Introduction
There are so many opportunities available for different kinds of businesses in the business market worldwide. Businesses can decide to either sell their products and services under the vertical or horizontal markets. As a new business owner, you might have found your niche and concluded to settle under the vertical market. This article aims to provide all information as regards understanding the basics of vertical markets. If you are a newbie in the business world, or you’ve been operating for some time, then you should follow through till the end.
What are Vertical Markets?
A vertical market simply means businesses that share a similarity, naturally a tailored niche market. The customers and companies operating in the vertical markets are all interrelated around a target niche. Businesses in a vertical market are integrated to the specific needs of the particular market in which they operate. They do not to a wider variety of markets. Any market that has a particular industry it is related to is known as a Vertical Market. The vertical industry is defined, fixed and concise.
Overall, any business that is planning to operate in a vertical market will have to go through somewhat of an entirely different tactical approach. This approach is contrary to that of the businesses operating under the horizontal markets. To further buttress, if your business is operating under the vertical markets, it will require a more tailored and targeted approach than the horizontal market companies.
Businesses operating in the vertical marketer may either target a specific industry or a specific demography. In any case, the main aim is to target a specific market peculiar to its own needs. As a result of all their features, vertical markets customarily have their own set of marketing standards. Most of the time, people who manage a business in the vertical markets may realize some advantages instead of serving a broad range of different businesses.
Types of Vertical Markets
Vertical markets are classified into three types based on the type of channel the businesses adopt for product distribution. They are as follows:
Corporate Market
Under the corporate market, a particular business or company is the owner of all the others. These other companies are controlled and managed by the major company. The lead company is responsible for administering leadership of the entire process involved in moving the products from the point of manufacturing to the consumers. The lead company manufactures the goods and services, including the markets. The business sells its products to the consumers without depending on any other business.
Administered Markets
Under the administered markets, there is a bigger company who is in control of the processes of other distribution companies. This company is bigger than the others, and is more capable. This allows it to arrange the network of distribution without official agreement. The smaller companies operate under the terms laid down by the bigger company in terms of stock, pricing and branding.
Contractual Markets
Businesses operating under the contractual markets function separately in their network of distribution. They do this independently and do not rely on one another. However, they function together as partners for the purpose of increasing their performance. In this type of vertical markets, a producer can employ a wholesaler on a contract basis to help deliver products to customers directly and pass through the retailers. When they work together, they are able to lessen operating costs while providing competitive prices and reaching more customers. However, these businesses may be required to follow certain rules and regulations. It is not always the case for every business but it depends on the industry they find themselves under. Failure to adhere to this, they may be asked to pay fines or face penalties.
Advantages of Vertical Markets
There are so many benefits businesses who operate in the vertical markets have. Let us quickly look into some of them.
Business growth and specialization
Business owners who function in a vertical market are able to focus their product on a specific group where they have an upper hand. As these business owners continue to develop their business in that particular vertical market community, they also grow as experts in the market. They become proficient and achieve expertise in the industry trends. They get more used to the terminologies and business languages used in that industry. There is an upsurge in the level of competition, with more understanding of the market rules and regulations.
Limited Competition
As a result of serving a specialized group of audience in a particular industry, businesses who operate under the vertical market have lesser competition. Though there is no business niche or industry that is void of competition, there is a reduced completion in the vertical markets. They are not as engorged or populated as businesses operating in the horizontal market.
Opportunity to save cost
Another competitive advantage for businesses operating in the vertical markets is reduction in the cost of marketing. Vertical markets business owners are able to save from limited marketing expenses. The target audience of a vertical market has a limited customer base because it is narrowed down to a particular niche. Hence, the narrowed niche will require a more focused and well defined marketing campaign. This will be less expensive when compared to those who have to reach a wider range of people in the horizontal market.
Improved communication and customer relationships
The vertical marketing system allows businesses to work closely together. This allows them to have a better chance at communicating. Business owners work hand in hand. They often reach out to one another frequently and they work towards similar goals. They are bound by the same rules and regulations in the system of distribution. All these and more will emerge from their close relationships birthing clients satisfaction and more revenue.
Higher profits from specialized products and services
Generally, a business focuses its services under the vertical markets, provides specialized perception and targeted products to its customers. This pattern will become a fundamental component of their services after a long period of time. Then since the products and services are narrowed down to a particular segment of people, the business can charge at a higher rate. As a result of high pricing from a specialized market focus, businesses will then make higher profits.
Disadvantages of Vertical Markets
The vertical markets also have some downsides effects it has on the businesses that are operating under it. Let us also take a look at some of them:
Limited Revenue
Businesses operating in the vertical markets by nature do not have a wide range of audience they serve. This could in turn make it hard for a company to achieve high yield and profit the business needs to grow.
Business may deviate from market niche
There could be an unexpected occurrence causing a sudden change in the needs of the fixed consumer base in a vertical market. If this happens, the business serving the needs of that vertical market could sustain a huge loss of a large segment of its target audience in a very short amount of time. A real life scenario of this was when eateries and restaurants were closed down as a result of the outbreak of the COVID 19 pandemic. There was a market shift making those companies deviate from their market niche.
Restricted customer base
Business owners under the vertical markets have their goods and services directed at a particular niche related to their business. This means their focus is on a particular niche market. As a result of this fact, business owners may find it difficult to broaden or expand their customer base.