We have seen that customers purchase benefits when they buy. For example, when we purchase a car it fulfils the functions of transport, prestige, convenience, etc. When we purchase a watch we purchase time measurement, status, etc. But similar products often serve different use functions (benefits) and hence different markets. Products and services with similar use functions are in similar markets, and hence they are in competition. In this context, let us consider computer software.
Instead of defining the market in terms of generic needs, which might be ‘rapid and accurate information processing’, we might identify and define different markets according to the function(s) computer software serves or the ways in which it is used. For example, Function A might be ‘games and entertainment’ while Function B could be ‘business problem analysis’. Clearly, each of these functions represents a very different market. We can see that the concept of functions served is very close to our previous generic needs basis of market definition. Identifying different functions, however, provides different customer benefits and represents more meaningful ways to define markets. We still have to decide how narrowly or widely to define functions (and hence markets); e.g. the ‘business problem analysis’ function could be broken down further into sub-functions.
‘business problem analysis function’
The question of how broadly or narrowly to define functions can only be resolved by reference to the strategic purpose of our definition. For example, if we are concerned to consider potential competition from outside conventional industry boundaries, we need to think at a higher level of abstraction than if we were evaluating direct competitor threats. The more broadly we define usefunctions, the more expansive the market becomes. There is a stage where the definition of a use-function is so wide as to lose all value. Different use-functions attract different competitors and products and services that serve different use-functions serve different markets.
The second key dimension for market definition is the type of technology used to fulfil a function e.g. the function of ‘convenience meals’ can be met by technologies of canned foods, boil-in-thebag or microwave. Similarly, the function of ‘packaging’ can be fulfilled by the alternative technologies of plastic, metal or glass. In defining the market, the strategic marketing planner must determine the technological bases to be used.
Most markets comprise sub-markets or segments, which comprise smaller groups of customers. Each of these sub-groups is homogeneous with regard to an important attribute, e.g. benefits sought, but heterogeneous when compared to other sub-groups with respect to these dimensions. The market for clothing, for example, can broadly be broken down into male and female subgroups. In turn, each of these broad sub-groups can be further divided into, for example, different age groups and/or income groups or ‘fashion conscious’ vs. ‘traditional’ groups. The definition of ‘market’ should specify which of these customer groups is to be served.
Combining factors to define market boundaries
Combining these three factors, we are in a position to illustrate how they may be used to define existing and potential market boundaries. An illustration of how these three elements might be combined is contained for a supplier of drugs for medical use. Market boundaries are defined by any combination of the three axes. There are different cells in the matrix of options each representing what are essentially individual building blocks for market definition. Each cell in the matrix may be defined in terms of customer function, customer group and technology. From the point of view of the drugs supplier, the current market boundary may be redefined using any one or combination of the basic dimensions e.g. new customer groups can be added, new functions served or alternative technologies used. The market cell might represent the current ‘served’ market for the company. The remaining cells represent potential markets. Practical illustrations of the different market boundaries, using the medical analogy, are:
Homeopathic drugs (technology) supplied to chemists (customer group) for the prevention (customer function) of disease.
Synthetic drugs (technology) supplied to private hospitals (customer) for the treatment (customer function) of disease.
Market boundary definition
An illustrative market cell
In practice, the process of identifying and grouping market cells is complex. In particular, it requires detailed and objective market analysis combined with substantial managerial experience and insight. Ultimately market boundaries are determined by customers and their perceptions, needs and choice behaviour rather than by the marketer. For example, we can establish how a market is divided into sub-markets by asking customers, or potential customers, how they choose between different product offerings. An interesting insight into the way customers, through their choice decisions, ultimately determine the limits of a market, and hence factors such as who or what constitutes competition, can be obtained by asking consumers to identify a list of products they feel could be used in a particular context or application. This approach is sometimes referred to as ‘item by use analysis’.
For example, within the total market for chocolate, some customers may see a particular chocolate product as being most appropriate for snack occasions e.g. Mars Snickers which uses this theme in its advertising. So far as the customer is concerned, a key sub-division of this chocolate snack market is based on the primary need a particular product fulfils, in this case the ‘snacks’ market. However, Mars makes ice cream bars and here the product could be viewed as the ‘dessert’ market.
Despite the added complexities of this more sophisticated approach to defining market boundaries, it offers significant advantages over both product/industry-based definitions, and definitions based on generic needs. In order to use this three-dimensional approach, we need to understand how and why markets divide into different customer groups and also the range of customer functions which may be represented in the market. Identifying alternative technologies is less problematic. Advanced research techniques are enabling marketers to identify market boundaries more easily. Understanding different customer groups and functions leads to what, for strategic market planning purposes, is a most important area of marketing, namely market segmentation, together with the related decision areas of targeting and positioning.
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