What Is a Business Vertical: A Simple Guide to Vertical Markets
For a comprehensive review of the subject, which we’ve started in our earlier piece on B2B vertical marketplaces, we’ll continue the conversation about business verticals and related terms here while structuring the information discussed previously.
In this article, you’ll learn:
- What is a business vertical?
- What are the differences between vertical and horizontal markets?
- How do you market a business vertical?
- What are examples of business verticals?
What does vertical mean in economics?
Vertical describes a market where companies offer goods and services specific to a trade, profession, industry, or sector.
When you hear people talk of vertical economies, they typically refer to an economic strategy of vertical integration that aims to achieve lower operating costs by owning all components of production rather than relying on external contractors.
In this article, however, we’ll be talking about business verticals as marketplaces that serve one specific industry.
What are B2B verticals?
Vertical Markets vs. Horizontal Markets
If business verticals serve a niche audience with a specific set of needs, horizontal marketplaces, by contrast, serve a wide range of buyers across various industries.
What are examples of horizontal and vertical markets?
Virtually any business can trade either horizontally or vertically. For example, a bookstore can trade horizontally to anyone willing to spend a dollar on a new book or vertically to parents and children.
Another example can be a stationery business that typically trades horizontally – many industries require pens and paper. On the contrary, a company that develops patient-scheduling software trades vertically because it caters to a specific clientele, such as healthcare.
To put it simply, vertical businesses trade in specialized products and specialized services, whereas horizontal businesses do not specialize in any particular product or service.
What is the difference between vertical and horizontal marketplaces?
The difference between vertical and horizontal markets lies in their specialization or lack thereof. Thus, verticals cater to a specific audience and specialize in a particular industry. Horizontals do not target any particular markets but rather trade in different products and services across various industries.
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How Does a Business Vertical Market Work?
As mentioned above, vertical markets focus on a particular niche, say, heavy machinery or renewable energy. Such focus allows for higher profits through a narrower customer base and more cost-effective marketing campaigns. By trading within a vertical, businesses gain expertise within their industries and increase their competitive capacity.
Specialization, however, comes at a cost – vertical marketplaces have significantly higher entry barriers for new entrants.
What Are the Pros and Cons of a Business Vertical?
Let’s look at some advantages and disadvantages of business verticals.
Advantages of a business vertical
Below is a quick overview of the main advantages of business verticals:
- Companies that grow within a business vertical gain a significant competitive advantage over competitors who do not trade on vertical marketplaces; they gain expertise in market trends, regulations, compliance, customer needs, and requirements.
- Specialization helps to contain competition, sustain higher prices (or justify a price increase), excel, and innovate in a niche.
- From a marketing standpoint, vertical marketplaces are more cost-effective – their narrow focus leads to better campaigns and a more unified marketing effort.
Disadvantages of a business vertical
Below is a quick rundown of the disadvantages of vertical markets and factors to consider before entering one:
- While a high degree of specialization and a narrow customer base can be an advantage, it can also become a disadvantage – a smaller customer base may limit the company’s revenue potential. However, customers in a vertical marketplace typically boast higher purchasing power, which, in turn, might offset the potential limitation in revenue.
- The reduced competition, while listed as a pro in the earlier section, can also become a con – satisfied with the status quo, companies may choose not to innovate, as there is no need to convince the customer to buy their products or services rather than competitors’.
- As businesses tend to downsize with changing trends and market conditions or, conversely, amalgamate and merge, a niche market, while already concise, can become even more condensed.
How Does a Horizontal Market Work?
In contrast to business verticals, horizontal markets maximize their market outreach by catering to more customers across a wide spectrum of industries. Since they do not specialize in any particular sector and cater to a large range of buyers, horizontal marketplaces are considered more basic than vertical.
Advantages of a horizontal market
Let’s look at the advantages of operating in a horizontal market:
- Tending to a varying set of buyers means a larger customer base, more revenue opportunities, and fewer risks related to a demand shortage.
- Since, in horizontal markets, the risk of fluctuating demand is minimal, companies become relatively immune to market changes that might significantly affect verticals.
- The standardized offering allows businesses within a horizontal market to operate at a larger scale, thereby minimizing operational complexities and lowering production costs.
Disadvantages of a horizontal market
Despite its many pros, horizontal marketplaces also come with disadvantages:
- Operating in horizontal markets doesn’t allow companies to focus on any specific industry, but rather grow through scale and expansion.
