When a group of companies and customers concentrate around one certain niche and become all interconnected, they basically create a vertical market. Vertical markets have specialized needs: companies customize their goods and services according to those needs and normally do not serve broader markets. An opposite of a vertical market is a horizontal market where companies offer their goods to various industries.
It is typical for vertical markets to have high entry barriers and their own business standards. For companies, it may be hard to become a part of a vertical market, but entering it gives them an opportunity to realize higher profits while focusing on a narrow customer base which eventually makes their marketing campaigns more cost-effective. Companies in vertical markets get very competitive, they also can be characterized as highly experienced and specialized in their market’s specifics, terminology, and regulations.
Unsimilar to horizontal markets, vertical markets create products and services for niche customer groups. That is why companies in vertical markets do need to choose a completely different strategy in comparison to the ones in the horizontal markets. The managers of vertical market businesses decide whether they would focus on certain industries or demographics.
However, focusing on one industry and specific demographics does not mean that a customer base must be small. This customer can be wide and at the same time provide a great revenue opportunity as the demand for a specific product rises.
The possibility of having a comparative advantage is definitely a positive for vertical market operators. They can choose a segment and gradually grow expertise within it which means they become professional with the respective terminology, regulations, etc. Given that all companies behave like this, the competitiveness among them grows as well.
Another benefit of participating in a vertical market is an opportunity of saving marketing expenses. Operators only need to target a smaller group of customers instead of reaching out to wide masses. This is also the reason why their campaigns can be focused and concrete. Vertical market operators know their customer base very well, therefore they are able to adapt their goods, services, and approach in general.
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