21 Jan
A vertical market, also referred to as a “business vertical” is a term used to describe a specific industry or market that focuses on a particular niche.
Vertical markets are a great way to expand your business. Going after more and more clients no matter their industry is also a great way to expand your business. And doing both at once isn’t a bad approach either.
A big reason to go vertical is that you aren’t just selling your expertise in managing and securing general-purpose systems. Instead you can make these systems shine in particular industries, such as finance, public companies and healthcare – all three of which require compliance expertise.
The more you understand the concerns and issues of these vertical markets, the more credibility you will have with your customers because you’ll be “speaking their language”. You’ll be in a better position to recommend offerings that address their business needs.
What is a vertical market?
A vertical marketing strategy is focusing your content creation and distribution efforts on your business’s highest-fit type of buyers in order to attract them into your marketing-sales funnel and convert them into customers.
Instead of keeping your strategy broad through a horizontal marketing strategy, vertical marketing strategies target a qualified niche audience.
But what is a vertical?
Industry is the broad category such as healthcare, software, retail or hospitality. Verticals add another level of specificity to the industry category to indicate more about what the companies do, who they serve and what their maturity is. (Vertical markets can be pretty similar to ideal customer profiles.) For example, within the software industry, one vertical you could target is enterprise martech.
Refining your definition of the type of companies you’d like to solve pain points for will help you hone in on those verticals. You might have a solution that’s applicable for every company in a given industry, but the vertical you’re going after is the group that hasn’t the greatest need for it, and thus will be the easiest to sell to. Some examples of broad vertical markets include:
- Health and wellness
- Beauty and skincare
- Fitness and sports
- Consumer electronics
- Fashion and luxury
- Home goods and appliances
- Baby care products
- Toys and children’s products
A vertical market can also be more specific and niche than the broad categories listed above.
Vertical markets vs. horizontal markets
The following are the differences between horizontal and vertical markets:
- Horizontal markets focus on a target demographic that can be found in various industries, whereas vertical markets focus on one specific consumer who is only found in the vertical market.
- Also, Horizontal markets are much broader than vertical markets.
- Horizontal markets require businesses to market to a general audience whereas vertical markets require marketing to a specific audience.
- Companies in vertical markets often offer highly specialized services and products whereas those in a horizontal market may offer a variety of goods and services that are useful to many demographics.
While these two types of markets are very different, they are often used together in the business world. In fact, many businesses are part of both horizontal and vertical markets simultaneously. For example, a young adult fiction publishing company could be part of the horizontal market of anyone who can read while also marketing vertically to individuals who are considered to be young adults and enjoy reading fiction.
Knowing the difference between these two markets and being able to define your company’s market or markets allows you to more accurately and effectively reach your consumers by meeting their needs and successfully marketing to them.
Advantages of vertical marketing system
Companies preferred a conventional marketing system earlier. It can be described as one where retailers, wholesalers, and producers operate independently to earn better profits, even at the expense of one another. The system caused a lot of conflicts between business partners and reduced ROI. To avoid such consequences, some companies decided to switch to a vertical marketing system.
In a vertical marketing system, manufacturers, wholesalers, and retailers participate together in the production and distribution process. Therefore, business owners can manage their businesses efficiently and obtain a more significant market share. A vertical marketing system tries to eliminate competition and conflict that often arise between companies. As a result, there’s better efficiency and a reduction in product costs.
In this system, producers, wholesalers, and retailers cooperate to reach their business objectives and gain increased profits for all parties involved. Besides, each member has the power to control channel activities.
This cooperation allows businesses to control all aspects of a company, helps solve problems, and boosts efficiency. However, to achieve success, the system requires good communication and coordination skills.
Different types of businesses can use vertical marketing systems. Whether it’s a small firm or an enterprise, the system helps create a strong bond with suppliers, distributors, and retailers.
Types of vertical marketing system
The system can be divided into three main types. Let’s review each of them in detail and with examples.
1. Corporate
This type involves a single company that has ownership over all stages of the supply chain. Although there’s only one business that controls all the production and distribution processes, each organization inside this channel continues to manage the project. One of the examples is Amway. It’s an American marketing company that manufactures beauty, home care, and health products. The brand belongs to a corporate vertical marketing system because it sells products only through its authorized stores. Hence, the company plays the role of a producer and distributor of its goods.
2. Contractual
In this system, every member of the distribution channel performs as an independent entity. They integrate their pursuits to achieve higher efficiency and obtain value for all companies involved in the process. Firms sign contracts with large distributors to sell their goods and stay competitive. Working with a franchise is an example of a contractual type. To open one of such stores or cafes, individuals purchase a license. However, they have to follow the standards, practices, and guidelines of a franchisor. The famous examples of franchises are Pizza Hut, Dominos, and McDonald’s.
3. Administered
The activities of companies involved in the production and distribution channel are affected by the size and power of one of them, although there’s no contract. Simply put, a large company that has the most influence dominates the activities of others. For example, Procter & Gamble. This consumer goods corporation commands a high level of cooperation.
Who uses vertical marketing?
Companies that make highly specialized products often use vertical marketing to appeal to their narrow target demographics.
For example, consider that a company building medical lab equipment has almost no market outside of the medical industry. It is highly ineffective for the company to advertise its equipment to the general public, as most people do not have a reason or enough disposable income to purchase medical lab equipment. Instead, the company would advertise in medical industry magazines, on medical websites, and at medical conferences so the ads would reach their target audience.
When Segway marketing to police departments, the company used vertical marketing strategies to create a target demographic for a product that was struggling to appeal to a wider audience. The company was not selling enough vehicles to justify the amount of money it was spending on general advertising, so it approached the vertical market of police departments.
Creating a vertical marketing campaign
Vertical marketing is a customer-focused strategy. Whether the product is specialized to a particular niche demographic or simply has an application that would appeal to a niche, it is vital to understand the demographic’s needs and desires.
If, for example, a company that makes power tools decided to start a vertical marketing campaign to appeal to private contractors, the first step in the campaign would be to analyze what private contractors value in the tools they use.
The company could look at buying trends to determine what tools are most in demand and what specifications contractors seek in those tools. Contractors could also be surveyed to gather original information about these and other relevant topics.
Research findings should guide the company’s marketing strategy. At this stage, the power tool company could begin writing advertising copy and customizing products to meet the needs of contractors. If market research indicates that contractors tend to purchase tools in neutral colors like black and gray, the company should paint their tools in neutral colors and feature those tools in advertisements.
Whatever the niche demographic says it wants out of the product, the company should try to meet that desire and inform customers about any product changes.
Launch in your vertical with Shopify
When you launch your ecommerce business with Shopify, you can take advantage of a whole suite of business tools and apps to help you manage every part of your business. You can customize the look and feel of your website to fit your vertical market and ecommerce strategy with Shopify’s templates, or hire a Shopify Expert to help you along the way. For new and growing merchants alike, Shopify is the one-stop shop to run every aspect of your business from a centralized command center.
Conclusion
No matter how big or small you are, there will be some limitations to the resources you can devote to marketing and sales. A vertical marketing strategy can help you prioritize where to focus your efforts in order to have the greatest impact.
Additionally, by honing in your marketing strategy on a single vertical, you can get a better understanding of the needs of those types of companies so you can more effectively create content that’ll resonate with them.