Vertical Market - Definition
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Vertical Market Definition
A vertical market refers to a form of market that consists of a cluster of organizations and customers that are connected with one another through a given niche. Firms that prefer vertical market meet the specific needs of the market, and dont serve a wider target market. Vertical markets formulate organizational policies and benchmarks as per their own requirements. They may also make it difficult for budding companies to enter the market.
A Little More on What is a Vertical Market
The international market offers ample growth opportunities for every type of company. The companies who deal in vertical market emphasize on particular products and services as per the preferences of the target customer segment. Vertical markets are in contrast to horizontal markets which are involved in the sale of products and services in different sectors, and have better relationships with tons of business organizations and business segments. Organizations who are willing to operate in a vertical market should follow a strategy that is different from the company following a horizontal market approach. Vertical market operations can be based on the nature of an industry or the demographic features of the market. Such markets look forward to approaching small markets having their own specific requirements. There are situations where management succeeds in getting more benefits from a vertical target market as compared to a horizontal market.
Advantages of vertical markets
Vertical markets tend to focus on a specific niche or segment where they can find a competitive edge. While working and gaining experience in a particular vertical market scenario, the managers gain adequate knowledge about the trends of the markets, associated terminology, rules and policies, and the extent of competition prevailing in the market. Vertical markets help companies in saving marketing costs, and further gain the advantage of focusing on a limited customer segment. As the focus is limited, the companies can channelize their marketing events and promotions more effectively, thereby leading to lesser marketing expenses. An organization that emphasizes on a vertical market offers specific outlook and premium services to its customers, and puts more efforts in converting them into loyal customers in the long-run. As the products and services designed by the company are unique in nature, they can fairly explain the reason behind charging more. And this can further lead to earning more profits from a specialized market approach.
The Practicalities of Vertical Markets
In spite of targeting on a particular sector or demographic, vertical markets can still manage having a huge customer base. This large customer base results in more demand for the products and services offered, and ultimately, leading to more revenues. As customers in a vertical market possess a huge purchasing power, it becomes critical for the company to make them more informed about their product. It is important to build a healthy relationship because of targeting a narrow customer base. In vertical markets, customers are loyal and usually depend on one service provider or company for meeting their requirements in the long-run. Such companies understand the market trends in a better manner because of their strong market positioning, and knowing the impact of specific events on customers. Key points
- Vertical markets emphasize on a particular sector or niche.
- Companies following a vertical market approach offer specific insights and unique services to their customers.
- As a company focuses on a particular vertical market, and has a small customer base, it may help it in earning more revenue and profits, and further cutting down on their marketing expenses.
Real World Example
There are times when a specific market can turn out to be solely a vertical market. Usually, different sectors or industries may consider a number of market verticals with a probable chance of overlapping. Grocery stores can be considered as an example for an industry. Lets consider an example of a company like Walmart that falls in the niche of horizontal market. It caters to every customer segment and collaborates with an array of retailers. On the other hand, an organization such as Whole Foods Market deals in organic grocery items. Hence, it deals in the vertical market of organic grocery, and has relationships with customers and wholesalers associated with organic grocery. Organizations that follow the vertical market in organic grocery formulate their own policies and build a market environment based on their preference and type. However, Walmart serves a huge array of consumers and suppliers, thereby, dealing in wider business operations.
References for Vertical Market
Academic research for Vertical Market
Vertical price-fixing, vertical market restrictions, and the new antitrust policy, Comanor, W. S. (1985). Vertical price-fixing, vertical market restrictions, and the new antitrust policy. Harvard Law Review, 983-1002. Assessing vertical market restrictions: antitrust ramifications of the transaction cost approach, Williamson, O. E. (1978). Assessing vertical market restrictions: antitrust ramifications of the transaction cost approach. U. Pa. L. Rev., 127, 953. An analysis of vertical market structures, Baligh, H. H., & Richartz, L. E. (1964). An analysis of vertical market structures. Management Science, 10(4), 667-689. The strategic effects of vertical market structure: Common agency and divisionalization in the US motion picture industry, Corts, K. S. (2001). The strategic effects of vertical market structure: Common agency and divisionalization in the US motion picture industry. Journal of Economics & Management Strategy, 10(4), 509-528. Vertical market participation, Schrader, A., & Martin, S. (1998). Vertical market participation. Review of Industrial Organization, 13(3), 321-331. Local content requirements and vertical market structure, Belderbos, R., & Sleuwaegen, L. (1997). Local content requirements and vertical market structure. European Journal of Political Economy, 13(1), 101-119. EFFECTS OF THE MARATHONASHLAND JOINT VENTURE: THE IMPORTANCE OF INDUSTRY SUPPLY SHOCKS AND VERTICAL MARKET STRUCTURE*, Taylor, C. T., & Hosken, D. S. (2007). The economic effects of the MarathonAshland joint venture: the importance of industry supply shocks and vertical market structure. The Journal of Industrial Economics, 55(3), 419-451. Concentration-based merger tests and vertical market structure, Gans, J. S. (2007). Concentration-based merger tests and vertical market structure. The Journal of Law and Economics, 50(4), 661-681. Concentration-based merger tests and vertical market structure, Gans, J. S. (2007). Concentration-based merger tests and vertical market structure. The Journal of Law and Economics, 50(4), 661-681. Vertical market relations in the UK grocery trade: analysis and government policy, Stewart Howe, W. (1998). Vertical market relations in the UK grocery trade: analysis and government policy. International Journal of Retail & Distribution Management, 26(6), 212-224.