Why do firms define markets?
Reasons to Define Markets
|Business definition||Most businesses prefer to have a clear understanding of what business they are in. Defining the scope of their markets provides a framework for their operations|
|Strategy development||The long-term success of an organization is highly dependent upon their business strategy and its effective implementation. Clear market descriptions and boundaries provides significant guidance in their strategy and planning process|
|Search for opportunities||Clearly mapping out the range of markets they are pursuing may help identify opportunities and unmet needs|
|Define competitors||Defining markets will enable the firm to more effectively identify its direct and indirect competitors|
|Focus resources||Clear market definitions will ensure that management and other resources are continually focused on the identified market/s, rather than considering a range of other potential opportunities|
|Market segmentation||Organizations need to define markets as the first step in their market segmentation process|
What are the main approaches to defining a market?
A market can be effectively defined in a number of ways, with the most common ones being:
|By industry classification (as with the categories used in government statistics)(Here is the link for the North American Industry Classification System)|
|By product category (for example, cars, food, retailing, publishing, professional services)|
|By country (or other major geographic area)|
|By Yellow Pages directory listings|
Why is defining a product-market important?
A firm needs to define their scope of operations – both current and future.
The firm’s definition of the markets and in which product categories that they will compete in is a key market strategy decision.
Essentially it answers the key strategy question of ‘where to compete?’