What does a vertical market mean?
A vertical market is a market in which a vendor offers a product that answers to a problematic in a specific industry, or more generally, a group of customers with specialized needs.
A vertical market in opposition (or sometime complementary) to an horizontal market is defined by a product that answers to a broad range of industries.
For example, Google is serving everyone with a global search engine (horizontal approach).
Noodle is specifically tailored to educational research with the goal of providing a better service than Google in this area.
Businesses often choose to specialize in one or more vertical markets in order to identify and target new clients more easily, with a more tailored approach.
Traditional sales are horizontal, i.e a company sells services/products to a broad range of customers who have nothing in common with each other. For example, a company can sell computers to accountants, doctors, non-profit organizations and anyone else who needs a computer.
This approach actually works, but it is based on the fact that each of those clients knows what they want, know how to use the product and are aware of the other possibilities out there.
However, most organizations (just think about the one mentioned earlier) are not in the IT business, and selling to those market segments makes it extremely difficult for a company to understand and meet each customer’s unique needs.
“We can sell to everybody, our technology is agnostic”
We often hear this from our customers: “ We can sell to everybody, our technology is agnostic”.
If you do, your product is a commodity, and it would require huge marketing efforts in a market that you don’t know and have no references in, to acquire any amount of market share.
In the process of expanding your operation to the U.S. market, it is important to identify and understand vertical market segments. The larger, the better. Doing so, you can target a particular customer base where you have experience, expertise and references in France. Targeting a vertical market allows you to fully understand that industry, its trends, terminologies, wording, issues, challenges, competitors, used cases and more. Specializing in a vertical allows you to know the market, its issues and the products that fulfill the needs created by those issues, and fully adapt your approach.
From a customer point of view, a provider who knows more about the various technology issues for a given industry is always a better choice than a competitor who doesn’t. And this specialization is also a justification for higher rates.
In the end, by becoming a leader in a particular vertical market, you are able to set a standard of performance for anyone else who tries to encroach in that specific market. But it is also crucial as a leader, to listen closely to the customers within that vertical, to stay innovative and to continue to raise the level of performance previously reached.
The decision to move from a horizontal product focus to a vertical market solution focus is challenging for two primary reasons:
- There’s a perception that focusing on one vertical inhibits sales to segment outside the chosen one, reducing potential revenue.
- The culture has been built around product revenue and profitability
A vertical approach isn’t that challenging. For most organizations, 80% of their revenue and profitability comes from a handful of market segments (look among your customer base). If product, marketing and sales teams focused on solving issues for those markets, and communicated that differentiation in their marketing, it would make up for the other 20% they aren’t focusing on.
On the following diagram, each bar represents a vertical market. The red line represents the sum of profit. You can see that the verticals A, B and C represent 85% of the global revenue.
Coming from the European market, it is important to capitalize on your existing customer base and identify a vertical within that base. Once you identify that segment, the next step would be to identify the leader in that vertical and the level of performance they set, your differentiators and position yourself in this new vertical.
When committing to a vertical, it is important to bring a focus on every aspect of the company whether it is: sales, marketing, advertising, business development, product development, etc. All aspects of the business have to be aligned in a unified effort. Doing so allows you to generate traction in a vertical by creating dedicated use cases and marketing materials.
A use case demonstrates the interaction between the end user and a product or service. The goal is to allow the customer to understand the potential benefits of your product and increase the likelihood of purchase.
A verticalized use case allows you to tell a story from a client’s point of view. This allows the prospect to become an active part of the sales process. To be more effective, it is important to use the industry’s terminologies, wording and similar situation the client could relate to.
Let’s take a look at SegWay Inc, the company that sells the famous two-wheels transportation device that uses balance to move around. In the early 00’s, SegWay had some difficulties overpassing its reputation, which was a device for the wealthy.
In 2006, the Chicago Police Department became SegWay’s most important customer with a considerable purchase of the i180 Police model. The Police model is almost similar to the civilian model. The only differences are the black and white patterns that you can find on any U.S. Police department vehicle. The main differences were in the marketing materials:
- A website dedicated to the law enforcement vertical, even though the civilian and police products are the same
- Dedicated case studies
- Success stories from customers within that vertical
- Differentiators and metrics per verticals (Officer emergency response times have improved)
As a tech company, the first step in your U.S. development is adopting a vertical approach and leverage on your existing customer base in France. As unnatural as it could seem, this is the best way to increase revenue and establish legitimacy on this new market.