The concept of a market: defining market boundaries - Marketing Management

Until the strategic marketing planner has defined the market(s) the organization currently and potentially may operate in, few effective strategic decisions can be taken. Defining the market affects virtually every element of strategic marketing planning. Consider a question that practically every strategic marketing planner will need to ask and answer, namely: ‘What is our market share?’ The answer to this, and many other questions of importance to strategic marketing, depends on how we ‘define’ the market. A market definition is not always easy.

Market Boundaries Examples

Take, for example, the ‘holiday market’; a company thinking about potential in this market, with a view to possible entry, could consider the ‘holiday market’ as comprising the total number and value of all holidays taken in any one year. However, within this total market there are many different types of holidays and ways of classifying them. For example, we can distinguish between winter and summer holidays, package holidays and self-catering holidays, domestic and overseas holidays, and so on.

Although they are all ‘holidays’, they differ significantly. If the company was to assess, for example, market size, requirements for competitive success, market growth or market profitability it would probably find that each of these holiday markets would differ substantially. An example of the strategic importance of an organization identifying which market(s) it is in is given by Hooley et al.1 when they describe a senior management meeting some years ago at the Parker Pens company. A new managing director challenged experienced senior managers to identify Parker’s main competitors. Most suggested other marketers of writing implements; some suggested the telephone and other non-written forms of communication.

However, they were taken aback when the new MD identified the main competitor as being Ronson cigarette lighters. The reason was that at that time, many Parker pens were purchased as gifts. A leading alternative for a quality pen at that time was a quality cigarette lighter. This example shows the importance not only of identifying the market you are in, but, as emphasized by Brassington and Pettit,2 of looking at this from the perspective of the customer. The marketing planner must be careful to define market(s) and in so doing be aware of the different dimensions available. We now consider some of these dimensions, where appropriate, commenting upon their uses and limitations.

Product/industry-based definitions

Conventionally, many markets are defined, or at least thought of by those working in them, on the basis of products and/or industries, e.g. the computer software market or the industrial adhesives market. This definition centres on the nature of the product(s) or service(s) produced and marketed. As we can also see, even a product-based definition can lead to either very broad, generic product class definitions, which are akin to defining the market on an industry basis (e.g. the computer software market) or at the other extreme, a narrow product item-based definition, e.g. the writing instruments market.

Initially, this might seem a logical and simplistic way to define a market even if we still have the problem of how broad or narrow to pitch our product-based definitions. The problem with product based definitions is that although they accord with how many companies are in their existing and potential markets, they can be, and often are, misleading for marketing planning purposes. In particular, product-based definitions neglect the fact that customers purchase benefits, not products, and even where generic product class or industry-based definitions are used, as opposed to product item definitions, there is a danger of defining the market too narrowly.

This danger of product-based market definitions was recognized and highlighted in Levitt’s3 classic article on ‘Marketing myopia’ as long ago as 1960. He suggested that many companies were defining their businesses in product terms and hence too narrowly. This in turn, he suggested, was leading at best to missed opportunities and, at worst, business failure. Levitt cites the case of the American railroad companies who appeared to define and operate their businesses on the assumption that they were in the ‘railway market’.

Arising from this, he claimed that many of these companies had subsequently either gone out of business or were struggling to survive. The reason was that they had failed to define their market accurately. In short, according to Levitt, product-based market definitions are indicative of a lack of customer orientation in a business and result in a narrow and shortsighted view of marketing opportunities and threats. In order to avoid these problems, he suggests defining markets in terms of ‘generic need’.

Generic need-based definitions

In suggesting a generic need-based definition of markets, Levitt argues that the market is better seen from the point of view of ‘that which the customer buys’ rather than ‘what the organization or industry makes’. Accordingly, the railroad business would have been better to define their market as ‘transportation’ rather than ‘railway market’. Similarly, a cosmetics company might define its market (generic need) as the ‘beauty’ market; an insurance company the ‘peace of mind’ market; and a camera company the ‘memories’ market. Using our previous Parker Pens example, their market was the ‘gifts’ market. This is a more customer and marketing-oriented method of defining markets. The advantages of a generic need-based definition include:

  • It forces an organization to look at its markets from a customer perspective.
  • It widens the perspective on what currently and potentially constitutes competition, i.e. it helps define competition.
  • It helps in identifying future opportunities and threats.
  • It helps identify key factors in competitive marketing success.

Taking the Mickey

Mickey Mouse, probably the most famous American Disney cartoon character and certainly the longest serving, is the official mascot of the Walt Disney Company. The survival of this character and its still central role in the company’s public persona illustrates the debt Disney owes to its cartoon business. Walt Disney built his business on wonderfully produced cartoons using innovative animation skills. However, there is a limit to the market for cartoon characters. Furthermore, although there is an enduring quality to the cartoon genre, children today have been brought up on a diet of video and arcade-type games which means that the former novelty of going to the cinema and seeing adventures and characters on screen has over the years lost some of its appeal.

