What is a Vertical Market?
A vertical market is a market in which vendors offer goods and services that are specific to a particular industry.
An example of a vertical market is the healthcare industry. The healthcare industry includes various sub-verticals such as hospitals, clinics, pharmacies, medical devices, and health insurance. Each sub-vertical has specific requirements that vendors need to address with their products and services. For example, a medical device company might specialize in developing and manufacturing equipment for a specific medical specialty such as cardiology or oncology. A healthcare insurance provider might specialize in offering policies tailored to the needs of a particular demographic, such as seniors or children.
Another example of a vertical market is the construction industry. This industry is comprised of various sub-verticals such as residential construction, commercial construction, infrastructure development, and building materials. Each sub-vertical has specific needs that vendors must cater to with their products and services. For example, a company that specializes in supplying building materials might focus on offering products for a particular type of construction such as high-rise buildings or sustainable architecture.
Vertical markets have advantages and disadvantages for the organizations focused on vertical markets. Advantages include:
- Specialization: The ability to target specific customer segments and specialized niches allows an organization to customize its product or service to the specific needs of its customers.
- Higher value products and services: Providing targeted or specialized products and services means companies in a vertical market may be able to charge more for them.
- Cost savings: Targeting marketing campaigns at a narrower set of customers means an organization knows exactly who it is marketing to. This approach cuts business operating and other expenses. It also makes more efficient use of resources compared with marketing products and services to a broader market and a variety of potential customers.
- Reduced competition: Even though vertical markets can still be competitive, they often are not as populated or oversaturated with competitors when compared to horizontal markets.
Disadvantages include:
- Limited customer base: Focusing on a niche market may mean an organization will have a more difficult time finding or expanding its customer base.
- Limited revenue: If a vertical market doesn’t have a large customer base, it may be difficult for an organization to generate the revenue and profit it needs to operate.
- Niche market shifts: If the needs of a niche customer base in a vertical market change suddenly, a company catering to that vertical market could lose a significant part of its customer base in a short period of time.
What is a Horizontal Market?
A horizontal market is a market where a product or service is sold to multiple industries. An example of a horizontal market is the market for spreadsheet software such as Microsoft Excel. Microsoft Excel is used by businesses in different industries, including finance, healthcare, education, and many more. It is a general-purpose tool that can be used by a wide range of customers for various tasks such as data analysis, accounting, project management, and more.
Another example of a horizontal market is the market for customer relationship management (CRM) software such as Salesforce. Salesforce is used by companies in many different industries, including manufacturing, retail, finance, and technology. The software is not tailored to any specific industry but provides a set of features that can be used by any company that needs to manage customer relationships.
In general, any product or service that can be used by customers in multiple industries can be considered a horizontal market.
Relationship of Horizontal Markets to Vertical Markets
Companies often use products and services of a horizontal market as the basis for new product offerings focused on specific vertical markets. For example, many companies develop complementary products and services for Salesforce that are specific to a particular vertical market as shown in the following image.
Summary
- Horizontal markets focus on a target demographic that can be found in multiple industries, whereas vertical markets focus on one specific customer demographic only found in the vertical market.
- Horizontal markets are much broader than vertical markets.
- Horizontal markets require businesses to market to a general audience whereas vertical markets require marketing to a specific audience.
- Companies in vertical markets often offer highly specialized services and products whereas those in a horizontal market may offer a variety of goods and services that are useful to many customer demographics.
- Companies can be part of both horizontal and vertical markets simultaneously.
- Horizontal markets may provide a foundation for companies to develop and sell products and services targeting specific vertical markets.