Defining Your Market

Winning Strategies for High-Tech, Industrial, and Service Firms

William Winston, Art Weinstein

• Publisher: Routledge
• Year: 2016
• ISBN:
  9781317957775
• Edition: 1
• Topic: Commerce
• Subtopic: Commerce Général

Visionary companies build markets today to be market leaders tomorrow. This book provides the blueprint. Defining Your Market: Winning Strategies for High-Tech, Industrial, and Service Firms contains research, case studies, and literature reviews on market definition to help marketers, managers, researchers, and strategic planners formulate profitable marketing strategies. Timely and practical, this book offers a research-based methodology for defining markets that will help your company determine relevant markets and make it the most competitive business in the industry. Although market definition is the foundation for formulating business strategies and is critical to corporate performance, marketers and top management often rely on intuition or incomplete analyses when targeting markets. This text discusses the marketing methods used by leading companies and executive and provides you with the knowledge to create strategies that will work for your company. Defining Your Market examines the topics that will help your company become more successful now and into the next century, including:

• customer and competitive-driven market definitions
  
• the five core dimensions of market definition-- customer needs, customer groups, technology, products, and competition
  
• managerial implications related to strategic planning, formulating the marketing mix, integrating marketing and technology, and global strategy
  
• strategies for businesses for redefining markets and successfully competing in the 21st century
  
• the impact company size has on marketing strategies
  
• how to avoid the dangers of creating a market definition that is too narrow and limiting or one that is too broad and overlooks profitable niches in the market

Each chapter of Defining Your Market features exercises that will help you understand new concepts and allows you to put these methods to immediate and profitable use. You will be able to learn about the tools and techniques that work for Andersen Consulting, Dell, General Electric, Intel, Merck, and Microsoft, and dozens of leading business marketers.Defining Your Market provides you with strategies that will help you define and redefine the most relevant and profitable markets for a successful and competitive business.

PART I:

DEFINING BUSINESS MARKETS: A PRIMER

Chapter 1

Market Definition: An Overview

If you don’t drive your business, you will be driven out of business.

—B.C. Forbes

Industries are not always well defined. Companies often invent new markets; sometimes knowingly, sometimes by accident.

—Vice President of Business Development, computer software firm

How do managers define the markets in which they compete? How should they define their markets? When should markets be redefined? Which redefinition strategies are most effective? These are some of the critical queries that successful marketers wrestle with on an ongoing basis. Customer needs, customer groups, technology, products, and competition play a pivotal role in the development of effective market definition strategies for business, service, and technology companies.

Merck, one of America’s most admired companies, has prospered by understanding global health care markets. The company is not just a pharmaceuticals firm, but believes that it is in the health care management business. In fact, management states that its business is improving and preserving human life.¹

In contrast, other once-successful companies can struggle with inadequate definitions of their markets. Case in point: Apple Computer. In 1995, Apple’s Macintosh was cloned by Power Computing of Austin, Texas. It was six years too late. Apple’s failure to license its technology allowed Microsoft’s Mac-like Windows program to become the de facto industry standard in PC software.²

The Macintosh was well positioned as the computer for the non-technical masses (this is the same market that buys millions of those computer books for dummies and idiots, annually). Unfortunately, Apple’s management team made a serious error in business judgment by stubbornly holding on to a narrow, proprietary technology. If Apple changed its market definition and opened its operating system software to the computer world, it is likely that the company would have posed a serious threat to Bill Gates and Microsoft.

DEFINING MARKETS: THE STARTING POINT FOR STRATEGIC PLANNING

One of the most critical strategic decisions executives face is determining the optimal market definition for their company and business units. Company X may debate whether its business is copiers or automated office systems while Company Z might grapple with the idea of plastics or recyclable packaging materials. Newspaper publishers realize that they are no longer just in the news business. Their industry has been transformed from a print medium for large, general audiences to an information and entertainment services provider for smaller, highly-targeted audiences. Specialized advertisers must now appeal to segmented consumer markets (see Case Study 1, The U.S. Newspaper Industry, in Part IV of this book).

The restructuring of the health care market means that the traditional industry focus (medical treatment) has been supplanted by a newfound emphasis—wellness (i.e., health and prevention). Pharmaceutical companies are an integral part of this changing environment. Such companies as SmithKline Beecham (asthma), Novo Nordisk (diabetes), and Eli Lilly (cancer, cardiovascular, central nervous system, endocrine, and infectious conditions), are getting into the disease management business. Other firms are opting to become researcher-only specialists, development-only companies, wholesalers, or broadly defined health care providers to compete successfully in a volatile medical industry.³

Surprisingly, most firms pay scant attention to the focal business activity of market definition, which serves as the compass for navigating tough and turbulent competitive oceans. Few companies have established practical frameworks and knowledge systems to adequately define markets or, for that matter, designated individuals with the prime responsibility for monitoring and evaluating markets (market redefinition). This is particularly troubling since market definition directly affects the overall success or failure of an organization.

