It is important to be careful about how a market is defined. The following key marketing processes rely on a relevant market definition:
- Measuring market share
- Measuring market size and growth
- Specifying target customers
- Identifying relevant competitors
- Formulating a marketing strategy
A market can be defined as follows:
A market is the set of all actual and potential buyers of a product or service.
This definition suggests that a market is the total value and/or volume of products that satisfy the same customer need.
For example, if the customer need is “eat breakfast”, then the relevant market could be defined as the “Breakfast Food Market”. Many products would be relevant to measuring and analysing such a market:
- Breakfast Cereals
- Nutrition Bars
- Porridge / Oats
- Speciality Breads (e.g. croissants)
- Fast-food Outlets serving breakfast
In defining a market, it is important not to focus only on products/services that currently meet the customer need. For example, the button manufacturer who believed that their market was the “button market” would have made some poor marketing decisions unless he had seen the arrival of products such as Velcro and zips – which also satisfy the same need – “to fasten clothes”.
Thinking about customer needs first – and then identifying the products that meet those needs – is the best way to define a market.
However, it is also important not to define a market too broadly. For example, it is not particularly helpful for a marketing manager to define his or her market as the “food market” or the “transport market”. The purpose of market definition is to provide a meaningful framework for analysis and decision-making.
For example; consider the “entertainment market”. The customer need is to be “entertained”. There are many products and services that can claim to meet that need in different ways:
At home:
- Television
- Radio
- Video
- DVD
- Games Consoles
Outside the Home:
- Cinema
- Theatre
- Theme Parks
- Opera
- Sporting Events
It is important to avoid too broad a definition of a market. For example, it will be more manageable for marketing managers in the sporting events market to further refine their market definition into more detailed classes or segments.
To help with calculating market share, the following definitions are helpful:
Product class – e.g. computers, televisions, holidays
Product subclass – e.g. laptops, digital televisions, long-haul holidays
Product brands – e.g. Dell, Panasonic, Kuoni
Kuoni as a brand, for the purposes of measuring market share, is only concerned with the aggregate of all other travel brands that satisfy the same group of customers. However, Kuoni also needs to be aware of the trends in long haul holidays and the holiday market in general.
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