Horizontal vs. Vertical Markets: What’s the Difference?
An important part of developing and marketing a thriving business is understanding market conditions. One of the ways in which these conditions can be analyzed is by dividing the parts of the market into categories. An effective way of sorting business market elements is to define so-called vertical and horizontal business markets.
It’s important to remember that you can’t sell your product or service to everyone who lives in the same neighborhood, city, or country. Each individual product has its unique characteristics, which leads to the formation of an equally unique target audience. To accurately and effectively reach your consumers and meet their needs, it is important to be able to define your company’s market.
What is a vertical market?
Vertical markets, or, as they are called, business verticals, are made up of companies or businesses that provide products and services in a particular niche. Banking, insurance, hospitals, retail, and real estate are all vertical markets examples. Businesses in a vertical market are oriented to the special needs of that market. They usually have a somewhat limited consumer base, and the number of customers interested in a particular product or service is rather limited. They may also have highly competitive requirements for new companies. Vertical markets are specific and targeted and usually, appeal to a particular group of customers.
From customers’ point of view, such narrow specialization is an advantage because it simplifies the shopping process and serves their particular needs. Businesses in this vertical can produce products or services of very high quality and earn high profits because the prices of their specialized products or services are usually high. A small consumer base can be mentioned as a risk factor for the companies in the vertical as the number of potential customers can decrease due to changes in fashion or specific competition.
What is a horizontal market?
Horizontal markets are diverse so that the products produced can meet the needs of various customers and industries. A product or service of the firm in the horizontal market is widely used and in high demand, so producers face little risk in terms of demand for their products. However, they usually face a lot of competition in the industry.
Because of the widespread use of their products, the profitability of companies producing goods in a horizontal market will be determined by internal factors rather than external factors. An example of a horizontal market is the demand for paper in any industry. Paper is widely used in all industries, and therefore, the success or failure of paper producers is a function of internal decisions and factors rather than macro events.
Companies that operate in horizontal markets are trying to appeal to large segments of the population rather than to niches of the population. For example, a glassware distributor is unlikely to sell to other companies that specialize in glass or ceramics. Rather, they will target all types of businesses that use utensils — cafes and restaurants, gift shops and large supermarkets, and so on. Your market is anyone who uses glassware.
Comparing the differences
The main difference between the vertical and horizontal markets is that they focus on a very niche industry or wide demographic. For example, a vertical market might include a manufacturer of specific medical equipment that makes nothing else. Typically, such companies sell their products to hospitals and laboratories. And usually, companies that purchase these products compete with each other.
- Defined by demographics that apply to different types of businesses.
- Broader than vertical markets.
- Usually cooperative and looking for shared opportunities.
- Able to market to a wide audience.
- A group of companies in the same industry.
- Always specific and not cross-industry.
- Often in competition with each other.
Knowing which horizontal and vertical markets your company wants to serve can benefit your marketing success. By defining your markets, you can better advertise and meet the needs of your customers, both general and specific.