- In contrast to business verticals, where companies typically share deeper synergies with their customers, companies in horizontal marketplaces barely have time to get to know their buyers and, therefore, lack closer ties with the target audience.
- Higher competition and lower entry barriers result in significant threats to established businesses from new entrants both in terms of lower prices and new, innovative products.
Marketing Strategy for Business Verticals
Although companies within a business vertical sell alongside competitors, vertical markets provide more opportunities for closer partnerships and mutually beneficial cooperation with competition. So, when developing a marketing strategy for a business vertical, think of both customers and competitors and build strategic partnerships for both.
Since content is one of the cheapest and easiest ways to market your business, you might want to start with your content strategy first. So, develop a message that would resonate with your industry and attract both partners and buyers. That message needs to show your audience that 1) you’re an expert when it comes to your industry, 2) you understand your audience’s pain points and know how to solve them, and 3) other companies which are similar to your audience are already using your product.
Some paid advertising and industry events will certainly help spread brand awareness and attract new clients, who, in turn, will help spread the word about your vertical.
You also might want to try affiliate marketing when you give a discount (or any other perk) to any client who brings a new business to your marketplace.
Why choose vertical sales?
Business verticals are rife with opportunities, so it’s important to recognize them and employ strategies to the company’s advantage.
Such opportunities include:
- Building and growing relationships with customers and partners.
- Excelling within a specific industry, gaining valuable marketing insights and expertise.
- Dominating a particular sector.
- Cutting down on marketing costs.
Taking advantage of the marketplace’s platform with enhanced and intuitive user experience, different payment methods, and embedded finance options.
Factors to consider before entering a vertical market
Business owners who wish to enter a vertical market should pay attention to the difficulties and potential downsides of B2B verticals that we’ve briefly discussed earlier, such as a smaller customer base, potential revenue limitations, and the dangers of the condensed market.
How to identify target verticals
Companies should at the very least take the following steps when searching for suitable verticals:
- Gather as much buyer insight as possible to identify potential verticals that show increasing demand.
- Research market competition and potential vertical marketplaces to join.
- Identify several potential verticals, and drill down further until reaching a testable assumption.
- Develop a comprehensive business plan, a well-thought-out marketing strategy, and possible revenue models.
- Begin testing the assumptions while tailoring the marketing message to an identified target audience. If successful, apply for membership in a B2B vertical marketplace or build a marketplace of your own.
Whether you want to build a single or multi vendor vertical marketplace, Virto Marketplace can help. Virto Marketplace is a full-fledged standalone solution that can handle business scenarios of any complexity and connect to any existing platform without replatforming. Interested? Talk to us!
Examples of Business Verticals
Generic examples of business verticals include the aerospace industry, agriculture, chemical manufacturing, defense industry, energy production and distribution, healthcare, real estate, and transportation. Each of these sectors can be further narrowed down to a distinct vertical, such as nuclear energy in the energy sector and pharmaceuticals in chemical manufacturing. If you’re looking for specific examples of vertical B2B marketplaces, please refer to our previous piece on the topic, namely The Vertical B2B Marketplaces: The Sky’s the Limit, where we named a few examples across multiple industries.
- Chemnet is a subscription-based Chinese chemical trading platform that serves chemical professionals globally. Chemnet boasts the largest supplier database in the field and includes more than 120,000 members and 300,000 product records.
- uShip is both a B2C and B2B vertical marketplace for shipping services that helps customers connect with trusted, feedback-rated service providers, from corporations to single-truck owners. On uShip, transportation providers place competing bids for the right to handle a customer’s shipment.
- Parts Market is a comprehensive vertical marketplace for used car parts with a US nationwide network of facilities. Parts Market boasts a real-time inventory on its website and takes full responsibility for logistics.
- Brickhunter is a brick-buying marketplace from the UK that helps both domestic and commercial customers find ideal matching bricks for their projects.
- Asseta is a marketplace for semiconductor parts from suppliers around the world at 50-60% less than OEM pricing.
If you’re looking for more examples of vertical B2B marketplaces, please refer to our previous piece on the topic, The Vertical B2B Marketplaces: The Sky’s the Limit, where we named a few examples across multiple industries.
In this simple little guide, we’ve tried to explain the difference between vertical and horizontal markets and give you a better idea about business verticals in general. If you’re looking to build a business vertical of your own or connect to an existing vertical marketplace, Virto Marketplace can help!