A vertical market is a market in which vendors offer goods and services specific to an industry, trade, profession, or other group of customers with specialized needs. An example could be software that manages services in hotels - amenities solutions. It is distinguished from a horizontal market, in which vendors offer a broad range of goods and services to a large group of customers with a wide range of needs, such as businesses as a whole, men, women, households, or, in the broadest horizontal market, everyone.
The activities of participants within any given vertical market are typically similar in that they aim at solving the same or similar problems. These markets are typically competitive, because of the overlapping focuses of the products and services that are provided to the customers.
The single defining characteristic of the participants in a vertical market is competition within a well-defined segment.
Horizontal market participants often attempt to meet enough of the different needs of vertical markets to gain a presence in the vertical market. Their similar products/services tend to be less of a fit but also less expensive than specialized, vertical participant solutions.
Comparison with horizontal markets
A vertical market meets the needs of a particular industry: for example, a piece of equipment used only by semiconductor manufacturers. A vertical market can be subdivided into narrower niche markets. For example, the government vertical has niches, like candidates seeking office, and the pet market has niches, like dog training for hearing-impaired owners.
A horizontal market meets a given need of a wide variety of industries, rather than a specific one: for example, word processing software or machine-to-machine technologies. On occasion a horizontal market can be highly specialized at the same time. Consider the market for converting mainframe databases developed with the tools of a particular company. The market for such a database conversion service might involve many vertical markets (aerospace, manufacturing, banking, etc.) but nevertheless be labelled "niche" if the database technology is technically obsolete and no longer mainstream.
Professional Definitions of Vertical Markets
Governments and professional organizations have developed various standards for defining vertical markets. The United States Department of Labor, Bureau of Labor Statistics maintains a taxonomy called the North American Industry Classification System (NAICS) that has a tiered structure with numeric codes. Each additional digit in the numeric code represents a further subdivision of the industry.
Some common examples of vertical markets:
- Fast-Moving Consumer Goods (FMCG)
- Financial (Finance)
- Food and beverage
- Government - federal, state, local
- Real estate
- Transportation (Travel)