A segment within an industry that is made up from similar customers and businesses. The vertical focus in a niche can be marketed to in a manner that is similar to another vertical; the entirety of a business can be part of a vertical market or can be simply one department within the industry.
An example would be a company that creates accounting and payroll software for the internet industry. Vertical markets are not industry based, they're also geographically based. This specialization provides companies in vertical markets some competitive advantages that more generalist businesses would not have.
Verticals in the business market are used in contrast to horizontals in the marketplace where the focus is of the business is diverted to a large number of customers, regardless of the industry. In business verticals, the vertical market caters to the needs of a specific group of people within an industry. This provides an advantage because the niche focused vertical business is more familiar with trends, changes, regulation and competition within the industry it serves.
It can become more like a partner for clients, providing essential insights. Vertically aligned companies can often charge higher rates as well, due to their specialized knowledge about the industry they serve.
Vertical Markets Explained Through Analogies and Examples
One way of explaining the difference between vertical marketing and horizontal marketing is that a vertical market is one in which all of your customers are in one particular industry while a horizontal market serves a broader market, for example, an automobile part manufacturer. He belongs to the vertical market category because his customers are limited to specific auto manufacturers and mechanics.
A clothing manufacturer, on the other hand, belongs to a horizontal market because its wide customer base includes shop owners, factory outlets, hotels, hospitals, schools, and colleges. This is very challenging because they have to meet a wide range of varied demands.
Another analogy can be used to compare a vertical and horizontal market – shopping for infant clothing.
First, you go to a huge mall where there are tons of stores, each selling different kind of products. You keep walking and walking and then you stop to look at a mall directory/map. Again you keep walking and finally, you reach your destination. The worst part is that you have to do this all over again if you didn't like their clothes.
Well, the gigantic mall is analogous to a horizontal market and some effort is required to find exactly what you want.
Why go through all this trouble when you have easy access to a strip mall selling only infant clothing and toys? Aren't you grinning like a Cheshire cat now?
Here you can go to any store and they will sell you what you actually require. Your needs are met almost immediately. You don’t have to walk a 100 miles to find some baby wear.
These strip malls are analogous to vertical markets and they provide you with an effortless shopping experience.
An amazing real-life example of a successful vertical marketing campaign is Segway. Even though they had designed and built a revolutionary product, they made the mistake of introducing it in the horizontal market. Segway – the two-wheel personal transportation vehicle was seen as a plaything for the affluent rather than an efficient means of transportation for the average person to move around.
Soon, they realized that they need to change their marketing tactics, or else the company would sink. Rather than spending extra bucks on marketing campaigns, they found a specific niche for their product and then there was no turning back. They found their luck in law enforcement department. Specifically, the Chicago Police Department.
In 2006, the Chicago Police Department became one of Segway's biggest customers. They introduced the i180 Police Model Segway, which was only slightly different from the civilian i180. The i180 Police Model Segway had black and white stripes painted on it, sirens mounted on the guardrail, and also a pouch that stored emergency equipment. In the five years that followed, the Chicago Police Department’s spent around £600,000 on Segways.
Segway began to spread its wings and soar high. They continued to explore and evolve their vertical marketing strategies. As a result, a wide and varied range of niche markets owns and use Segways for different purposes.
What are the advantages of a vertical market?
- The Vertical Marketing System or the VMS has a centralized management system to maintain control of the product from manufacture to sale. If anything goes wrong midway, they can easily identify the problem and quickly respond to it.
- Vertical Markets can be applied to both small and large businesses. Small businesses benefit from vertical markets by building a strong relationship with their suppliers, distributors, and retailers. Once these small businesses grow, well, you know the rest.
- In the marketing world, less competition translates to faster and cheaper exposure in organic search results (SEO).
- Advertising becomes more profitable and less challenging if the product is introduced in a vertical market because only a single unified advertising effort is required rather than multiple ones.
- Specialization can offer many benefits, less competition being one of the major ones. Less competition indicates there is more room for innovation and creativity. The special niche markets can also support a higher price for a niche product or service.
A few downsides
- The sudden decrease in market size could be very risky. Some verticals stop being in vogue or get replaced by products from another vertical. Hence, a vertical business owner should go the whole nine yards before entering the vertical market.
- A limited number of customers may limit the revenue potential. Unlike horizontal markets, the vertical markets can only attract a small customer base. So in order to generate more revenue, one has to make sure that the particular business has enough growth potential and is profitable as well.
- While running a niche business, work overload is that extra baggage you have to carry around. Managing all the elements of any business may stretch or exceed the knowledge and energy of any one person.
With an extensive business plan that covers A to Z details and a comprehensive understanding of the market, one can enter a vertical market and earn some big bucks.