Horizontal & Vertical E-tailers

It’s been years now, that we have come across terms like “online ordering”. 14 years back, when two talented brothers opened an online shop selling everything one presumably wishes to buy, we said it was a one-off. We thought we won’t be accepting the notion of buying groceries and other things from an online website. Yet, we did accept it, and adopted it – partly because of the changing landscape of the public, and partly because of the increasing mobile penetration in the country.

Today, Flipkart is one of the leading online retailers in this country, in a retail market whose GMV (Gross Merchandise Value)* is set to cross $67 billion by 2022. Over the years, we have witnessed many players coming in to set up their shops in this market, and have even had few foreign interventions & partnerships. Walmart entered the market by investing in Flipkart, & Amazon set up its own shop here & is now giving a really tough competition to our home grown brand.

But what are e-tailers exactly?

Imagine your own neighbourhood supermarket on the Internet. That is an e-tailer.

E-tailing is basically electronic retailing, which according to Investopedia “is the sale of goods & services through the Internet”. It can include selling of both products & services, & it can be both a business-to-business, or a business-to-consumer.

The main requirement of an e-tailer is a proper distribution channel – which can ensure the timely availability of the product, and can increase its accessibility for the consumer. Lines have to be maintained; warehouses & storage depots need to be planned to give a smooth buying experience & convenience to the customer.

E-tailers are trying to be present in almost every category of consumer demand. From daily groceries & medicines to fashion & lifestyle. From food delivery & hospitality to cab & financial services. They are trying to reach their consumers in every manner possible. That is why, we have seen the presence & the rise of certain category-specific start-ups – which are trying to bridge the gap between the consumer & the product.

These e-tailers aim to offer convenience to the customer. You want fresh fruits & vegetables? Big Basket delivers it to you in a day. You want medicines? Someone from PharmEasy is bringing it for you. You want your favorite dresses & beauty products, but you don’t want to go out shopping? Wait, there’s Myntra & Nykaa bringing them for you. Or do you just want some hot food delivered quickly to quench your hunger? Zomato & Swiggy guys are rushing in.

And what’s more? Big brands are also hopping on to this internet bandwagon in a bid to reach more customers who are transitioning to this world, & extract the most out of them.

In order to easily identify the type of an online retailer, two types of e-tailers exist: horizontal & vertical.

Let’s go through each of them in detail.

Horizontal E-Tailers

Think of someone who sells everything.

You’ll find clothes, medicines, furniture, shoes, beauty products and a lot more – all present at one place. They are horizontals, or horizontal e-tailers who deal in a lot of categories. They have their arms spread out wide, trying to reach out many categories & forming a wide product assortment in each of them. They don’t serve any specific segments, rather they are present in all of them.

Why, we may ask? To reach the maximum customers as possible. As an example, let’s take Amazon. It sells everything available on this planet, & offer buying convenience to customers, because they want that once the customer has landed on their website, they shouldn’t go empty-handed. So, they make sure they have something for every customer to get their hands on.

But, while they have their own set of benefits, these are not really specialised in any single product category, as their focus is different. Rather than attaining a special status in one or a few categories, their focus is on reaching the broadest audience as possible. They don’t really want to become the ‘category killers’ or the ‘category captain’. They just want to be there when the customer needs them.

Vertical E-tailers

Now think of someone who sells only a single type of items.

But the catch is, here you’ll find every single product related to that item. These are known as verticals, or vertical e-tailers. These go deep in a single category, or a few of them, and excel. They can boast of a wide product assortment, of different pack sizes and across different price points. As an example, let me take Big Basket – the daily grocery store which has been trying to replace the local neighbourhood store. It has multiple categories & provides different product options in all pack sizes based on volume. They also provide many sub-categories & numerous brands to fill our cart from. Interesting, isn’t it?

Verticals are a lot dependent on the market they are operating in. Nykaa – the beauty & personal care vertical which is on the verge of going public, can showcase its product better, as it has specific marketing strategies in place which aligns itself to that particular category only. It can always cater to the user created demand, while also delivering on the user experience – customised & personalised for the user. They can also focus a lot on the quality to match the increased user expectations.

The Difference

The biggest difference between these two is, that horizontals focus on market share, while verticals try to focus on share of wallet of the customer. Horizontals work towards increasing transactions, while keeping the customer attuned to some category or the other, whereas verticals focus on loyalty.

Verticals don’t only exist in product retailing, but also in service retailing. Think of all those services which you take: home services by Urban Company; food delivery service by Swiggy; ride services by Ola; and more.

Some Examples

India is a diversified market, where the needs & habits of the customer changes with every passing kilometre. Both horizontals & verticals have to co-exist in a country such as this, which has an e-commerce market expected to cross $200 billion in less than a decade from now. For every 100 units sold in retail today, 4.5 units are sold via e-commerce, a number which has increased from 2.4% in 2017 to 4.5% in 2020F, an article from Economic Times stated.

The presence of verticals is necessary because they give the customers different price points to choose from. Today, in a bid to capture customers, many big players are focusing on buying out their contemporary verticals to leverage their supply chain power & their knowledge of their niche products. Example: Tata buying out Big Basket (grocery) & 1mg (pharmacy) to add on its super app arsenel.

Some companies – which started off as verticals, are now expanding & diversifying their portfolios to reach the level of horizontals. Let’s take Paytm for example, which started off as a mobile wallet provider, but is now the most sought-after financial services location in India. They have expanded into all things financial – from stocks, to credit cards to banks and more.

Over time, these verticals have started to gain some market share from the established horizontals. By 2022, the share of small/medium verticals will increase from 20% to 30%, which means that horizontals will be losing 10% of their share, based on GMV.

But the question is? Can these verticals ever match the level of the established horizontals, in terms of market & customer share? After all, the horizontals have easy availability of capital at their disposal, which makes expansion & diversification easier.

*GMV is Gross Merchandise Value is the total value of products sold over a given amount of time.

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