vertical market system (VMS)

Definition

Formally or informally coordinated distribution channel where its independent members work together to achieve greater efficiency and economies of scale, and to eliminate channel-conflict arising out of disparate individual objectives. Three common types of VMS are: (1) Administered: coordination between production and distribution firms is achieved by the size and influence of the dominant firm, without a formal agreement or ownership. (2) Contractual: independent production and distribution firms formally agree to integrate their resources. Franchising is an example of this type. (3) Corporate: production firm owns a retail chain (forward integration) or a retail chain owns a production firm (backward integration).