Businesses compete to serve customer needs. Not only are there different types of customers, but their needs vary, too. Thus, most markets are not homogeneous. Further, the markets that are homogeneous today may not remain so in the future. In brief, a market represents a dynamic phenomenon that, influenced by customer needs, evolves over time. In a free economy, each customer group tends to want a slightly different service or product. But a business unit cannot reach out to all customers with equal effectiveness; it must distinguish easily accessible customer groups from hard-toreach customer groups. Moreover, a business unit faces competitors whose ability to respond to customer needs and cover customer groups differs from its own. To establish a strategic edge over its competition with a viable marketing strategy, it is important for the business unit to clearly define the market it intends to serve. It must segment the market, identifying one or more subsets of customers within the total market, and concentrate its efforts on meeting their needs. Fine targeting of the customer group to serve offers the opportunity to establish competitive leverage. This article introduces a framework for identifying markets to serve. Various underlying concepts of market definition are examined. The article ends with a discussion of alternative ways of segmenting a market.

IDENTIFYING MARKETS Contemporary approaches to strategic planning require proper definition of the market; however, questions about how to properly characterize a market make it difficult to arrive at an acceptable definition. Depending on how the market is defined, the relative market positions of two companies and their two products can be reversed, as shown in the following table. Though brand X has a low share in the unsegmented, or mass, market (12 percent), it has a much higher share within its own segment of the mass market (60 percent) than does brand S (40 percent). Which of the two shares shown is better for the business: the total mass market for the product category or some segmented portion of that market? The arguments go both ways, some pointing out the merits of having a larger share of industry volume and others noting the favorable profit consequences of holding a larger share within a smaller market niche. Does Sanka compete in the total mass market for coffee with Maxwell House and Folgers or in a decaffeinated market segment against Brim and Nescafe? Does the market for personal computers include intelligent and dumb terminals as well as word processors, desktop and laptop computers, and intelligent telephones? Grape Nuts has 100 percent of the Grape Nuts market, a smaller percentage of the breakfast cereal market, an even smaller percentage of the packaged- foods market, a still smaller percentage of the packaged-goods market, a tiny percentage of the U.S. food market, a minuscule percentage of the world food market, and a microscopic percentage of total consumer expenditures.

All descriptions of market share are meaningless, however, unless a company defines the market in terms of the boundaries separating it from its rivals. Considering the importance of adequately defining the market, it is desirable to systematically develop a conceptual framework for that purpose. The first logical step in defining the market is to determine customer need. Based on need, the market emerges. Because customer need provides a broad perspective of the market, it is desirable to establish market boundaries. Traditionally, market boundaries have been defined in terms of product/market scope, but recent work suggests that markets should be defined multidimensionally. The market boundary delineates the total limits of the market. An individual business must select and serve those parts, or segments, of the total market in which it is best equipped to compete over the long run. Consider Polaroid. It started as an instant photography firm. As such, it had only a 7 percent stake in the $15 billion photography industry. Over the years, it carried out a multi-billion dollar market for itself. But in the 1990s, the company realized it had little chance of any further growth. The developed world was already saturated with cameras, and photography itself was beginning to lose out to home videomaking. By aiming instead at the entire imaging industry from photocopying to printing and video as well as photography Polaroid saw a chance to compete in a rapidly growing, $150 billion global business.

CUSTOMER NEED

Satisfaction of customer need is the ultimate test of a business unit’s success. Thus, an effective marketing strategy should aim at serving customer needs and wants better than competitors do. Focus on customers is the essence of marketing strategy. As Robertson and Wind have said: Marketing performs a boundary role function between the company and its markets. It guides the allocation of resources to product and service offerings designed to satisfy market needs while achieving corporate objectives. This boundary role function of marketing is critical to strategy development. Before marshaling a company’s resources to acquire a new business, or to introduce a new product, or to reposition an existing product, management must use marketing research to cross the companyconsumer boundary and to assess the likely market response. The logic and value of consumer needs assessment is generally beyond dispute, yet frequently ignored. It is estimated, for example, that a majority of new products fail.

