A Vertical Marketing System or VMS is a channel structure that aims to achieve economies of scale and increase cost efficiency by uniting producers, wholesalers, and retailers into a cohesive system.

There are three main types of Vertical Marketing Systems: corporate, contractual, and administered.

A Corporate VMS consolidates all stages of production and distribution under single ownership.

For instance, the fashion brand Zara uses IT systems to manage the in-house design, production, and retail operations to control every stage of the supply chain.

In a Contractual VMS, independent wholesalers and retailers collaborate through contractual agreements at various distribution stages.

Ford exemplifies this as it licenses exclusive dealerships for product distribution and establishes a contractually coordinated distribution chain.

Lastly, an Administered VMS is a distribution system where one dominant member, usually a manufacturer or retailer, coordinates and oversees the activities of other members due to its size and influence.

For example, Walmart acts as the dominant force in the value chain because of its high purchasing volumes. This enables them to negotiate lower prices from suppliers.