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Is it better to focus your attention on a general audience or a specific niche?
That’s the question at the centre of the debate between horizontal and vertical distribution (and one that isn’t exactly easy to answer!)
The idea of the two distribution models exists across any number of different fields.
From the tech world – where horizontal and vertical distribution can be applied to app and software development – to the operations and supply chain space, comparing the two different approaches to integration takes place in nearly every business looking to scale.
Vertical and horizontal distribution models can mean pretty different things to different industries and contexts but here I’ll deep dive into the two distribution models as they relate to marketing strategies (this is, after all, a digital marketing blog) and how they could work for your business.
After all, what’s the point of understanding how something works if you don’t get the impact on your own company?
Let’s take a look at how the two approaches differ, how each can be applied to your marketing, and whether or not there’s an opportunity to leverage both in your marketing strategy.
Time to dig in!
What the hell is horizontal distribution marketing?
Horizontal distribution marketing focuses on the broader audience rather than a niche market.
The idea of “casting a wider net” applies directly here.
As a marketer, if horizontal distribution is part of your overall go-to-market strategy, you’re likely working with a product or service that has universal appeal or application.
Think a supermarket, medical clinic, or chocolate – something that everyone either needs or wants, regardless of age, gender, ethnicity or location (surely everyone wants more chocolate, right?)
As a result of this widespread appeal, your campaign focus can afford to be less targeted.
In fact, you may prefer it that way as a means of attracting people outside a certain demographic.
For example, let’s look at marketing accounting services.
Most industries require accounting services of some description.
Accounting companies don’t necessarily have to market to a specific audience because of the universal demand for it.
Instead, their aim is to make you want their service over any other accounting businesses, and their marketing should be focused on building relationships with people across industries rather than specialising.
Compare that with companies that produce accounting software and therefore have to market to accounting firms or independent accountants (the people who will be using the software).
What would be the point in them marketing to the general public when they’ve got a niche audience rather than a broad audience?
Basically, you’ll know you’re dealing with horizontal distribution marketing if you’ve got:
- A market in which a business meets a demand of a wide range of buyers across different demographics
- A broader audience than vertical markets
- A willingness to cooperate with other businesses seeking joint opportunities
Opportunities for horizontal distribution in marketing
All businesses are constantly exploring ways of expanding their brand and attracting more customers.
Horizontal distribution marketing offers different opportunities that are specific to this approach to brand expansion.
Let’s explore a few of them:
Often, horizontal marketing strategies include mutually beneficial partnerships with other brands.
A great example of this is the relationship between Nike and Apple as part of release of the Apple Watch.
By joining together, each brand expands their audience to capture the other’s target market.
Apple benefits from selling more watches to runners and Nike capitalizes on the launch of a much-hyped and in-demand product.
In New Zealand, we’ve seen Lewis Road Creamery do this to great effect, partnering with beloved Kiwi brands like Whittaker’s, Moa, and Coffee Supreme, and personalities like NZ Masterchef winner Chelsea Winter to create cross-promoted products.
In some cases, this cross-promotion caused a literal frenzy, with security guards brought in to many stores to control how many bottles of Whittaker’s/Lewis Road Creamery chocolate milk each person could purchase.
By utilising both companies’ brand loyalty and brand recognition, they were able to reach what seemed like all of New Zealand to promote their new product.
On a smaller scale, a business without much brand recognition can form a partnership with a stronger brand as a stepping stone, by offering some kind of product, promotion or sample to their customers.
This is mutually beneficial as it gives the customers of the larger brand a bonus with their purchase, while at the same time increasing awareness of the smaller brand. For example,
For a digital marketer focused on building out your horizontal strategy, seeking out these sorts of partnerships may be easier said than done.
But with some creative thinking and a growth marketer’s mindset, there are big opportunities to grow your reach to a more broad audience.
But partnerships are only one opportunity within the horizontal distribution model.
What else can you take advantage of for a truly horizontal marketing mix?
Growth outside your current location
Do you currently only market locally? Domestically? Expand your reach by growing into new, untapped markets.
Think about New Zealand Natural.
Even if you’re not based here in NZ, you’ve possibly seen one of their stands in the middle of a mall somewhere across Australia, Thailand, or beyond.
An ice cream company which sources all their ingredients from New Zealand and prides itself in using only natural ingredients with no preservatives, they’ve traded on the ‘100% Pure NZ’ reputation to grow.
Although Kiwis love them, they figured out that in lots of ways there were even more opportunities to expand if they looked to other countries, where New Zealand’s reputation would be a big part of their USP (beyond the freaking delicious ice cream of course).
And good on them – they’ve gone from one little store in Christchurch in the 80s to stores in over 30 countries across the globe.
Even if global reach feels a little far off, there’s no reason why you can’t expand beyond your local community – especially with all the ridiculous amount of technology and copious number of marketing tools that can let you do everything from have meetings online to target people halfway across the world.
