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Horizontal Marketing System

Updated on March 19, 2024
Article byPrakhar Gajendrakar
Edited byPrakhar Gajendrakar
Reviewed byDheeraj Vaidya, CFA, FRM

What Is Horizontal Marketing System?

A Horizontal Marketing System (HMS) is a formal agreement between two or more companies of the same size and scale to collaborate and expand their marketing activities. It helps them merge and use resources and apply marketing strategies that require intensive manpower, funds, and ancillary support to close business opportunities. Further, an HMS allows them to implement production and distribution activities in an integrated manner.

Horizontal Marketing System

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While a horizontal marketing system helps build synergies between two or more companies, it must be noted that they need not be operating in the same industry. Companies usually unite due to a lack of sufficient resources and to benefit from the economies of scale the agreement offers.

Key Takeaways

  • A horizontal marketing system is when two or more companies join to explore and take advantage of marketing opportunities and prompt business expansion.
  • It is a common strategy that allows businesses to form long-term business relationships and enjoy a business edge over other market participants.
  • There are many examples of HMS from the real-world market, such as Coca-Cola and Nestle, Google and Johnson & Johnson, Sinopec and McDonald’s, etc.
  • The higher the sales and the more successful the partnership is, the longer the businesses typically continue renewing an HMS arrangement.

Horizontal Marketing System Explained

A horizontal marketing system is a collaboration between two or more companies operating in different business sectors to make the most of each other’s marketing structures, including production, distribution, and sales support. Typically, companies merging to strengthen their marketing pitches sell products that the general audience finds interesting.

Often, companies operate on different levels in their respective industries. Regardless of size and nature, each company has its audience and customer base. When two or more companies decide to form an alliance to launch new products, combine marketing efforts, establish a retail or wholesale business, execute business expansion plans, penetrate new markets, or benefit from cross-company customers, it can be done through HMS.

Another key motivator is the sizable reduction in operating costs. Moreover, it is possible to make profits through collaboration. For instance, customers willing to pay for products of both companies will gladly buy products or services created by them together.

In simple words, if a company has a weak distribution channel but collaborates with another firm with a better distribution network and supply chain management, it not only gets to use the other company’s resources but also gains access to its markets. Enterprises generally enter HMS contracts when one party has created something that customers of the other company operating in a different sector are willing to buy. It is popular since it helps companies maximize sales.

When horizontal marketing system management is flawless, the results are phenomenal. However, an HMS arrangement is governed by a contract, which may or may not be renewed. If the need to collaborate is no longer valid, the contract may be suspended.

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Types

There are three types of horizontal marketing systems.

  • Multi-manufacturers: In this system, two or more manufacturers or producers come together with the primary objective of utilizing scarce resources. It means each company offers a resource, service, or utility that the other company needs. This ensures optimal use of available resources.
  • Multi-wholesalers: In wholesale HMS, the goal is to cover a large distribution area and ensure that services and products reach customers in the farthest corners, offering them several product options and eliminating competition.
  • Multi-retailers: If not for production or wholesale distribution, the third type of collaboration is often seen in retail. It allows firms to use economies of scale and fulfill bulk orders in a specific area or location.

Examples

The examples below illustrate the application and relevance of HMS:

Example 1

Two companies enter an HMS contract. Company A is a technology company that manufactures smartphones, smart electronics, laptops, and smart televisions. Company B is a telecommunication company that builds towers and offers SIM cards, wireless internet services, and other digital subscriptions. These companies form an HMS to explore marketing opportunities.

They launched a new marketing strategy that allows customers to enjoy additional data services, free subscriptions, and discounted prices if they use Company A’s smartphone and Company B’s SIM together. The combined product was available to customers independently earlier when the companies marketed them through different channels.

However, due to the HMS contract, they can now offer the products/services together—an arrangement that also benefits customers. In this way, many companies harmonize and balance their marketing plans, expand their reach, and offer products and services that customers find appealing.

Example 2

Apple, the US tech giant, and Nike, a world leader in sportswear and apparel, joined hands, forming one of the most talked about horizontal marketing systems globally. Apple revolutionized personal technology and is known for smart gadgets and appliances like iPhones, iPads, and TVs. Nike is a leading marketer, designer, and distributor of athletic footwear and accessories.

The business synergy created by these companies is a real-world horizontal marketing system arrangement. They came up with the idea of Nike+iPod to bring sports and music together. They are global brands with established markets and fan following. This is a manufacturer-based HMS, and both were looking to market and extract maximum sales from this venture.

Horizontal vs Vertical Marketing System

Here are a few key differences between HMS and VMS that can help entities select a strategy.

Horizontal Marketing SystemVertical Marketing System
A horizontal marketing system is an alliance between two or more companies of different sectors or industries.On the other hand, a vertical marketing system is applied across two or more firms conducting business in the same industry.
HMS is chosen when companies wish to cover a large audience and customer base.In contrast, a vertical marketing system focuses on a specific audience from a large population.
HMS is more flexible, and many collaborative opportunities are available. In VMS, the environment offers fewer chances for collaboration.

Frequently Asked Questions (FAQs)

1. What are the advantages of horizontal marketing systems?

The advantages of horizontal marketing systems are:
– It helps two or more businesses grow together, increasing their market share.
– It lets companies explore new marketing tactics and create economies of scale. 
– Businesses can form alliances in the market to reduce or eliminate competition. 
– It can boost sales in the long run.

2. What are the disadvantages of horizontal marketing systems?

The disadvantages of horizontal marketing systems are:
– Businesses must respond well to each other’s business needs and follow defined regulations for good business outcomes.
– Businesses can lose their brand identity.
– Operations may become less flexible as companies begin to share tasks.
– The HMS arrangement might backfire, and the value of a product may decrease when the idea is to create and build it. This is a potential risk.

3. How do vertical or horizontal marketing system conflicts arise in marketing channels?

Both horizontal and vertical marketing systems may give rise to potential conflicts. In HMS, the common conflicts are issues with distributors, difficulties managing multiple products, problems related to lead generation and deal closure, etc. In contrast, the typical VMS conflicts are unfair advantages offered to one firm over the other and disputes related to overpricing and limited lucrative incentives.

This has been a guide to What is Horizontal Marketing System. We explain the concept with its examples, comparison with vertical marketing system, and types. You may also find some useful articles here –

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