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Analyzing Your Market Approach: Are You Vertical or Horizontal?

4 May, 2006 By: Lou Slawetsky imageSource

Analyzing Your Market Approach: Are You Vertical or Horizontal?

No, I’m not talking about the
position of your body. I’m talking about your marketing strategy – horizontal
versus vertical marketing. These buzzwords have been knocking around for ages,
but they’ve never been more important than they are now.

Let’s first take a few steps back for the broad view of the "engine" that drives
profits in a typical dealership. Basically, there are three revenue components
relating to the marketing of office imaging systems – hardware, service and
supplies. We watch these components in order to gauge growth in the marketplace.
In this year’s Imaging Products Dealer Distribution Strategies Report, we found
the following distribution between them (see fig. 1):

We find that hardware revenue,
as a percentage of the total, is unchanged for the third consecutive year. In a
growth market, the percentage of hardware revenue would tend to increase since
revenue from the sale or lease is "booked" in the first year. We did note this
dynamic in previous years, as digital systems overtook their analog

Of course, your profit engine is driven by margins rather than revenue. See what
our report shows in that regard. (see fig. 2)

The graphic indicates an
increase in both service and supply margins – both components of aftermarket
revenue. Hardware margins remain flat.

The Weighted Margin statistic weights the margin in each category by the revenue
contribution from that same category. This shows a relative increase of 5
percent during the last year.

Taken together, this data indicates that the profit potential for any dealership
exists in increasing aftermarket revenues since they offer disproportionately
higher margins. Nothing new here. Dealers have always been able to increase
aftermarket revenues by increasing placements. That’s an effective strategy in a
growth market. But, we know that our market is flat at best so now what?

Since, in a flat market, it’s difficult to acquire new accounts (and, our data
shows that more than half of all placements go into existing accounts for most
dealers), the only answer is to increase penetration within existing accounts.
Your vendors have called this strategy by the much overused term "solutions
selling." Jargon aside, you’ll want to focus on specific applications within
your current accounts in order to capture a larger share of the page volume
those applications generate. The more expertise you can demonstrate in a given
application, the tighter your relationship to your account will become.

You’ll find two categories of applications:

• Horizontal • Vertical


Horizontal applications can be found in virtually every company. While larger
companies may split these applications into separate departments, you’ll find
them, perhaps buried, in smaller organizations as well.

Consider the accounting or finance function, which includes both accounts
payable and accounts receivable activities. Larger organizations might split
these activities into two separate departments, but even in smaller
organizations, both functions exist and their objectives are the same. Accounts
receivable sends invoices and statements, while accounts payable writes checks.

There are countless examples of horizontal applications. Each company generates
the same documents within these applications.

For example: If you choose a
horizontal market approach, you’ll want to focus on the outcome of the documents
identified. For example, an invoice generates a payment within a specific period
of time. That’s its value. Decrease the number of days outstanding for
receivables through a change in workflow and your client receives payment
sooner. That’s the outcome (and value) of the new document workflow.


In contrast to horizontal applications, which can be found in virtually all
companies, vertical applications are unique to specific industries. They relate
directly to the core business of your prospect. Here are two examples to help

Legal Market

Attorneys use a process called "discovery" to gather any documentation that
might be relevant to a specific case, whether or not that case is going to
trial. Until recently, the discovery process involved producing multiple copies
of all documents. At least one set is required for each law firm involved in the
case. Note that there could be multiple firms and literally tens of thousands of

Recently, courts at the federal level have required that all documents related
to cases they hear be submitted in electronic form. This greatly reduces the
volume of documentation while speeding the process of document search. File
sharing is simplified as well since all parties to the case in question can now
access documents from a common secured website. The federal courts have called
for PDF as the standard file format. All documents are now stored in a database
called the "Public Access to Court Electronic Records (PACER)."

Solutions offered by your vendors that address specific steps of this
application will give you a leg up in the legal market. These might include:

● Scan to File ● PDF Conversion

● IP Printing ● Auto Stamping

You’ll note two things regarding this application. Sales reps are able to
combine segments of their product offerings in order to solve a specific problem
for enterprises in the legal market and the application described is unique to
the legal market. That is, you will not find it in a manufacturing firm other
than in a very large company with its own internal legal department.

Hospital Market

Every hospital has a medical records department – the depository for all patient
information. For billing the HMO carrier(s) the hospital must convert these
records to digital form and transmit in a format that complies with HIPAA Title
II regulations. This conversion is so complex that many service bureaus have
been created to accept paper based medical records, convert them, and forward
them to the appropriate insurance carriers for payment.

Solutions offered by your vendors that address specific steps of this
application will give you an advantage in the hospital market. These might

● Scan to File ● PDF Conversion

● IP Printing

Note that once you become familiar with file format requirements as delineated
in HIPAA regulations, you will be able to assume the role of the consultant for
virtually every hospital and medical facility in your geographic area of

Learn it once and sell it multiple times. In fact, that’s the primary advantage
of the vertical market approach. Once you uncover a bottleneck in document flow
in a specific industry-related account, you’re likely to find that same
bottleneck in most other companies in the same industry.

Consider the two industries we
used in our examples above. Attorneys rely on the same document flow. They’re
constrained by the law itself as well as the dictates of the court systems at
both the federal and state levels. Hospitals and medical facilities are
constrained by the record format and confidentiality requirements for HIPAA

You’ll find both disadvantages and advantages to the vertical market approach.
For example:


• Fewer accounts per territory

• Longer selling cycle

• Specialized sales knowledge may be required


• Larger order size (multiple units)

• Higher level of contact maintained

• Insulation from competition

• Opportunity to sell complete product offering (MFPs, printers, software)

• Higher page volumes per unit

You can see that the potential offered by the advantages far outweighs the risks
presented by the disadvantages. Does that mean you should consider a total shift
from horizontal to vertical marketing approaches? Absolutely not! Horizontal
applications offer advantages of their own:

● They’re generally easier to find

● They apply to all accounts in every sales territory

● They involve fewer decision makers

● The selling cycle is usually shorter

However, and this is critical, everyone is selling horizontal applications. That
single fact makes it more difficult to differentiate your product offerings from
those of your competitors. Products that are difficult for customers to
differentiate are often seen as commodities, leaving a lower price as the only
decision criteria. As we discussed at the beginning of this article, decreasing
margins and manufacturer suggested retail prices are already eating into your
profits. A vertical market approach – one that focuses on the value of the
outcome produced by your recommendations – is one of the most effective ways to
reverse this trend.

Don’t give up on horizontal applications. Use your entry into these accounts to
shift to a vertical market approach. Become the expert to which your account
turns to for specific document solutions, and they’ll turn to you for all of
their document needs.

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