Horizontal Market

Article byPrakhar Gajendrakar
Reviewed byDheeraj Vaidya, CFA, FRM

What Is A Horizontal Market?

A horizontal market refers to a market structure characterized by the production, supply, and distribution of products or services widely consumed across various sectors of the economy, irrespective of the industry. They have broad applicability and high demand, and companies in this market cater to the widespread need.

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Companies simultaneously serve multiple sectors, industries, or professions in a horizontal market. It allows them to leverage economies of scale and reach a large customer base. Due to broad market catering, the companies in this market niche do not face a lack of demand but simultaneously have high competition.

Key Takeaways

  • A horizontal market refers to mass production and multi-industry consumption that is not restricted to a particular business sector but caters to all.
  • Multinational companies and global conglomerates are the primary business examples of these markets.
  • This market’s customer and target audience is the general public and everyday people in society.
  • It lets suppliers create price discrimination, charging different prices to consumers in various industries.

Horizontal Market Explained

Horizontal markets represent products and services consumed by more than one industry or sector and therefore have a large customer base. It is known for its diversification and ability to serve many customers. In an active market, there are simple products manufactured by companies that everyone uses simply because of high usage and daily requirements.

Due to high consumption, there is always a constant demand for such products in the market, and hence its sales and profit are not dependent on macroeconomic factors. The horizontal market applications allow businesses to reach a wider audience, but there needs to be more scope for innovation and modification. Multinational conglomerates and international corporations often operate these with a wide range of diversified products but high competition.

Though market leaders are present, new participants can disrupt the market with efficient pricing and better alternatives. It is easy to enter this market but challenging to fight and make a name because of low customer loyalty, which is a factor faced by market leaders as well. It is the same reason horizontal marketing strategies are implemented differently than vertical markets. A big company often acquires a small business to eliminate the competition or for business expansion, which further allows the big corporations to use resources and reduce production costs to elevate their profits and presence in the market.

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Examples

Here are two examples of this market, one hypothetical and the other is a real-world scenario –

Example #1

Suppose Henry owns a company that manufactures light bulbs. Now, as a producer or business, he is not catering to a particular market, profession, field of work, or industry. Everyone readily uses light bulbs from schools, colleges, offices, factories, stores, shops, staff offices, new establishments, street vendors, hospitals, corporate setups, etc.

Here, Henry is operating in a horizontal market. Suppose he acquires a company that manufactures electrical wires. In that case, he will expand in its market, have reduced costs in production due to shared resources, and tend to enjoy economies of scale.

Since everyone uses light bulbs and wires, Henry never faces any lack of demand in the market. However, due to low entry barriers, any newcomer can enter the market by offering customers light bulbs and electric wires. Therefore, it is always competitive. Additionally, many other factors influence real-world horizontal marketing structures.

Example #2

Another example is stationery and paper products; suppose Howard opens a new paper company and offers stationery products like pencils, pens, notebooks, diaries, etc. He owns a small factory but sells his products cheaply and tries to provide better quality than his competitors. Now, it is a horizontal market product because all his products are widely used by everyone and everywhere in some capacity, from schools to hospitals, government offices to multinational workspaces.

Soon people tend to recognize Howard’s products, and his customer base increases and Howard registers huge sales revenue for the following year. Because these markets have low entry barriers, anyone with proper strategy and work can create their space in the market.

Advantages & Disadvantages

This analysis will explore the unique advantages that arise from broad market penetration and shared resources, as well as the potential drawbacks, such as intense competition and limited diversification opportunities.

First, let’s understand the advantages:

  1. The most important advantage for a company operating is to reduce production and operating costs because of shared resources, which ultimately helps increase profit.
  2. The business has an easy market penetration and reach with less effort or expenditures because the product is a requirement of everyone.
  3. It is implausible for a business to need more demand in the horizontal market. Therefore, production is constantly running with optimal supplies.
  4. Companies can switch, change or modify between different pricing models as per market conditions.
  5. Its applications allow businesses to improve product quality and customer service.
  6. It promotes productivity and efficiency in the workforce.

Let’s also understand the disadvantages:

  1. A business has to face a lot of competition in the market.
  2. Companies are known for their only one product, so it becomes challenging to diversify or modify internally.
  3. Because of high competition, the customer retention and loyalty percentage is relatively low in any customer base.
  4. Profit margins are low compared to vertical markets.
  5. There are shallow entry barriers, so any new company can start offering the same product at a different price, eventually sabotaging the profitability of earlier participants.

Frequently Asked Questions (FAQs)

1. What is horizontal market software?

They are such application software that is widely used by people, businesses, and other organizations every day for their office and administrative operations. This software does not cater to a particular market or industry and is commonly used across different industries, departments, and professions.

2. What is the difference between vertical and horizontal markets?

The critical difference between a vertical market vs horizontal market lies in their scope: In a vertical market, the vendors offer products and goods to a specific industry, operate in a particular sector, or cater to a specific profession or operation. In contrast, a horizontal market in a vast space operates in different industries through a single product or service.

3. What are the effects of horizontal market integration?

Horizontal market integration is the business strategy of expanding to the same level of the industry a company is operating in. For instance, a merger between companies operating in the same sector can be called horizontal market integration. The effects of it lead to market expansion, cost reduction, economies of scale, increased market share and capitalization, better market reach, and higher efficiency.

This article has been a guide to What Is Horizontal Market. Here, we explain the concept along with its examples, advantages, and disadvantages. You may also find some useful articles here –

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