Expanding your solution by taking advantage of trends
Okay, we maybe don’t all need to start using ‘woke’, ‘on fleek’ and ‘JOMO’ in our advertising (and more to the point, we probably shouldn’t – I’m getting way too old for that shit), but keeping up with the latest trends is pretty damn important.
Whether it’s generic, like recognising that mobile is now outranking desktop for searches and that your website needs to be mobile optimised, or more specific, like recognising how important environmentally-friendly products are to consumers and changing the products used for manufacture, it’s all about keeping up with what people care about and how they behave.
Think Coca-Cola in 1982. Until that point, extending the Coca-Cola Trademark to another brand had never been an option.
But with the changing times, their customers were more attracted to buying low- or no-calorie brands, and the company’s business in the U.S. was struggling.
Coming up with a solution to their declining market share meant factoring in the trends of the time.
Coca-Cola reached new heights of popularity by taking advantage of the new-found emphasis on weight-loss and science correlating high sugar intake with obesity. That’s where Diet Coke came from – a low-sugar, similar tasting version of the beverage everyone knew and loved (although, let’s be honest, they still taste pretty different).
That’s horizontal marketing at it’s finest. Expanding their current brand by catering to a new trend with a twist on the original.
Today we see companies like Nike (again – these guys are owning the whole horizontal distribution thing) take advantage of social trends, like the fight for social justice, to grow their brand.
Their Colin Kaepernick ad might have pissed off some angry white conservatives in the States but it also made a whole heap of money, with stocks increasing 5% in the month following the ad’s release.
Take control of a market through acquisition
Beyond partnerships, consider acquisition. Not everyone has the means to go out and start acquiring competitors, but that’s not necessarily the goal.
Think Facebook and Instagram – while not a direct competitor, Instagram was a fast-growing social app whose acquisition by Facebook allowed them to consolidate ownership of the photo sharing space.
Consider what another company can offer your own were you to acquire it.
The opportunity to cement your business as an industry leader may present itself – and what’s not to love about an opportunity like that?
Recently, computer software giant SAP acquired Qualtrics, a data collection software company.
While they don’t necessarily offer the same services, SAP was aware of the extensive market research databases Qualtrics has access to that would benefit their own company.
It made sense to gain access to those databases, growing two businesses instead of one by being able to tap into both businesses’ markets, expertise, and data.
The case for horizontal distribution
All in all, a horizontal growth strategy means increasing your exposure and demand within the market as a whole.
For businesses looking to expand significantly, it can be an epic way to tap into as many people as possible and generally means greater brand awareness among the general public.
So if horizontal distribution marketing widens your audience, what is vertical distribution?
What’s the down low on vertical distribution marketing?
Vertical distribution means developing a marketing campaign focused on a targeted group with the hopes of furthering your hold on that audience.
From the supply chain world, this often manifests as what’s called “vertical integration,” where a company owns and manages each and every component of their product or service’s life cycle.
That’s pretty common in entertainment, where big media conglomerates will sometimes employ a vertical integration model where they are able to promote their products to specific audiences across a range of their company-owned outlets.
For example, take 21st Century Fox.
They’re ready to produce a movie. Every aspect of that movie can in some way be controlled by them. They may own the studio in Hollywood where the movie is made.
They own many of the magazines and TV channels where the movie is promoted. And they own many of the cinemas where the films are distributed.
With an understanding that no movie will appeal to everyone, they know how to appeal to each specific audience of their products.
That helps them decide which magazines and TV channels to promote each movie to, while keeping all stages of production within their own business allows them to capitalise on all the revenue that would otherwise go into the pocket of other businesses.
A well-known (albeit now defunct) example of vertical integration in the retail space was American Apparel, who actually labelled themselves on their clothing tags as “a vertically-integrated manufacturer.”
American Apparel owned and operated each step of the manufacturing, marketing and distribution of their clothing all within their 800,000 square-foot factory in downtown LA – allowing them to promote themselves as “Made in America”.
They completely managed the fulfillment of both online orders and retail stock.
They even went so far as to create their own magazine and radio station for retail stores as further means of vertically integrated promotion.
But what does vertical integration have to do with marketing?
From a marketing perspective, it’s not quite so easy to “own” each stage of your marketing process (none of us are likely to be acquiring Google or Facebook in the near future).
However, this approach is worth thinking about when considering ways of retaining revenue – and understanding how to best market to a niche.
Basically, you’re dealing with vertical distribution marketing if you’re:
- Marketing to a niche audience
- Cutting out the middleman
- Competing against other businesses that share the same industry
Opportunities for vertical distribution marketing
Vertical distribution in marketing might mean seeking more unconventional ways of getting the word out about your product or service.
If vertical integration is all about cutting out the middleman and owning each step of the process, how can digital marketers seek out similar inefficiencies in their go-to-market strategy?
Often, this is where the help of a growth hacker becomes critical. Growth hacking is all about seeking less-traditional paths for expanding your audience within a specific niche market.