However the Disney brand name and image was and still is very powerful. Most adults remember going to see Disney films such as Snow White or Pinocchio with great affection and nostalgia. Faced with a flattening demand, increased competition and changing customer needs and wants, Disney’s dilemma in the 1970s became how to lever its powerful brand assets and company image into developing new markets. Wisely, Disney decided to build on its core brand and image strengths while looking for new growth markets. By identifying its markets as being broadly entertainment, Disney was able to diversify its portfolio without losing sight of what it was good at doing. One of Disney’s earliest and most successful ventures outside of animated cartoons was theme parks. Initially developed in America, Disney theme parks and resorts have spread to other parts of the world such as Paris and Hong Kong. There is now a Disney cruise line.

Another venture has been into the non-animation film world. Included under the Studio Entertainment division is: Touchstone pictures, Dimension films, Miramax and Hollywood pictures as well as the original Walt Disney animation studios. The Disney television group includes ABC, ABC news, Disney Channel, Disney Family Movies, Radio Disney and more besides. Disney has also entered the interactive world with its Interactive Media group including: Disney.com, ABC.com, clubpenguin.com and espn.com. Under Disney Consumer Products there is: World of Disney Stores, Muppets Holding Company, Disney Store, Baby Einstein and Disney Publishing Worldwide. In 2008 total revenue was US$ 37.8 billion. Not bad . . . for a mouse!

Drawing on Levitt’s article to illustrate these advantages, consider the case of the film industry in the 1960s. Levitt suggested planners in this industry had defined their market and hence structure their marketing plans as being in the movies market. The generic need they were supplying however was in fact ‘entertainment’. Therefore, they failed to anticipate the threat to their markets from the new ‘competitor’ television. Consequently, they lost out to this newer form of entertainment and could only watch with concern as their customer base dwindled, attracted to a cheaper, more innovative and more convenient way of fulfilling entertainment needs.

Most companies recognize the dangers of defining their markets and businesses too narrowly and have moved more towards these generic need-based definitions. Disney was once known as, and thought of themselves as, an animated film company. Their portfolio of businesses suggests they now think of themselves as being in the entertainment business.

Although the concept of generic needs for defining market boundaries is helpful in avoiding a myopic view of markets, in strategic marketing planning terms it also has drawbacks including the problem of precisely what is meant by ‘generic needs’ and how broadly we define these. We have seen that with this approach to defining markets, the intention is deliberately to push back the narrower market boundaries to which product/industry-based definitions give rise. However, the danger with using generic needs to define markets is that we can end up with definitions that are so broad as to be meaningless and are possibly misleading for marketing planning purposes. Consider the example of cosmetic product manufacturers being in the generic needs market of ‘beauty’. Clearly, there are many ways in which this need can be filled by customers. For example, the customer can meet this need by visiting a health farm or a plastic surgeon. Similarly, the customer

Given the Boot

The UK health and beauty group, Boots, began trading in 1849 selling herbal remedies from a small shop in Nottingham. It is now the UK’s leading supplier and retailer of health and beauty products. However, recent years have not been easy for the group. Boots has faced intense and growing competition from some of its rivals particularly discount health and beauty retailers and supermarkets, many whom have opened their own pharmacies. There has been intense competition from manufacturers and marketers of many of the products that Boots themselves produce and market under their own brand names, such as toiletries, cosmetics and pain relief products.

A few years ago Boots management decided that the way forward was to expand their core health and beauty business by adding new products and services. The company introduced more health and beauty services in-store, such as manicure, pedicure and skin care clinics, ‘minor’ beauty surgery such as breast augmentation and ‘Botox’ treatment as well as introducing gym and fitness centres.

At face value, this seemed to make sense as these products and services were congruent with Boots’ core business and positioning. After several experimental ventures in selected stores with some of these proposed ideas, Boots realized that even with their long experience in the health and beauty business this was a step too far and the idea was quietly dropped. could join a gymnasium, go on a diet, or purchase a new outfit; indeed, many other permutations are possible in terms of making an individual more attractive. From the point of view of the cosmetics company we ask: Is it helpful and realistic to define a market in such wide generic terms as beauty?

For example, is a cosmetics company really in competition with a manufacturer of clothing or a plastic surgeon? The answer, of course, is ‘no’. This is useful in reminding us that we must think of competition from outside the industry and helps prevent a myopic view of markets, customers and competition, but it is too broad to be of operational use in defining market boundaries and helping to develop marketing plans.

What is needed is an approach to defining markets that is neither too narrow nor too broad and is classified in terms of customer function or group and technology.


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