What Is A Business Vertical? (With Benefits And Examples)

By Indeed Editorial Team

Published 28 September 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Business or industry verticals, also known as vertical markets, are important for organisations to design their marketing efforts. They focus on understanding the expectations of core customers and ensuring that the primary target audience meets its requirements. If you work in a marketing or sales-related role, understanding these verticals is important for organisational development and marketing efforts. In this article, we discuss what a business vertical is, discuss its types, list some of its benefits and drawbacks and also provide some examples to help you understand the concept better.

What Is A Business Vertical?

A business vertical is a specific industry or market that focuses on a particular niche. As every business has its particular target market and segment of customers to cater to, a company may increase its sales revenue by accurately identifying the requirements of these segments and designing unique solutions to fulfil them. An example of such a niche market can be a company producing high-grade medical equipment and machines that only hospitals require.

Related: What Are Market Niches? (With Benefits And 10 Examples)

Types Of Vertical Markets

Vertical markets often depend on the industry and the market demographics. Businesses dealing with vertical markets may focus on a specific product and service according to the target consumer segment's preference. Unlike horizontal markets, vertical markets can follow a strategy of appealing to audiences and resolving their specific requirements. Sometimes, a company's management may benefit more from a vertical market than a horizontal one. There are three types of vertical markets based on their distribution channels for businesses, which include:

Corporate vertical markets

In a corporate vertical market, one distribution channel member owns the others. Managers may combine and implement all channel elements under a single channel, facilitating complete control over the production and direction of operations. This can ensure that managers conduct all significant work in-house, eliminating the requirement of hiring a new team every time.

Administered vertical markets

An administered vertical market is a coordinated system of organised distribution channels. In this, one member of the channel system controls the flow of products from production to users. Though this market may not rely on common ownership or contractual agreements, it works on a singular member of the channel system. It controls the processes, budgets and deadlines of its vendors, producers and retailers.

Contractual vertical markets

Under this market, the individual firms of the distribution channel function as separate entities. Managers may sign contracts with the parties involved in the distribution channel and outline their respective obligations to meet organisational goals. The contractual vertical approach enables all the participants to leverage economies and set more competitive pricing. The companies form partnerships for efficiency and to serve specific markets.

Related: What Is Market Segmentation? (With Types And Benefits)

Advantages Of Defining Industry Verticals

Defining an industry vertical has several benefits from the business relationships they facilitate. Here are some of its key advantages:

Competitive advantage

Reduced competition is a significant advantage of defined verticals, as they are rarely as populated or over-saturated as horizontal markets. They also provide scope for businesses to differentiate from their competitors by focusing on niche products, services and specific customer groups. They can enable better campaign outreach as they directly target custom audiences.

Cost-effective advertisements

As the target audience segment is extremely specific in industry verticals, they can help simplify the marketing process. If a marketer knows the target market, they can design a campaign cost-effectively by focusing solely on efforts that are effective and specific for the audience. For instance, it can be more expensive to design advertisements that can be relatable to both real estate and hospitality industries when compared to targeting only one.

Geographical targeting and growth

Defining verticals may also help marketers grow the business geographically by increasing the number of distribution centres, acquiring new brands and growing the business. Many companies try to grow within their own segments in the supply distribution spectrum for such entries in new markets. A clear business vertical can also help identify untapped markets, which can help increase sales revenue.

Better quality control

Several companies in niche verticals have independent sources of raw materials and unique manufacturing processes. Companies with more control over their production processes can better maintain higher quality standards for their products and services. Because of this, companies that have fixed verticals might maintain the quality of their products for a longer time.

Related: What Is Quality Control? A Complete Guide

Limitations Of Industry Verticals

It is important that managers identify and market the specific verticals precisely to avoid monetary losses or branding-related setbacks. There may also be some external issues that may cause problems in these verticals. Because of this, it is also critical to understand the drawbacks of vertical markets mentioned below to ensure you make informed choices:

Rigidly defined markets

A distinct market defined by fixed parameters can be a limitation for marketers if the market size is very small. Such concentrated market segments can provide smaller clientele, which can reduce the exposure to and earning potential of companies. For extremely niche markets, marketers may be required to identify and define new target areas continuously to sustain product sales.

Condensation of audience segments and higher costs

In every type of business, there may always be a risk of changing trends, which can lead to a reduction in the existing market size. This can lead to increase marketing costs for targeting the niche audience. As the quantity of the products produced is low because of the small markets, it can cause the costs of the product to go up. This can decrease profitability as compared to bulk production.

Related: What Is A Target Market? (Definition, Importance And Tips)

Horizontal Vs Vertical Business Markets

Horizontal business markets are diverse and their products and services may serve multiple industries. Businesses in such markets often have a wide range of customers across different industries with increased marketing efforts. Vertical markets have products aimed at a particular industry and a specific target audience. It can be easier to market products to the desired audience in a vertical business market, as the audience is smaller and restricted to a niche.

Both these approaches can help meet consumer demand as closely as possible. It is advisable to know which type of strategy may best suit the organisation for which you work. Identifying the right industry verticals can help you know your audience more closely and meet their requirements successfully.

Examples Of Industry Verticals

Depending on the type of industry, enterprises may customise their products and services to meet consumer demand. Here are a few examples of industry verticals seen in the market:

Automotive

The automotive sector is a growing industry which includes manufacturing infrastructure and high-tech vehicle offerings. The products in this industry often require complex manufacturing systems and global supply chains. Some commonly required products in this industry include semiconductors, tyres, automotive equipment, drive transmission, chassis, electrical parts, braking equipment, fan belts and sheet metal parts. The target market of the automotive industry is a customer who is actively planning to buy a vehicle.

Related: What Is Automotive Engineering? Definition And Career Tips

Education

The education sector is a complex industry vertical, as the industry is growing consistently. It may include products and services that can prove helpful for the school administration, such as educational aids or websites and applications promoting an alternative learning approach. Other products may include productivity-related solutions that reduce the administrative load and time for businesses in this sector. The target audience for this vertical can be students and learners of all ages, so it is important for these products to be engaging, effective, high quality and secure.

Manufacturing

The manufacturing or production vertical can involve companies that buy or control manufacturers and suppliers to facilitate their products and materials. It includes the essential components of a supply chain, such as raw materials, product marketing and sales. By understanding these elements, managers may control the chain in all the stages of product manufacturing and streamline the process for increased transparency and trust amongst their customers.

Related: What Does A Manufacturing Engineer Do? (Salary And Skills)

Real estate

The real estate sector is a vertical that focuses primarily on consumer-centric services, and its potential growth depends significantly on consumer behaviour. The main elements of the real estate sector include the residential, industrial and commercial sectors. With the increasing digitisation of the housing business, real estate developers may adopt new trends and sell spaces digitally.

Explore more articles