What is a vertical marketing system?

Traditional marketing channels are composed of independent manufacturers, wholesalers and retailers. As an independent enterprise entity, each member pursues the maximization of its own profits, even at the expense of the overall interests of the system. No channel member has complete or sufficient control over other members. Mccomben described the traditional channel as "a highly loose network, in which manufacturers, wholesalers and retailers are loosely linked, they don't bargain closely with each other, and they have differences on sales conditions, so they go their own way."

On the other hand, vertical marketing system is a unified combination of manufacturers, wholesalers and retailers. A channel member owns the property rights of other members, or has a franchise relationship, or a channel member has considerable strength and other members are willing to cooperate. Vertical marketing system can be dominated by manufacturers, wholesalers or retailers. Macomben believes that the vertical marketing system is characterized by "professional management and centralized implementation of the network organization, which stipulates in advance the operating economy and the highest market effect to be achieved." Vertical marketing system is conducive to controlling channel behavior and eliminating conflicts caused by channel members pursuing their own interests. They can benefit from a reduction in size, negotiating power and duplication of services. In the sales of consumer goods, vertical marketing system has become a dominant distribution form, accounting for 64% of the total market.