A Horizontal Market is a market that is present in a wide range of industries. A business operating in a horizontal market will have consumers and purchasers across different sectors of the economy. So, a business that sells to multiple industries is in a horizontal market. The Office Supplies market, is an example of a horizontal market, as it sells to all types of industries. However, the scalpel market is a vertical market as mostly surgeons purchase such an item.
Operating in Horizontal vs. Vertical Markets
A business that operates in a Horizontal Market, will by definition, have a broad and diverse set of customers. This means their products tend to be versatile and can meet the needs of a wide range of customers. Another great example of a horizontal market is that of coffee. People from all around the world and across different industries drink coffee!
Some companies may act in both a horizontal and a vertical market at the same time. For example, an HR software company may have a product specialized for law firms. While it has a general HR platform for all types of business, it also has an HR platform that is specific to law firms. This specialized product may have industry-specific functionality such as tracking if employees have passed the Bar exam, integration with court databases, or tracking the specific cases that the lawyers of the firm are working on. These added functionalities do not add value for a business that operates in the construction industry, and the added functionality can even be an annoyance. While the general business HR platform is on a horizontal market, the specialized Law HR platform operates on a vertical market.
Advantages of Operating in a Horizontal Market
One advantage of acting on a horizontal market is that there is a large consumer base. Therefore, the firm is less exposed to the risk of demand shortage. Goods and services in a horizontal market are versatile, as by definition they are used in multiple industries. There is a low bargaining power for purchasers of the goods, as the consumer base is extensive. A vertical market tends to have purchasers with higher bargaining power, as the specialized nature of the product tends to restrict the addressable market. Many horizontal markets, also allow suppliers to perform price discrimination, as it can charge different prices to consumers in different industries.
Marketing strategies are not targeted, as purchasers are across multiple economic sectors.
Profit margins may be lower than for companies operating in a vertical market.
Determining your product’s market is imperative when it comes to business and marketing strategy. With the rise of digital marketing and big data, it is getting easier to target customers based on their habits and demographics. However, when a product is in a horizontal market, a more encompassing dissemination of information is more advantageous. Traditional methods such as billboards and television ads are sometimes a much more effective strategy for the selling of their products.
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