Horizontal Market

By
Adam Hayes
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Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.

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Updated April 26, 2022
Reviewed by
JeFreda R. Brown
Dr. Brown
Reviewed by JeFreda R. Brown
Full Bio
Dr. JeFreda R. Brown is a financial consultant, Certified Financial Education Instructor, and researcher who has assisted thousands of clients over a more than two-decade career. She is the CEO of Xaris Financial Enterprises and a course facilitator for Cornell University.
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What Is a Horizontal Market?

A horizontal market is diversified so that the products created are able to meet the needs of more than one industry. A horizontal market is one in which the output good or service is widely used and in wide demand, and so the producers bear little risk in demand for their output. Producers do, however, typically face a great amount of competition within the industry.

Key Takeaways

  • Horizontal markets are those that engage in broad, diversified, and multi-sector production and consumption.
  • Conglomerates, who operate in several market segments and attract a broad customer base are examples of operating in a horizontal market.
  • This can be contrasted with vertical markets, which specialize in a particular product or focus on a particular niche demographic.

Understanding Horizontal Markets

The profitability for companies producing goods in a horizontal market is determined more by internal, rather than external, factors, as their products are commonly used. An example of a horizontal market is the demand for pens across any and all industries. Pens are used in basically all industries, and so success or failure for pen producers is determined by internal decisions and factors, rather than macro events.

Businesses that operate in a horizontal market system seek to appeal to a wide demographic that is not really niche. For example, a reseller of general office furniture is probably not going to target (sell to) other companies that specialize in office furniture. Rather, they’re going to target all types of businesses that maintain offices—accounting firms, travel agencies, insurance agencies, etc. Their market is anyone who needs office furniture.

Examples of companies in horizontal markets include conglomerates and diversified manufacturing companies.

Horizontal Markets vs. Vertical Markets

Vertical markets are the opposite of horizontal markets in that they focus on a very niche sector or demographic. For example, this could include a manufacturer of solar panel technology that produces nothing else. These types of firms usually sell their goods to solar contractors and installers. In other words, those they sell to are usually businesses that compete against one another.

Horizontal Markets

  • Defined by a demographic feature that applies to different kinds of businesses

  • Broader than vertical markets

  • Usually cooperative and seeking joint opportunities

  • An opportunity to market to a general audience

Vertical Markets

  • A group of businesses that share the same industry

  • Always specific and cannot cross industries

  • Often competing against each other

  • An opportunity to market to a specific audience

Special Considerations

Although the types of markets have clear differences, a business's operations can often be characterized as serving both horizontal and vertical markets at the same time. For example, a shoe company can market horizontally to the area in which it is located. It could also market vertically to anyone considering a new pair of shoes. A children’s book publishing company can market horizontally to literate people or vertically to children and parents.

Knowing which horizontal and vertical markets your company wants to serve can be helpful to its marketing success. By defining your markets, you can better advertise and serve your markets’ needs, whether generally or specifically.