If 3 friends are travelling by road and only one of them know how to drive then it will take time to reach your destination as one who knows how to drive will need to take rest periodically, however if all of them know how to drive then they will reach the destination quickly as turn by turn they can drive without any rest. In case of marketing VMS works on a similar concept, the full form of VMS is Vertical Marketing System. In case of vertical management system producer, wholesaler, and retailer the three pillars of supply chain come together so as to give customer maximum satisfaction at the same time ensuring profits due to synergies achieved by them coming together. There are three 3 types of VMS, let’s look at three of them in detail –
Corporate VMS
In case of this vertical marketing system, one member that is producer or wholesaler or retailer owns the other members. Hence in case of corporate vertical marketing system a company produces the goods itself besides doing the task of wholesaling and retailing is also done by the same company. Hence if we take the above example than if one friend owns the car than he or she has full control over that car and it is he or she who decides its course, similarly is the case with corporate vertical management system it is the member who owns other members who decide the course of action for all the members.
Administered VMS
In case of this vertical marketing system, one member is very powerful and that member dictates the terms and other members follow what that powerful member says. Hence if we take the above example if one of the friends is paying all the expenses of the trip than he or she is more powerful than other friends and it is he or she who decides about the whole trip. Similarly in case of administrated VMS due to the commanding position of producer or wholesaler or retailer which may be due to any reason other members have to follow the instructions of that member who has the commanding position.
Contractual VMS
The third type of vertical marketing system as the name suggests refers to that system where all members are independent of each other and they all come together through contract so as to mutually benefit from the contract. Hence if we take the above example now all friends have paid an equal amount of money and car is also taken on rent than all friends will have equal say as far as the trip is concerned. Similar is the case with contractual vertical management system where all the members that are the producer, wholesaler, and retailer have equal say in the decisions as all decisions are taken together with the consent of all the members.
As one can see from the above that vertical marketing system is of 3 types and each type has its own benefits and limitations but one thing is common in each type that is they all are meant for achieving efficiency so that customers get benefitted at the same time members of distribution channels enjoying good profits due to synergies achieved by combining resources of all the members of distribution channel.