What Is Market Definition and Why Does It Matter?
You can’t be all things to all buyers. Even corporate giants like Walmart and Apple don’t serve the needs of every consumer, nor do they aspire to. Rather, they have well-defined markets, and they stick to them. Your business—no matter how big or small—should do the same.
Once you’ve defined your market problems and mapped your competitive landscape, it’s time to narrow your product market definition. Doing so will allow you to focus on marketing and selling to the right audience. After all, not every person or business with a market problem will be included in your target market. Knowing who is will allow you to concentrate your efforts and make strategic business decisions regarding your product.
What is market definition?
Product market definition is the practice of deciding who exactly your customers might be. While it’s tempting to think everyone will want to buy your product (after all, it’s so great!), the truth is that not everyone will want or be able to.
Market definition takes a closer look at the potential market for your product and drills down to determine the segment of the market worth pursuing—the segment that is most likely to have an interest in your product and the means and ability to purchase it. During the product market definition process, you’ll also:
- Map the needs of your target market(s)
- Analyze which market segments to actively pursue
- Ensure targeted segments are large enough to support the current and future business of a product
Why is it important to define your market?
There are two main reasons product market definition is important to your business. The first is that it will help you determine the viability of your product. It will help you answer questions such as:
- Is it even a product people want?
- Can the people who want to buy your product afford to do so?
- Is the market for your product large enough to sustain operating costs? Profitability?
The second reason it’s important to define your market is it allows you to focus your attention, efforts and budget on the right areas. Work on gaining the favor of a market segment. Even mega-brands like Walmart and Apple have defined markets. They know not everyone will be a customer, and they’re OK with that. Walmart’s market is bargain shoppers, and so that’s who the company keeps in mind when making business decisions. Yes, a certain percentage of their sales will come from outside their target market, but they’re not going to spend money pursuing those buyers, nor will they change their business model to attract them. They’re in tune with their core market, and knowledge of the market they’ve defined informs every decision the company makes.
Market definition takes a closer look at the potential market for your product and drills down to determine the segment of the market worth pursuing
How do you define your market?
Outlining your product market definition takes some effort but is extremely important to every other product marketing decision you’ll make, so it’s best to take your time and do it right. Here are five key steps to defining your market:Establish intentions
The first step to developing your product market definition is to ask yourself why you’re doing so now. Are you trying to grow sales of an existing product? Are you trying to identify a new market segment for your product? Or is your product still in research and development, and you’re attempting to nail down the market’s pain points? Knowing the goal for defining your market will help inform the rest of the process.Talk to people
After you figure out exactly what it is you’re trying to learn, it’s time to get out there and talk to people. This can be done in a variety of ways, depending on your market. Trade shows and other industry events are rife with opportunities to interact with your market. You can also reach out to people via LinkedIn to schedule phone calls to ask your questions. On the consumer side, you can contact special interest groups (i.e. running clubs, writer communities, mommy groups, etc.). Just be sure not to misrepresent yourself.
When you’re talking to people, ask open-ended questions and listen, listen, listen. This is a fact-finding mission, not an opportunity to try to make a sale or change perceptions. Learn more about how to conduct interviews to better understand your market’s needs.
Conduct research
Once you’ve had conversations with enough people and patterns are beginning to form, it’s time to validate your hypotheses through research. You can purchase market research or commission custom research, but both of these options are extremely expensive (or should be, if they’re to be credible). You can also conduct your research through online surveys or with the help of a partner like UserTesting.Narrow your target
By now, you should have a pretty good idea of whether there is a market for your product. So, it’s time to narrow down your target market. Keeping in mind that you can’t be all things to all people, ask yourself who your most likely customers are as well as who you want your customers to be. Include those who:- Have a problem for which they need a solution.
- Are legally permitted to purchase your product.
- Have the means to purchase your product.
- Would best be served by your company/product.
Share, share, share
Once you’ve nailed down your product market definition, you’ll need to get buy-in from executives and key stakeholders. It’s crucial that everyone on the team be on the same page when it comes to defining the market. So host meetings, produce written summaries and discuss your product market definition often. Establish a habit that every team member refers to your market definition when making any business decision.
Outlining your product market definition takes some effort but is extremely important to every other product marketing decision you’ll make, so it’s best to take your time and do it right
What should you do once you’ve established a product market definition?
It’s important to know that your product market definition will change with time. Sometimes there is a single impetus for change that drastically narrows or opens up your market—such as a product being legalized in a certain state. It’s more likely, though, that your market will evolve over time, and your product market definition will need to as well. The key is continuing to monitor your market by checking in regularly with customers and noncustomers via interviews and surveys.
As you continue to monitor your market, it’s important to be open to feedback and not become so committed to, or enamored of, your product that you are unable to see a need for change. Take the example Michael Mace from UserTesting used in our Market Definition: Best Practices for Uncovering Market Problems webinar. In the ’60s, ’70s and early ’80s, several car manufacturers went all in on the station wagon. It was the perfect family car—large enough to carry multiple kids, haul groceries and even move the occasional piece of furniture. When a more practical alternative entered the market—the minivan—station wagon sales tanked. The minivan was able to offer similar passenger capacity but was safer and easier to maneuver with its shorter chassis.
Then, of course, the SUV came along. While the minivan was still preferred by plenty of buyers, sales waned. Buyers flocked to the more attractive SUV that still was roomy but less frumpy. Plus, it offered off-road capability. Now you’re probably thinking, but wait a minute; the vast majority of people who own SUVs don’t actually drive them off-road. And you’re correct. Still, the possibility is there, and that represents adventure, which is a powerful emotional draw.
Market evolutions like these happen all the time. It’s recognizing and accepting them that’s important. It may be tough to imagine in hindsight, but at the time of these major market shifts, most automobile manufacturers saw station wagons and minivans, and then later minivans and SUVs, as being separate markets. In reality, they were all the same market—family transportation.
Example of market definition
Every product you develop may have a different target market. That’s why it’s so important to go through the product market definition process anytime you consider a new product. To illustrate the reasons for that, consider the Disney corporation.
Disney’s overarching markets are families with children and people who consider themselves kids at heart. But each of its divisions has a narrower product market definition of its own. Take Disney Plus. Yes, many subscribers are the same guests who visit Disney’s parks. But when Disney launched Disney Plus in 2019, the company also had to take into account access (Disney Plus is not available in every country or every language), affordability and audience. Of course, since launching, Disney has opened up access to more viewers geographically and expanded its content through the release of Marvel and Star Wars films through the streaming service.
Even Disneyland Resort has a product market definition separate from Disneyland park that likely excludes families who live within a certain distance of the park (since they don’t need accommodation) and lower-middle income families (rates are more expensive than other area lodging). Even Disneyland in California and Disney World in Florida would have distinct product market definitions, considering geography plays a role in who will visit as well.
Learn more about market definition
Defining your market can help you determine whether your product is viable so that you can strategically focus your time, effort and resources in all the right places. Learn more about market definition in Pragmatic Institute’s Focus class today.