Defining Markets

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?’

Related Topics

Understanding markets

What are markets, sub-markets and product-markets?