A contractual vertical marketing system (VMS) is a structure consisting of independent firms (manufacturers, wholesalers, and retailers) operating at different levels of production and distribution that are united through contracts. The purpose of this union is to realize greater economies of scale or to achieve higher sales than each of them could achieve alone.
The most common type of contractual VMS is the franchise organization, where the franchisor connects several levels of the production and distribution process. Contracts formalize the relationship by clearly defining the rights and obligations of each member and provide a high degree of coordination and control over marketing efforts.
