The world of online selling and business niches has opened up a new realm of possibilities for entrepreneurs and small business owners to cater to customer needs. Nowadays, the vertical e-commerce market is becoming increasingly popular amongst manufacturers and vendors.
A vertical e-commerce market allows companies to focus on a specific industry or sector, providing a more tailored approach to their customers. You can opt for a vertical market to be more specialized, targeting a particular sector or niche. These provide more esoteric services while offering more competitive pricing. It is different from what many entrepreneurs may have hoped.
In this article, we will discuss the vertical market in-depth, along with its benefits, essential factors, and challenges.
What is a Vertical Market?
Vertical market refers to the action where corporations target specific customers by seeing them as their target audience. For instance, a company that manufactures cat food only makes products for people with pet cats.
These companies may operate in one or more verticals and sell one product or offer multiple services to the target audience. They have narrowed their choices of goods and services to a niche market. Vertical e-commerce markets range from large, established industries such as healthcare and finance to smaller, more niche markets such as energy or digital media.
Companies can leverage their expertise in a particular market to create customer value. This can help a company stand out from competitors, as well as help them establish a presence in a particular industry or market segment. Nowadays, companies opt for the e-commerce vertical market due to minimal overhead and its ability to reach a global audience.
Why Defining Vertical Markets is Beneficial for Both Consumers and Merchants?
From a customer’s viewpoint, identifying a vertical market simplifies their shopping process and makes it effortless. They don’t have to dig deep to find the product they want. Businesses specializing in a specific type of product (s) can fulfill their requirements.
From an advertising standpoint, vertical e-commerce creates a unified advertising effort that can be established across the board. Even for businesses, the vertical market is preferred as its existence allows you to specialize in niche products and services. When a company makes only one or a particular product, it continuously tries to improve and can easily dominate the market.
An e-commerce vertical market reduces competition, making companies set higher prices for particular products or services in demand. From a marketing perspective, less competition means quicker and cheaper SEO and paid keyword exposure.
Vertical E-commerce: Focus on One Category, Master It
Vertical e-commerce is an excellent opportunity to dominate the market and build solid and loyal customer relationships. The more you focus on a specific category, the easier the marketing system will be. You can effectively target the niche and implement the strategy consistently and stepwise.
Vertical e-commerce means the business competes in market segment domination but does not affect other industries, making you the best.
Vertical integration risks: High dependency on the market
Vertical integration carries several risks that must be considered before you decide to pursue it. As vertical e-commerce is highly dependable on the market, the business might suffer due to decreased market size. Some verticals might go out of fashion or get replaced by another vertical. Therefore, you must study the market you plan to enter and conduct thorough research. An accurate assessment determines if the business should operate in the specialized niche.
A thorough business plan allows you to enter or expand a vertical market and enjoy exponential growth.
Vertical markets vs horizontal markets
As we know, the vertical market has a concentrated area and serves niche markets, whereas the horizontal market is spread across various niches. The horizontal market caters to various customers or sells numerous products or both.
Vertical scaling or horizontal scaling in e-commerce has its drawbacks and strengths. On the one hand, vertical markets have reduced competition but are exposed to fluctuations in demand; on the other hand, the horizontal market is less vulnerable to fluctuations but faces cut-throat competition. The latter offers a vast range of products for many industries.
Benefits of Vertical Business Markets
Here are some benefits of entering the vertical business:
- You can create concise marketing messages: Vertical market doesn’t have to create long messages to spread across. Because of the quality of serving a particular audience, only a small, catchy, informative and comprehensive message can make your customers understand your business. You can create simplified marketing content and outreach activities.
- You understand the market better: Since vertical e-commerce is made for a specific sector, conducting a thorough and precise analysis and understanding the pain points is much easier. Instead of grasping everything about everyone, vertical businesses can focus on learning about a discrete type of customer or industry.
