Business strategists and marketers throw the word “market” around liberally, using it in different contexts with different definitions without explanation. This can be confusing.
I especially notice the difference moving from an investment perspective to an operational perspective. In the former, the term is often more seller-focused. For example, “who are the players in the market?” In the latter, the term is often more buyer-focused. For example, “our market is automotive companies.”
“The market is $30 billion.” (Overall bazaar, refers to the amount buyers are spending with sellers.)
“We sell to the higher education market.” (Refers to a group of buyers.)
“We can beat anyone in the market when it comes to color choice.” (Refers to a group of sellers.)
“Let’s take this RFP to the market.” (Sellers)
“The market won’t respond well to that message.” (Buyers)
Like I said, this can get confusing, especially if you’re trying to discuss something with precision, like a model for positioning.
For the sake of clarity, here are some definitions.
Market: The overall bazaar, including sellers of a product type and buyers of a product type. Buyers have some (but not all) overlapping problems to be solved (needs), and sellers have solutions with some (but not all) overlapping capabilities. The definition is typically somewhat loose, and different parties may not agree on the specifics. Analyst groups derive a lot of value from time defining and sizing markets.
Market segment: A group of buyers of the product type, filtered by one or more criteria. Needs are very overlapping.
Target market: A market segment the seller has chosen to target.
Product category: Aka Product Type. A group of products that solves a common set of problems. A product category can be broadly defined or narrowly defined (e.g, network security products or firewall products, respectively). Which is used is dependent on the context.
Competitive arena: The vendors competing to sell to a particular buyer. Over time, a company will find itself in the same competitive arena repeatedly, competing with the same sellers to meet similar buyer needs. This is likely a subset of all sellers, with many overlapping capabilities. In aggregate, this is typically a product category.
An important characteristic of these concepts is their semi-organic nature. A market needs both buyers and sellers, and the components are defined by what sellers are offering and what buyers are looking for, and these influence each other. Existing buyer needs (i.e., needs buyers are aware of) are the biggest factor in determining markets, but sellers can introduce new needs and influence the perception and priority of existing needs.
Sellers need to tread a delicate balance: get too far away from what buyers are already looking for and you risk “getting ahead of the market” and failing. Only follow what buyers are already asking for and you risk becoming a me-too product, competing only on price.
Threading this needle correctly is the goal of product strategy and positioning, which I’ll explore in a future post.