Vertical Market: What It Means in Business, Advantages, Example

What Is a Vertical Market?

A vertical market is a market encompassing a group of companies and customers interconnected around a specific niche. Companies in a vertical market are attuned to that market’s specialized needs and generally do not serve a broader market. Vertical markets have their own set of business standards and may have high barriers to entry for new companies.

Key Takeaways

• Vertical markets are a group of companies focused on a specific niche.
• Companies in a vertical market provide targeted insight and specialized services.
• Focusing on a specific market vertical may help a company realize higher profits through a narrower customer base and more cost-effective marketing campaigns.
• Vertical markets typically have high barriers to entry for new companies.
• Horizontal markets are the opposite of vertical markets; they sell their goods and services across multiple industries.
• Companies in a vertical market gain expertise in their market’s trends, terminology, regulations, and competitiveness.

Understanding a Vertical Market

The global business market provides opportunities for all types of businesses. Vertical market providers focus on specific goods and services that meet the needs of a niche customer group. These markets are the opposite of horizontal markets that sell their products and services across multiple industries.

Companies operating or seeking to work in a vertical market generally need to take a different strategic approach than horizontal market companies. Vertical market businesses may be industry-specific or demographic-specific, seeking to target a narrow market with its own idiosyncrasies. In some cases, business managers in a vertical market may find advantages over operating in a broader, horizontal market.

Advantages of a Vertical Market

Operators in a vertical market can target a particular segment where they have a comparative advantage. As these operators grow within a specified vertical market, they also gain expertise in their market’s trends, terminology, regulations, and competitiveness.

Some of the most considerable advantages for vertical market businesses come in savings from marketing expenses. Vertical market businesses have the benefit of targeting a narrower customer base, leading to more streamlined and focused marketing campaigns that are less costly than those seeking to reach a wider audience.

A company that specializes in a vertical can provide targeted insight and specialized services to clients, becoming an integral component of their business over the long term. With specialized products and services, a vertical company can justify charging higher rates, resulting in higher profits from a narrowed market focus.

The Practicalities of a Vertical Market

While vertical markets concentrate on a specific industry or demographic, these concentrated markets can still have a wide customer base. A wide vertical market customer base is advantageous because the higher the demand for a specific product, the greater the revenue opportunity becomes.

In a vertical market, customers usually have a high level of spending power, often requiring more attention in each customer relationship. This relationship-building is crucial because of the market’s narrow focus. Customers within a vertical market typically rely on a single service provider to meet their long-term needs. Vertical market companies are also usually better positioned to understand market trends and how events affect their clients.

Real World Example

In some cases, a particular market may be very specific, leading to a unique vertical market. Generally, however, industries may include several market verticals comprehensively with some potential overlap.

Grocery stores provide an example. Walmart could be considered part of a horizontal market as it serves nearly every market demographic and partners with a wide range of retailers. In comparison, Whole Foods focuses on organic grocery products.

Whole Foods, therefore, operates in the organic grocery vertical market, dealing primarily with organic grocery consumers and wholesalers. Companies in the organic grocery vertical set their own business standards and create a specific market environment. Conversely, Walmart deals with a wide range of customers and suppliers, leading to more broadly varied business activities.