vertical market

By Alexander S. Gillis

What is a vertical market?

A vertical market is made up of companies that offer goods and services to meet the needs of customers in a specific industry or niche market. In a vertical market, similar products and services or compatible products and services are developed and marketed to a designated set of customers.

Examples of broader vertical markets are insurance, real estate, banking, heavy manufacturing, retail, transportation, hospitals and government. A financial application marketed to banks would be a product of such a vertical market.

Vertical markets sometimes focus on providing goods and services to a niche customer group. That niche customer group may be a specific demographic or belong to a narrow industry group.

How do vertical markets work?

There are three types of vertical markets, which are defined by how distribution channels for businesses within that market are controlled. Distribution channels are the network of organizations involved in moving a product or service from the producer to the customer. The three types of vertical markets include the following:

Similar regulatory compliance requirements also characterize vertical markets. For example, healthcare is a highly regulated industry where providers and the companies that provide products and services to them must meet various regulatory requirements or they risk fines. Among those regulations are the Health Insurance Portability and Accountability Act, also called HIPAA, and the Health Information Technology for Economic and Clinical Health Act, also called HITECH.

Advantages of a vertical market

There are a number of benefits to vertical markets and the relationships that develop around them. These include the following:

Disadvantages of a vertical market

Vertical markets do have some downsides, however. These include the following:

Vertical market vs. horizontal market

Horizontal markets are ones that are diversified. Their products and services meet the needs of more than one industry and have a range of customers.

As an example, horizontal market products could include office productivity applications and databases that are marketed to a variety of industries. Horizontal marketing comes with its own set of challenges. Marketers must emphasize the generic aspects of the product that work well for everyone.

Unlike horizontal markets, vertical market products and services are aimed at a particular business in a particular industry. Developing marketing strategies are often easier when targeting vertical markets, because the target audience is smaller and has more in common.

Vertical marketing strategy

Vertical marketing is a key part of many companies in the IT channel industry. Channel companies such as value-added resellers and managed services providers often choose to specialize in one or more verticals.

To do so, these companies look to gain experience and expertise in their targeted vertical market. This would include developing an understanding of the unique needs of the customer base, their business models and challenges, as well as the market's important trends and terminology.

Additionally, companies that target vertical markets tailor their marketing plans and solutions to suit their targeted customer base.

In fine-tuning a vertical market strategy, an organization must identify and focus on its target market, defining the criteria that makes up the vertical. It should have a clear understanding of the following:

Examples of vertical markets

Some specific vertical markets include the following:

Law firms. Attorneys typically require specialized document management applications tailored to their specific processes. Law firms also often have greater printing needs than other companies, making them a good candidate for managed printing applications and services.

Grocers. Grocery stores are part of the larger retail vertical market, but some of them target specific niche markets within the larger vertical. For example, Whole Foods Market sells organic grocery items, and it caters to a more educated, well-off and demanding clientele. Distributors of organic and environmentally friendly products are likely to target Whole Foods and similar grocers in this niche. For example, Farm.One is a produce grower and distributor that has one Whole Foods Market growing its own produce on an aptly named vertical farm.

Retailers. All types of retail shops have similar needs. For instance, they all need point-of-sale (POS) systems. However, within the broad retail category, POS vendors cater to specific niche markets; a clothing store's POS system will have different features and capabilities from a supermarket's POS system.

Learn more about how vertical markets are targeted by organizations such as AWS in this article.

02 Mar 2022

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