With the average business set to spend around $75,000 this year on digital marketing, it’s essential to know how to make your marketing more efficient.
Large chunks of your budget could be devoted to marketing elements that aren’t your forte and could cost you more than they should. If you can place yourself in the financial ecosystem of a vertical marketing system, you could be better prepared to see profits.
Here is what you need to know about vertical marketing.
Understanding a Vertical Marketing System
A vertical marketing system is a self-contained marketing system where sales are directed toward a specific niche that caters to a certain industry. When companies use vertical marketing strategies, they’re usually creating a product that is intended for a market. Whether it’s a technical drafting pencil made specifically for architects or a pizza cutter made especially for pizza restaurants, the market will be built in.
Whoever the product is for, it will have a specific target attached.
This can make life easier for some marketers and more difficult for others. Knowing who your target market is takes away a lot of the guesswork of trying to figure out who you’re selling to. It can also make life hard if you’re in a fairly crowded market, or up against companies who have been in the industry longer.
In contrast, horizontal marketing means you’re trying to cast as wide of a net as possible for your products. For a horizontal marketing structure, it’s important to see just how many people you can get to buy your products, rather than catering to them.
Components of Vertical Marketing
If you’re in the world of vertical marketing, you’re going to be playing in one of three major roles. There are the roles of the producer, the wholesaler, and then the retailer. Each role has its limitations, but there can be some fluidity between them.
A producer will be the entity that manufactures the product. They will be the person or enterprise that is physically producing the product in a factory, in their basement, or inside of a studio. From planning to execution, they will be in contact with the wholesalers and retailers to get an understanding of what products work for their market.
The wholesaler gets their products from the original producer. Often, the company or entity producing the product doesn’t know how to get it out there. The wholesaler can ensure that the producer keeps profiting.
If there are changes that clients are looking for or new trends on the horizon, the wholesaler will communicate this to the retailers.
Retailers are the ones who will bring that product to consumers in the end, whether through trade shows, cold calls, e-commerce, or other methods. The retailer will mark up the price from the wholesaler, but they’ll also be the one that will make the product sellable. Products may arrive unadorned and plain, but retailers can make them sexy and exciting.
There are a variety of vertical marketing systems, so here are the three most important.
1. Corporate Vertical Marketing
A vertical marketing system in the corporate world entails ownership of every element of production and distribution. That means that the same studio that makes a movie will also distribute it out to theaters. It can mean that the soda company making the soft drink also owns the trucks that are driving that product around.
Apple is one of the strongest examples of a corporate vertical marketing system. They build a specialized suite of product that they sell to consumers. They own their retail stores and sell them there. The Apple store is a full-tilt vertical marketing setup that handles all aspects of the product from customer service to repair.
In a corporate vertical marketing setup, the company controls the image of the products in their entirety.
2. Contractural Virtual Marketing
A contractual vertical marketing system requires a formal agreement to coordinate the marketing process. Often, these systems are more complicated than the three-part corporate vertical marketing system, but they allow everyone to get the best of the best.
If you’re able to create a contract that can allow different components of a product to be created or distributed via various channels, you can optimize your system. Instead of having every element of the marketing system going in one direction, you can take more risks or even customize specific products for a particular market.
Franchising is one of the most common ways that a contractual vertical marketing system will work. A franchise allows an individual stakeholder to create their version of your brand or a product while remaining true to the core. A McDonald’s in a seaside city can have all of the elements people expect and throw a lobster roll on the menu with everything else.
3. Administered Vertical Marketing
An administered vertical marketing system is what you’ll find when one company has a lot of dominance over an industry. When a large retailer controls a large share of the market, even informally, they will be the ones running the table when it comes to marketing.
For example, a large company like Target has their own line of generic home goods and everyday products. Because they’ve got such a strong brand, they control a share of a market and can get makers of some products to abide by their standards.
If a company like this wants to make a certain kind of shower curtain, they can demand it.
Vertical Marketing Isn’t for Everyone
Just because other brands in your world are using a vertical marketing system doesn’t mean it’s perfect for you.
Not every company knows how to make the most from virtual marketing. Before you transition to a virtual marketing system, you should discuss it with all of the stakeholders.
If you want to know more, check out our latest blog.