What is a 'Vertical Market'
A vertical market is a group of companies that serve each other's specialized needs and that do not serve a broader market. A vertical market is tightly focused on meeting the needs of one specific industry. Vertical markets are focused on a single niche, such as creating payroll software for start-up Internet companies, whereas a horizontal market is able to sell its goods and services in more than one industry and is therefore focused on a wider range of business segments.
BREAKING DOWN 'Vertical Market'Vertical market providers are focused on specialized goods and services that meet the needs of a niche customer group. That niche customer group can be either a specific industry or a specific demographic. With this customer group the vertical market provider has the advantage of marketing its products to a specialized group, which can make marketing campaigns more direct and effective.
Vertical Market Marketing
While vertical markets are concentrated on a specific industry or demographic, these concentrated markets can have a wide customer base. While concentrated, a wide vertical market customer base is advantageous for vertical marketing because the greater the demand for a specific product, the greater the revenue opportunity. In vertical market marketing, marketers can prepare targeted marketing programs directed for their niche market. This can make marketing efforts more effective than a broader horizontal marketing program.
In a vertical market, customers have a high level of spending power. This requires an important focus on the customer relationship by the vertical market provider. While there may be a wide customer base for a specified vertical market, each customer relationship is important because of the market’s narrow focus. Customers within a vertical market typically rely on a single service provider to meet their needs. These customers have a deep and long-term need, which makes the customer service relationship especially critical.
One example of a vertical market provider includes a company that manufactures automobile parts. This type of company would belong to a vertical market since it would have a limited market of auto manufacturers and mechanics for its products. A furniture manufacturer, on the other hand, would belong to a horizontal market because its customer base could include homeowners, apartment dwellers, offices, hotels, restaurants and more.
Horizontal Market Comparison
Companies who provide horizontal market services must take a different marketing approach. In a horizontal market, a company must be able to market to a wider clientele. This requires a broader marketing campaign that could include a much wider range of marketing tactics and channels. In a horizontal market, customer interaction can also vary considerably. As companies market to a broader horizontal market they often have a wider range of customers for which they may interact with less frequently. Horizontal market interaction may require providers to focus on different aspects of product marketing and customer service including a greater focus on product distribution.