Yet, there is most often nothing wrong with the product itself; that is, it works. The problem is simply that consumers do not want the product. AT&T’s Picture Phone is a classic example of a technology-driven product that works; but people do not want to see each other on a telephone. It transforms a comfortable, low involvement communication transaction into a demanding, high involvement one. The benefit is not obvious to consumers. Of course, the benefit could become obvious if transportation costs continue to outpace communication costs, and if consumers could be “taught” the benefits of using a Picture Phone. Marketing’s boundary role function is similarly important in maintaining a viable competitive positioning in the marketplace. The passing of Korvette from the American retail scene, for example, can be attributed to consumer confusion as to what Korvette represented how it was positioned relative to competition. Korvette’s strength was as a discount chain high turnover and low margin. This basic mission of the business was violated, however, as Korvette traded-up in soft goods and fashion items and even opened a store on Manhattan’s Fifth Avenue. The result was that Korvette became neither a discount store nor a department store and lost its previous customer base. Sears has encountered a similar phenomenon as it opted for higher margins in the 1970s and lost its reputation for “value” in the marketplace. The penalty has been declining sales and profitability for its retail store operation, which it is now trying valiantly to arrest by reestablishing its “middle America” value orientation. Nevertheless, consumer research could have indicated the beginning of the problem long before the crisis in sales and profits occurred.

Concept of Need Customer need has always formed the basis of sound marketing. Yet, as Ohmae points out, it is often neglected or ignored: Think for a moment about aching heads. Is my headache the same as yours? My cold? My shoulder pain? My stomach discomfort? Of course not. Yet when a pharmaceutical company asked for help . . . [it] asked 50 employees in the company to fill out a questionnaire throughout a full year about how they felt physically at all times of the day every day of the year. Then [it] pulled together a list of the symptoms described, sat down with the company’s scientists, and asked them, item by item: Do you know why people feel this way? Do you have a drug for this kind of symptom? It turned out that there were no drugs for about 80 percent of the symptoms, these physical awarenesses of discomfort. For many of them, some combination of existing drugs worked just fine. For others, no one had ever thought to seek a particular remedy. The scientists were ignoring tons of profit. Without understanding customers’ needs the specific types of discomfort they were feeling the company found it all too easy to say, “Headache? Fine, here’s a medicine, an aspirin, for headache. Case closed.” It was easy not to take the next step and ask, “What does the headache feel like? Where does it come from? What is the underlying cause? How can we treat the cause, not just the symptom?” Many of these symptoms, for example, are psychological and culture-specific. Just look at television commercials. In the United States, the most common complaint is headache; in the United Kingdom, backache; in Japan, stomach ache. In the United States, people say that they have a splitting headache; in Japan it is an ulcer. How can we truly understand what these people are feeling and why?

Looking closely at needs is the first step in delivering value to customers. Traditionally, needs have been classified according to Maslow’s hierarchy of human needs. From lowest to highest, Maslow’s hierarchy identifies five levels of needs: physiological, safety, belongingness, self-esteem, and self-actualization. Needs at each level of the hierarchy can be satisfied only after needs at the levels below it have been satisfied. A need unsatisfied becomes a source of frustration. When the frustration is sufficiently intense, it motivates a relief action the purchase of a product, for example. Once a need is satisfied, it is forgotten, creating space for the awareness of other needs. In a marketing context, this suggests that customers need periodic reminders of their association with a product, particularly when satisfied. Business strategy can be based on the certainty that needs exist. As we move up Maslow’s hierarchy, needs become less and less obvious. The challenge in marketing is to expose nonobvious needs, to fill needs at all levels of the hierarchy. Maslow’s first two levels can be called survival levels. Most businesses operate at Level 2 (safety), with occasional spikes into higher levels. A business must satisfy a safety need to have a viable operation. The customer must feel both physically and economically safe in buying the product. The next higher levels belongingness and self-esteem are customer reward levels, where benefits of consuming a product accrue to the customer personally, enhancing his or her sense of worth. At the highest level, self-actualization, the customer feels a close identification with the product. Of course, not all needs can be filled, nor would it be economically feasible to attempt to do so. But a business can move further toward satisfaction of customer needs by utilizing the insights of the Maslow hierarchy.