer to create a distribution channel. In this system, the agent acts as an intermediary between the principal, who owns the product or service, and the terminal, who sells the product to the end-consumer. The contractual agreement outlines the specific roles and responsibilities of each channel member and ensures that the product is sold to the end-consumer at a predetermined price. (Benefits: Reduced costs, increased bargaining power, and improved product distribution)
| Level of Production | Function | Linkage |
|---|---|---|
| Principal | Principle | Owns the product or service |
| Agent | Agency | Acts as an intermediary between principal and terminal |
| Terminal | Termination | Sells product to end-consumer at a fixed price |
| End-Consumer | Consumption | Buys product from terminal |
3. Producer-Processor-Refiner-Wholesaler-Retailer (PPRR) System
The PPRR system involves a contractual agreement between a producer, a processor, a refiner, a wholesaler, and a retailer to create a refined product distribution channel. In this system, the producer creates the raw material, which is processed by the processor to create a semi-processed product. The refiner refines the semi-processed product to create the final product, which is then sold to the wholesaler, who sells it to the retailer, who ultimately sells it to the end-consumer. The contractual agreement ensures that the raw material is transformed into a high-quality refined product, meeting the end-consumer’s expectations. (Benefits: Improved quality control, reduced waste, and increased market reach)
| Level of Production | Function | Linkage |
|---|---|---|
| Producer | Production | Creates raw material |
| Processor | Processing | Converts raw material into semi-processed product |
| Refiner | Refining | Converts semi-processed product into refined product |
| Wholesaler | Wholesaling | Buys refined product at fixed price, sells to retailer |
| Retailer | Retailing | Buys from wholesaler at fixed price, sells to end-consumer |
In conclusion, the three variations of contractual VMS each offer unique benefits and advantages for businesses, from reduced transaction costs to improved quality control. By understanding the different variations, businesses can choose the most suitable one for their specific needs and goals, creating a more efficient and effective marketing strategy to reach their target audience.