- It is easier to monopolize in vertical markets: Vertical market encompasses domination where only a few players run the entire industry. The production process is more integrated, and the company controls multiple stages. This makes it easier for a company to control the entire market by controlling the input, output costs, and distribution channels. Vertical markets usually require fewer resources to enter and maintain, making it easier for a company to gain a larger market share.
- You can build a reputation: Better and more accurate research and analysis attract customers and build your company’s credibility. Businesses that deeply immerse themselves in research and understand each customer pain point can take control of the market better, which helps them build their reputation.
Vertical e-commerce markets explained through analogies and examples
Vertical e-commerce seems more beneficial when customers are looking for a specific product type but doesn’t want to get lost in the presence of numerous industries.
Imagine an automobile part manufacturing company and an apparel manufacturer. Big companies usually source their material from one or two trustable companies who master making products that serve only automobiles. However, that’s not the case with industries similar to clothing brands. Clothes serve large-scale customers and merchants, such as factory outlets, schools, hospitals, hotels, and more.
To simplify the analogy, understand this with the help of an illustration. Suppose you are looking for toy stores and you go to a regular mall. You are still determining the exact location of the mall, so you follow the map and try to find the exact location, consuming your time and energy. There comes the point when you finally end up at the toy store. If you are unhappy with the products they have, you will again follow the same procedure, which would make you furious, and you might end up quitting the plan.
Now, replace this regular mall with a strip mall. That place is filled with toy stores and only caters to children’s products aged between 2-10. Even if you didn’t like the product of one store, you could hop on to another store in no time. That’s how the vertical market works.
A real-life example would be a marketing campaign for Segway. Although it was a revolutionary product designed to reduce transportation time, they made a huge mistake in introducing it in the horizontal market. The two-wheel transportation system was seen as a playful instrument instead of an effective mode of transportation.
Later, when the company realized its downfall in the horizontal market, it introduced it to a specific market like Police Department. Without investing any extra dime in advertising, Segway discovered their number one addressable market, where they became the monopoly. They continued to explore diverse vertical markets of niche audiences where Segway could be used for different purposes.
Challenges to Setting Up a Vertical E-commerce Business
Here are some challenges that come across while entering vertical e-commerce:-
- Lack of understanding of niche: Many entrepreneurs need more knowledge and understanding of their chosen niche to develop and grow their vertical e-commerce business effectively. This is essential for new entrepreneurs unfamiliar with their target customer base.
- Lack of resources: Starting a vertical e-commerce business can be a costly and time-consuming endeavor. Many entrepreneurs need more resources to start their businesses, including the capital to invest in marketing and product development. A lack of these resources might create a lag in the market for you, leading to revenue loss.
- Technical challenges: Setting up and running a vertical business requires significant technical know-how. Many entrepreneurs need more expertise or resources to navigate the complexities of online selling and marketing.
- Lack of personalization: Vertical e-commerce businesses often need more personalized touch customers get when shopping in-store. This can make it difficult to build customer loyalty and drive sales.
Factors to Consider Before Entering a Vertical E-commerce Market
Certain factors that you should be aware of before stepping into vertical e-commerce are:
- Competition: Before entering a vertical e-commerce market, you should research the other companies operating in that space and assess the level of competition. Analyze your competitors’ strengths and weaknesses and identify any potential opportunities that may exist.
- Distribution channels: Determine the most effective way to reach your target audience. Consider both online and offline channels to maximize your reach.
- Pricing strategy: Establish a competitive and attractive pricing strategy for your target audience. Consider pricing strategies like price skimming, penetration pricing, and market segmentation.
- Customer service: Establish an efficient and effective customer service system and automation technologies to streamline customer queries and complaints.
The e-commerce vertical market is a great way to target the desired audience and the market. It allows you to establish your monopoly and make products better every time. Moreover, vertical business is all about finding a niche market and creating products to help you build a robust customer relationship and satisfactory reputation. You must thoroughly conduct market research on your customer base before entering an e-commerce vertical market.