As a strategic mechanism that represents the heart of sound marketing and business planning, effective market definition assists management in a multiplicity of critical areas including:

• Formulating a business mission and vision

• Becoming more market/customer-oriented

• Developing competitive strategies

• Analyzing market share

• Expanding geographically or into new industry sectors

• Assessing merger/acquisition or divestiture options

• Evaluating potential market segments

• Devising appropriate positioning strategies

• Improving new product development initiatives

• Rethinking pricing, promotional, and distribution decisions

THE MARKET DEFINITION IMPERATIVE

The information superhighway offers excitement and promise to millions of American and worldwide users. Large companies and start-up firms are fighting aggressively to find their niche in this explosive marketplace. It is interesting to note that several major organizations (AT&T, Control Data, IBM, and the U.S. Postal Service) had a chance to establish leadership positions in the formative days of the Internet, yet they passed on these tremendous opportunities due to a lack of foresight.⁴

Market redefinition is a key issue for firms to better understand. A study of Canadian business indicated that a clear definition of what business(es) a company was in (and not in) and a clear understanding of the firm’s critical success factors were the two areas identified as highest impact by senior executives.⁵

As its computer information market changed, CompuServe adapted from being a mainframe time-share service to a PC-based on line service deliverer. A key part of its corporate evolution was the foray into full-service Internet access. However, as part of its corporate expansion strategy, CompuServe stretched its market definition too far. The company recently was forced to close its on-line, family-oriented service called WOW! to focus on what it does best—serving the business user.

Defining markets is a major problem for firms, large and small; as a result, it is a business activity often misunderstood or neglected by management. Given that this issue is so fundamental to marketing management, we would expect that market definition practices and theories would be systematically investigated, developed, and well-understood. However, research indicated that this clearly has not been the case.⁶

Recognize that markets are multidimensional—comprising people (present and potential customers), needs/wants, purchasing power, competitors, and environmental forces (e.g., technology, regulators, etc.)—as well as products. Rather than using an integrated approach, firms frequently define their markets solely via a product, an application, or a customer basis.

Market redefinition decisions are of considerable strategic and tactical consequence to the firm. The impact of effective or ineffective market definition is illustrated by the actions or inactions of eight leading companies during the past two decades (see Figure 1.1).

WHY MARKETS NEED TO BE REDEFINED

Cursory, intuitive, or informal market definitions are seldom effective in the fast-changing, highly competitive marketplace of the late 1990s, and the forthcoming new millennium. Hammer and Champy note that today’s business environment is characterized by customers that take charge (buyer markets), competitive intensity (niche and global competitors that do not play by the rules), and constant change (product proliferation, ever-shortening product life cycles, and technological sophistication). To respond effectively, companies must move from task to process orientations.⁷

Management can prepare for the marketing challenges of the year 2000 (and beyond) by implementing a market redefinition initiative now. Market redefinition requires a new strategic mind-set, organimtional change in response to market forces, reengineering of marketing processes (e.g., marketing plans, marketing research approaches, segmentation analysis, implementation, and control), and redesign of marketing programs (target market selection and positioning, product development and management, pricing, promotion, and distribution).

FIGURE 1.1. The Pivotal Role of Market Redefinition

Market redefinition is crucial (yet difficult to grasp) in many companies due to high levels of market and technological uncertainty. Hewlett-Packard (HP) successfully reinvented itself from a company driven by technology to one closely focused on the markets it serves. Today, HP’s market orientation emphasizes customer solutions/needs relating to computing, communications, and measurement. And it is working in a big way. Benefiting primarily from printers, PCs, and large computer systems, this $38 billion revenue company (1996) is experiencing rapid growth in sales. Furthermore, it moves with small-firm agility into new markets. Products that have been introduced or revamped within the past two years now account for 70 percent of HP’s orders, up from 30 percent a decade ago.⁸

Hewlett-Packard epitomizes the vital characteristics found in a company with the ability to “compete for the future.” Hamel and Prahalad offer this insightful commentary:

It is not enough for a company to get smaller and better and faster, as important as these tasks may be; a company must also be capable of fundamentally reconceiving itself, of regenerating its core strategies, and of reinventing its industry. In short, a company must also be capable of getting different.⁹

MARKET DEFINITION IS A PROCESS AND AN OUTCOME

What is really meant by the term market definition? Market definition has two meanings.¹⁰ First, it refers to a summary statement of a business unit’s core market strategy, with respect to customer needs, customer groups, technologies, etc. Here is an example of how a semiconductor company might define its market:

We manufacture microprocessors, microcontrollers, computer boards, and related products serving the original equipment manufacturers (OEM) computer market and related industries (industrial equipment, transportation, and medical equipment). Customers primarily in the Americas, Europe, and Asia will benefit from our cutting-edge technologies and outstanding service.

Second, there is the process by which companies define markets. This is the more important strategic issue to the firm. The summary statement logically flows from an effective market definition process. For some companies, market selection decisions are virtually nonexistent—top management dictates policy (e.g., our firm is in the direct mail adverti...

Table of contents

• Cover Page
• Half Title page
• Title Page
• Copyright Page
• Dedication
• About the Author
• Contents
• Preface
• Acknowledgments
• Part I:Defining Business Markets: A Primer
• Part II:Market Definition: Research Findings
• Part III:Market Redefinition: Finding Strategic Advantage
• Part IV:Case Studies
• Part V:Appendixes
• Notes
• Index