What is a Horizontal Market?

Mary McMahon

A horizontal market is a market that supplies many industries, in contrast with a vertical market that supplies just one. There are a number of advantages to developing products and services that can be offered on the horizontal market and many companies make diversification of their offerings a priority when they are in the research and development stages. Companies that are flexible enough to offer products on a horizontal market are often more capable of weathering changes in the economic climate, as well as industry-wide shifts that may lead some industries to abandon certain types of products and services.

Man climbing a rope
Man climbing a rope

One example of a horizontal market is the market for computer software. People in a wide range of industries including individual consumers, education professionals, governments, and businesses need computer software. Something like a word processing program can be used by a variety of people and can be sold on the horizontal market. By contrast, a point of sale program designed specifically for grocery stores is an example of a vertical market item because it is aimed at only one industry.

Plastic pellets are another example. Numerous industries need raw plastic for manufacturing. They can obtain pellets in a variety of sizes with different compositions through numerous suppliers. Suppliers, in turn, can market their products to many different potential buyers, ensuring a steady supply of customers and orders. These highly generalized products are useful to people in many different industries and positions.

There tends to be more competition on a horizontal market because there are more potential buyers. By contrast, vertical markets are more likely to be dominated by a limited number of suppliers. These suppliers may also battle for market share and can struggle with cash flow. On horizontal markets, the demand is steady and can even be increased by finding new markets for products. This keeps profits consistently high and can allow a company to develop more specialized products to market alongside their general ones.

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Horizontal markets cross industry boundaries. For industries, they provide access to a number of suppliers offering an assortment of goods at a range of prices. Companies have more options and can integrate these options into their long term plans. Prices can also be more competitive, as suppliers are well aware that customers can always turn elsewhere for a low-cost source of goods. This provides an incentive for efficiency and low pricing, which benefits the market as a whole.

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