What is a Vertical Market?
A vertical market is a niche market in which a company supplies goods or services to a very specific type of customer. Its goods or services do not have broad appeal or application.
How Does a Vertical Market Work?
Let’s assume XYZ Company manufactures a special kind of medical glue. The glue only works on liver tissue, meaning that the product has a vertical market: liver surgeons.
Because the glue doesn't work in any other setting or in any other tissue, Company XYZ can't market the glue to, say, heart surgeons or craft stores. It only has one real application.
Why Does a Vertical Market Matter?
Vertical markets are risky but potentially lucrative. It's easier to monopolize the market for liver gluing because it's so obscure. Accordingly, Company XYZ could have years of stable cash flows ahead of it. However, if Company XYZ relies on liver glue for its survival and the industry changes, regulation changes, or a competitor enters the market, Company XYZ could find itself suddenly struggling.