What are markets, sub-markets and product-markets?
A market is the overall set of buyers (consumers) and sellers (firms) for a broad market need, such as the banking market, or the education market, or the ready-to-eat food market.
A sub-market forms part of an overall market, but tends to have some unique operating characteristics. For example, the banking market could be split into the sub-markets of credit cards, home loans, online savings, and so on. Large financial institutions would probably operate in all these sub-markets, whereas smaller and specialist players may only operate in one or two sub-markets. This means that in each sub-market there would be a different competitive set and market structure.
Unfortunately, the terminology used in this area is somewhat confusing across different textbooks. Between them they sometimes use the terms ‘market’, ‘sub-market’, ‘market segment’ and ‘product-market’ interchangeably. Hopefully the following discussion will help clarify the terms.
Definitions of markets, sub-markets and product-markets
What is a market?
Traditionally, the term market has been defined in economic terms, as per the following examples:
- “It is usually understood as an organized process by which buyers and sellers exchange goods and services for money.” (Chin & Guan, 1996)
- “… we use the term (market) to refer to exchanges between buyers and sellers who communicate with each other about the quality and quantity of the product, what buyers are willing and able to pay for a product, and what the sellers must receive in order to produce or sell a product.” (Mukherjee, 2005)
You will notice that the first definition is quite straightforward and tightly defined as it defines a market simply in terms of the exchange between buyers and sellers. However, the second definition is much broader and is more reflective of a market from a marketing perspective. This second definition also includes the elements of communication (which is marketing promotion), price and profit incentive. Therefore, this second definition is more appropriate for us in the study of marketing.
What is a sub-market?
Sometimes the term sub-market is utilized in marketing textbooks, particularly those relating to strategy and positioning. As suggested by its name, a sub-market is a smaller part of an overall larger market. Perhaps surprisingly, it is a little difficult to find an accepted definition for a sub-market. This is because the term has slightly different meanings across marketing, economics, law and even real estate.
The formal recognition of sub-markets came from a legal case, known as the “The Brown Shoe case” [Brown Shoe Co. v. U.S. 1962], where a sub-market was referred to as ‘a relevant market within a relevant market’. As part of their deliberations, they indicated that sub-markets were likely to have products with unique characteristics, distinct customers, distinct pricing, and even specialized retailers.
Therefore, a suitable definition for our purposes as students of marketing:
- A smaller and more defined sector of an overall market, which has a number of differing marketing and structural features, which may include distinct distribution channels, price elasticity, competitive sets, and effective promotional methods.
What is a product-market?
As part of a firm’s marketing strategy development, they are likely to define the markets and/or sub-markets that they choose to operate in. This is sometimes referred to as ‘where to compete?’ Some companies will map out their business scope on a product/market grid, which identifies which products they wish to offer in which markets or sub-markets.
Each organization is likely to have a relatively unique view for their product-market definition.