There are various types of eCommerce marketplaces that serve specific business needs, and understanding how they are used will help in effectively implementing your business strategy. In this article, we will answer the question of what is the difference between horizontal and vertical electronics markets and help you choose a business model in the market.
What is an online marketplace?
An e-commerce marketplace is a website or platform that connects three types of users: sellers, customers, and administrators. Whether you’re building a B2B or B2C eCommerce business, you can choose between horizontal and vertical eCommerce markets, and we’ll explain the difference between horizontal and vertical approaches.
Horizontal e-commerce
Horizontal e-commerce falls under the name “buy everything you need in one place”.
First of all; what is a horizontal market? Horizontal marketplaces allow customers to purchase various products in one place. The definition of horizontal electronic marketplaces combines marketplaces with multiple retailers from multiple industries in one digital store to achieve wider reach.
For example, the online shopping platform Noon, the standard for horizontal e-commerce where you can buy everything you need, was founded in 2016 and is owned by the Saudi Public Investment Fund, Emirati businessman Mohammed Alabbar and several investors.
Since its establishment, Noon has been financed by the Saudi Public Investment Fund, the UAE businessman Mohammed Alabbar, and a number of investors, with a total investment of US$1 billion, and its business covers the Kingdom of Saudi Arabia, Egypt and the United Arab Emirates. They also offer a wide range of products for convenient and safe shopping, as horizontal markets are often better suited to small and medium-sized companies and start-ups that lack sufficient capital, staff, or resources.
Therefore, temporary or permanent partnerships with other companies are opportunities for them to enter the market or better utilize joint resources to realize profits. The horizontal market includes multiple market segments, and its meaning refers to a market that adheres to a diversified marketing strategy, each with its own advantages and disadvantages.
Features of the horizontal e-commerce model
When planning to launch eCommerce in the marketplace, you need to weigh all the pros and cons of each approach. To build a successful landscape model, you need to build more complex marketing strategies and constantly complete countless tasks. It’s best to decide in advance the number of industries your eCommerce project will cover so as not to complicate your marketing strategy with a wide range of products to dominate in a particular industry.
Advantages of horizontal e-commerce
Here are some key benefits of following a horizontal ecommerce strategy.
1. Reduce costs
By sharing resources with other companies, you can reduce costs and make better use of valuable resources.
2. Profit maximization
Use various pricing strategies for different markets based on value to improve your margins.
3. Larger market share
Opportunity to expand by attracting more suppliers from different industries to achieve better results.
4. Good customer engagement
Diversification of products and services in horizontal markets increases user engagement.
Targeting horizontal e-commerce markets is an effective strategy, but as with any operation, there are some disadvantages that must be considered along with the benefits.
Weaknesses of horizontal e-commerce
1. Legal issues
Any regulatory change affecting a specific industry could affect the company’s future, and in addition, technological changes affecting vertical business display applications also pose a potential threat to its front line.
2. Acquisition cost
The average cost per customer acquisition is much higher because marketing efforts are not concentrated in just one industry.
3. Closer interaction
Horizontal companies interact more closely with customers, so supplier changes can have a significant impact on both parties. Any organizational change, even with an ideal replacement, can result in loss of time and resources, and the cost of such a switch can be prohibitive.
4. Comprehensive quotation
Horizontal markets offer very limited cross-selling opportunities to existing customer bases.
5. Low product differentiation
In cases of horizontal market concentration, lower offerings often lead to significant threats from new competitors, either from vertically concentrated firms or across industries, or new horizontally concentrated entrants offering lower prices for roughly the same product.
6. Higher upgrade costs
Although horizontal products have wider applicability and enjoy the advantages of different disciplines, it is quite challenging to create and grow such a company. The high cost of promotion and the need to establish a significant technological advantage over existing competitors are essential to survive in the market.
Now let’s turn to the vertical market model.
Vertical e-commerce
What is a vertical market? Vertical versus horizontal markets focus on providing services in a particular industry or market. However, the definition of a vertical market is one that offers products from a large number of suppliers.
When you go all out for a good market share, you should be the leader in your field, and vertical companies often don’t have a backup revenue stream to keep their business alive. By striving to be the best in the field, the vertical has maintained its position among its target audience, and the niche still has many untapped opportunities.
When analyzing what a vertical market is, you can think of Tharwa Perfumes Store and Chocoline Sweets Store. After the opening of Tharwa Perfumes and Chocoline Store, the business flourished and continued to develop e-commerce business in the vertical market.
Features of vertical e-commerce model
Dominating a field can be an effective strategy, and creating vertical niches has proven to be a successful business model.
Features of vertical e-commerce
Key advantages of vertical markets include:
1. More customer engagement
Vertical markets offer more specialized services to meet customer needs and expectations, so naturally your target group will want to engage more with brands that personalize every customer interaction.
2. In a leading position in the professional field
Vertical eCommerce marketplaces allow you to specialize in specific market segments and gain a leading position with market credibility and expertise.
3. Low level of competition
Less competition in a vertical market may increase sales and lead to faster and better growth.
4. Simplify marketing campaigns
Targeting a specific audience allows you to get marketing results faster and target a wider range of customers cheaper.
Despite the many benefits, some risks may arise.
Vertical e-commerce risk
1. Trends and changes
When you specialize in one area of expertise, when labor market trends and business shapes are different, you risk losing it all, and if you don’t stay on top of the latest trends and innovations, you can lose your competitive advantage and die in an instant.
2. Growth challenges
Depending on your niche, growing your business in a competitive market can be difficult, and you’ll need to emphasize what’s unique about your product or service, or create an emerging product that fits your market and fills a need your customers don’t know about. As a result, vertical markets serve specific business needs and are therefore easier to enter and more susceptible to changes in trends and interests. The key factors for success in the vertical e-commerce market are listening carefully to customers and delivering an exceptional experience.
Both vertical and horizontal e-commerce models are beneficial if implemented correctly, no one solution is better than the other, only one fits your business needs.
How is the vertical electronics market different from the horizontal electronics market?
Vertical eCommerce is perfect if you’re ready to try your hand at doing business in multiple industries and don’t want to be completely dependent on a single workplace of your choice, plus you’ll gain broader applicability and enjoy the advantages of specializing, building and growing.
On the other hand, if you identify your niche, providing highly specialized services in a vertical market can bring you huge profits.
Success in the e-commerce market is not entirely dependent on the business model you choose, there are many other factors such as e-commerce platform development, customer service, branding, marketing, cost of acquisition, effective launch of the market, and many more.
In summaryCreating a horizontal e-commerce can be a bit difficult these days, and some of the largest horizontal e-commerce companies are too big to compete with today, starting with a vertical business model can guarantee your sustainability based on the competitive factors in the horizontal model.