One infamous example of doing exactly this would be Airbnb’s rapid growth through Craigslist ads.
Rather than marketing through traditional ad spaces hoping to attract renters and hosts, Airbnb scoured Craigslist instead.
Looking for people renting out their pads, they were then able to reach out individually, asking them to list the apartment on Airbnb instead.
This enabled them to build up their pool of hosts (while conveniently taking business away from Craigslist at the same time).
Later on, when there were enough hosts but not enough traction from renters, they began hiring freelance photographers in each of their to go to people’s homes and take professionally styled photos of their apartments.
It enabled them to better attract the kind of renters they wanted – ones who would get excited about the place they were staying and post about them on social media.
That’s true vertical integration from a marketing standpoint.
Not entirely sure what growth hacking is? Check out our ultimate growth hacking sourcebook.
Finding your niche
Tapping into an audience that is yet to be discovered is an interesting challenge for vertical distributors.
For example, Segway PT, creators of the two-wheeled, self-balancing personal transporter, struggled to establish their product as accessible by all.
Their product didn’t have universal appeal, known as a toy for the wealthy and not a suitable method of transportation for your average person. Ultimately they had to find their niche in order to grow.
In 2006 the Chicago Police department became one of Segway’s biggest customers after they marketed the benefits of riding a Segway for police specific purposes.
They released their i180 Police Model Segway, (which wasn’t actually very different from the regular model), highlighting the ability to add a siren to the guardrail among other minor features.
They found a niche market that they could tap into, solving the problem of creating a product your average consumer wouldn’t buy, by making it appeal to a specific demographic.
Vertical and horizontal: Can two distribution models work together?
There are plenty of new opportunities for emerging startups to use these principles together.
Developing interconnected ecosystems of value can increase engagement with your brand, both among your ideal target market and the market as a whole.
Business owners just need to look at their company through a growth mindset, looking at how they can expand not only horizontally but vertically.
If you want to make the most of both distribution models, take a look at a new concept evolving for marketers called “functional integration.” Barry Wacksman, Chief Growth Officer at R/GA, put it best in an article published on the Wharton School’s website:
“This new generation of successful marketers is building entire ‘ecosystems of value’ that blur together products and services in ways that deliver greater value to consumers. Each new piece creates an additional node in the ecosystem, further driving up value.
What constitutes an ecosystem of value? There are increasing consumer benefits that accrue from buying into more nodes, while each node is also a potential entry point for new customers.”
The example he uses, Apple, makes a lot of sense considering their broad range of products, but the same could now be said of Google, Facebook and even more purpose-focused solutions like Uber, who have expanded into food delivery and self-driving vehicles (and the odd kitten delivery day, making workplaces both more adorable and less productive).
Businesses that take on this ‘functional integration model’ usually incorporate products and services that are intended to work together and are often tied together with data.
The allure of ‘membership’ is something Apple tapped into long ago with iTunes, enabling their customers to dive deeper into the brand than just the initial purchase of the product.
This is because Apple (unlike Sony) does not look at each product they develop as an individual product standing on its own.
Rather they incorporate it into their existing ecosystem of value.
There is the option for functional integration across all industries if only businesses look out for the opportunity.
Business owners today must seek out ways to incentivise their existing consumers to buy more things by creating connected ecosystems of value.
Apple created Apple TV that has features such as ‘Air Play’ (allows wireless streaming between devices of audio, video, device screens, and photos) that can only be tapped into using an Apple device such as an iPhone or iPad.
This embodies the horizontal model by expanding their range of products outwards while also embodying the vertical model by appealing to their already existing customers, or ‘niche market’.
Another example we all interact with (way more often than we probably should) is Amazon. Think about the last time you bought something on Amazon.
I bet it came up with several other suggestions for what you could buy alongside that product, and once you’d made your purchase, it had even more suggestions.
Their info on you, other customers like you, and consumers as a whole enables them to cater to literally every demographic, while also marketing specific products to an individual’s demands.
In other words, vertical and horizontal distribution marketing are both important.
A small business might be able to focus on just vertical distribution and a small niche market, but to go seriously global, and expand your awareness and reach, a combo of both could be the ticket.
Vertical vs. horizontal distribution: TL;DR
- Horizontal distribution marketing is all about marketing to the widest audience possible and potentially working alongside other businesses to access their audiences.
- Vertical distribution marketing will see you marketing to a niche, potentially controlling as much of the supply and promotion chain as you can.
- For smaller businesses, one option or the other may be best – but for scale, you’ll need to tap into a combination of both.
Seeking ways to expand not only horizontally but vertically is essential for anyone and everyone across all industries.
Today businesses need to take a look at their marketing model and decide if it’s going to work long-term in the world not just now but into future.
If you aren’t considering the ways that digital ecosystems of value can benefit your organisation, then you are closing yourself off from a potentially game-changing opportunity.
Bringing together the worlds of horizontal and vertical distribution is the way of the future for marketers. Time for us all to get on board.