In the business world, companies build their sales strategies around a focus on a particular “market”, or group of potential consumers. These markets can be either vertical or horizontal, depending on the service or product offered by each brand.
Vertical markets focus on a specific niche, sector, or industry. Companies who target vertical markets are attuned to the specialist needs of their target audience, as well as the trends and patterns in the wider marketplace. Here’s everything you need to know about vertical markets.
What are vertical markets?
Vertical markets are made up of companies offering specific groups and services to meet the needs of a certain industry or niche audience. In a vertical market, similar products, and compatible services are often developed and promoted to a designated set of customers.
The global business landscape provides a multitude of opportunities for all kinds of organizations. Vertical market providers concentrate on making their solution the best possible offering for a sub-section of people from a unique sector. For instance, a company in the healthcare industry might focus on “hospitals” as their chosen vertical market.
Depending on the business, vertical markets can be either broad or extremely refined. For instance, the “technology” landscape is a vertical in itself. However, companies can also choose to focus specifically on certain groups within the technology field. This is how we get vertical markets for software, hardware, artificial intelligence and so on.
While vertical markets are excellent for giving companies a specific audience to concentrate on when building relationships, they can have a higher barrier to entry for new companies.
How Do Vertical Markets Work?
Before we dive into some vertical market examples, it’s worth getting a better understanding of how they work. Fundamentally, there are three types of vertical markets, defined by the unique distribution channels they choose to generate profits. Distribution channels are the organizations and partners involved in moving a product or service from a producer to a customer.
The three core types of vertical markets include:
- Corporate virtual markets: In this landscape, one member of the distribution channel already owns the others. This means all parts of the distribution network belong to the same umbrella organization. Participating in vertical markets this way gives organizations more control over the way a good or service reaches a customer.
- Administered vertical market: In these types of vertical markets, a member of a distribution channel is generally big enough in size to control the activities of other distribution members, without owning them directly.
- Contractual vertical markets: In a contractual vertical market, all of the companies included in the distribution channel are separate and independent. However, they can also work together to form partnerships and become more efficient. Companies can even set up contractual relationships, such as connections between producers, wholesalers, and distribution teams.
Notably, regulatory compliance requirements can also influence how certain vertical markets work. For instance, the healthcare landscape is a highly regulated industry, in which companies and providers need to meet with certain requirements or risk fines.
The Difference Between Vertical and Horizontal Markets
To fully understand how vertical markets work, it can be helpful to get an insight into the opposing option: the horizontal market. Horizontal markets are more diversified than vertical markets. Their products and services meet with the needs of more than one industry or customer base.
For instance, a company selling bottled water doesn’t have one specific market to sell in. A horizontal market could focus on a specific industry or a range of different sectors with a multitude of customers. For instance, while a vertical market business might focus entirely on software for small businesses, a horizontal market company could create applications for a range of industries.
Horizontal marketing does provide companies with a broader target audience to work with than a vertical market, but it comes with its own challenges. Marketers need to find a way to connect emotionally with a wide range of different customers at the same time.
Promotional and branding strategies are often easier for companies in vertical markets, because they can develop a deep understanding of their target audience, and create campaigns accordingly.
What are the Benefits of Vertical Markets?
All kinds of markets can have their unique benefits and disadvantages to consider for different company leaders. Brands that operate in a vertical market often have an excellent opportunity to position themselves as credible thought leaders in their industry. Because they focus on a specific area, they’re seen as more knowledgeable in a certain space.
Vertical markets benefit from:
- Niche audiences: Vertical market companies can target specific customer segments and specialized niches, which can make them more competitive in their industry.
- Higher value solutions: Provided specialized and targeted products and services to a unique audience means companies can often charge a higher price premium.
- Cost savings: Targeting marketing strategies towards a narrower group of customers means companies can save a lot of money on wide-spread marketing campaigns.
- Reduced competition: Though some vertical markets are still competitive, they’re often not as oversaturated as horizontal markets.
On the other hand, vertical markets do struggle with a limited customer base, and potentially limited revenue in some cases. As a result, it’s important for companies to research each vertical market carefully before committing to an audience.
Vertical Markets: Examples
One of the best ways to understand how vertical markets work is to look at some vertical markets examples. There are plenty of options to consider, including:
- Law firms: Most attorneys focus on a specific type of law focused on a certain market. For instance, there are companies committed to corporate law, property law, relationship law, and various other avenues.
- Software companies: Many software companies will focus on a specific target audience when creating their applications. They may concentrate on small businesses from the finance sector, or individuals within the healthcare landscape. Vertical markets software may include HIPAA compliance tools, or data management apps for finance companies.
- Grocers: Many grocers focus on selling a specific sub-section of food products to audiences in search of certain features and values. For instance, there are countless grocery companies who only sell organic and health-focused foods.
Retailers can also focus on vertical markets. For instance, a B2B company selling machinery may concentrate on only selling machines specifically relevant to the automobile manufacturing space.
