Verticalization is a favorite strategy of small companies because it opens the possibility of upstaging bigger firms on specific markets . It is the classic case of a small force achieving a breakthrough against a larger opponent by concentrating overwhelming firepower on a small section of a long front.
Going vertical can proceed along two very different vectors: one is a “soft”, messaging-oriented axis, the other is more focused on product, or it can be a combination of the two. The costs and risks involved are very different in each case.
(1) Selling a current product to another vertical may require reconfiguring the offering and the messaging while leveraging most of the R & D and operations. Experience shows that this is easier said than done as many companies have trouble generating the customer-facing content for a different set of customers.
(2) Designing a new product for the current vertical can be a low risk strategy as long as the new offering addresses a problem experienced by a significant proportion of the vertical, or if it solves a very high-value problem.
The final option is the most risky and involves a new solution for a new vertical. Some companies actually manage to design a great product for a new vertical, either through intuition or research, but stumble on the execution steps required to produce a hit.
The Horizontal Challenge
In many industries, the opposite strategy, let’s call it horizontalization [ugh], is very effective and can represent a formidable obstacle to the verticalizer. Products with general applicability can be sold across many verticals usually on the basis of a very competitive price and “good enough” functionality. For these players, volume is the key to achieving economies of scale to keep costs and prices down.
For the verticalizer, the question then becomes whether enough incremental value can be added to the vertically targeted offering to justify the price delta with the more generally targeted product. That will depend a lot on the nature of the problem that customers are trying to solve. A more generic product will typically underserve a specific vertical making customers sensitive to alternative solutions.
In practice, segments within the vertical that perform specialized tasks are the ones that will see value in vertically focused products. Carefully scanning the problems encountered by customers in the vertical will uncover the urgent and important problems to solve. There is no better way to do that better than to be operating in the vertical in the first place.
Tags: high-tech marketing, product management, SMB, product innovation, strategy, segmentation, vertical marketing
