Market Classifications

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To give you a useable framework for understanding markets and applying the appropriate strategies, classify them as natural, leading edge, key, linked, central, challenging, difficult, encircled and desperate.

This  classification  goes  beyond  the  more  traditional  approaches  to segmenting markets, such as geographic, demographic and psychographic. You will find those approaches highly practical for convenient sorting and creating useful audience profiles.

Also, you can think about the key variables of markets, such as customer relationships, emerging technologies, future potential for your products and services, supply chains, cost structures and entry/exit barriers. You will find yourself sensitized to the uniqueness, distinctiveness and inner- workings of each market.

Let’s examine each with a view toward revitalizing your strategies and honing your managerial skills.

Natural Markets

Natural means that a company operates in the familiar setting of its normal or  traditional  markets.  The  inference  is  that  within  such  customary surroundings,  personnel  tend  to  be  at  ease  and  generally  are  not motivated to venture out of their comfort zone. Therefore, to expand you have to fire them up to move beyond the confines of existing markets.

Also,  natural  takes  on  special  significance  in  the  framework  of  classic business life-cycle theory, which states that all markets (and products) go through the successive stages of introduction, growth, maturity, decline and phase-out. Of necessity, that means you have to take the lead in the search for new markets to enter and drive new product development. The following example illustrates this type of market.

Case Example Apple Computer has long enjoyed the role of niche player in its natural setting of the personal computer market. Then, in 2002, PC market sales reached a plateau with Apple’s market share still hovering in the 3 per cent range, which it held for several years.

The once comforting familiarity gave way to an anxious need for market expansion.  Presented  with  the  consequences  and  the  opportunities, Apple’s managers made the bold move into the mainstream consumer- electronics market. Apple launched iPod, its version of a digital handheld music player smaller than a deck of cards. Industry statistics for such devices in 2002 pegged sales at 12 million units, with sales growth predicted at a rate of 74 per cent annually for several years.

What gives the iPod a boost is its ability to work with most PCs. As a further aid, the product is at the introduction stage of its market and product life cycles. The opportunity? If Apple moved fast enough it could establish a viable  market  position  and  wouldn’t  have  to  fight  excessive  battles against entrenched competitors. Therefore, market leadership for digital handheld music devices is up for grabs to the company that moves rapidly, establishes a brand identity and continues to maintain a competitive lead.

Leading Edge Markets

Leading edge indicates a shallow penetration into a competitor’s territory, with no major interest in becoming a dominant player. The intent is to test a market’s feasibility as an additional revenue stream and determine the type of investment required, based on the depth of commitment from major competitors.

In  this  type  of  market,  to  protect  against  an  unwarranted  competitive confrontation and be forced to exit, your efforts would steer toward gaining cooperation and fostering solid communications among personnel from sales,  marketing,  technical  support,  logistics,  and  other  administrative personnel.

The idea is to make certain that those individuals lodged in the leading edge market don’t feel isolated from the mainstream business. If they sense being cut off, and if unmonitored, the overall strategy to maintain a presence in a minor market could be in jeopardy. Consequently, an active vigilance on your part is always required.

An  application  of  a  leading  edge  market  approach  is  the  initial  minor penetration of the copier market with small copiers by a few Japanese companies into North America. Xerox, the market leader during the 1970s, dedicated its products to the market segment for large copiers. Xerox managers  initially  avoided  the  small  copier  market.  That  oversight allowed enterprising Japanese copier makers to enter freely into the vast market of small- and mid-size firms. Once established, they moved upscale and took over a significant amount of Xerox’s primary market share.

In  another  example,  during  2003  Hewlett-Packard  expanded  its penetration  of  the  lucrative  business-process  (BPO)  market,  which entailed taking over entire functions of a company, such as human resources, finance and administrative tasks such as billing and invoices. The aim: Close the gap with market leader IBM.

Key Market

Key  means  that  a  market  is  evenly  advantageous  to  you  and  your competitor. Generally, you would not openly oppose an equally strong rival that occupies a key market. However, if confronted by a competitor that doesn’t choose to act by a live-and-let-live credo and decides to use a maximum effort to push you out of the market, then – and only then – it is advisable to launch a counter effort by concentrating as many resources as you can assemble.

As in all business strategy, your intention is not to seek open confrontations with competitors, unless you have a clear superiority in resources and any  aggressiveness  on  your  part  fits  your  overall  strategic  objectives.

Depending  on  the  market  situation  and  your  assessment  of  how  your opponent is likely to act under pressure, it is possible that the mere threat of your strong counter-attack could bluff your rival into retreat.

Thus,  keep  the  strategic  big  picture  in  mind:  If  you  expend  excessive resources in hawkish-style actions such as price wars, then you may be left with a restricted budget for customer-directed activities and the means to secure your market position.

Linked Market

Linked markets are equally accessible to both you and your competitors. Similar  to  key  markets,  your  best  strategy  is  to  stay  consolidated  and maintain good communications. You don’t want your groups to disconnect and pursue independent objectives.

Also for this type of market, pay strict attention to constructing barriers around those niches that you value most and from which you can best defend your position. Forms of barriers include quality and value-added products, above-average service, superior technical support, competitive pricing, on-time delivery, generous warranties, and the like. All of which build toward the venerated goal of achieving customer loyalty.

In particular, focus on customer loyalty as a long-lasting, profit-generating advantage. The standard measures of performance, such as market share, return on investment, net income and other financial criteria still hold. But it is strong customer relationships that make a meaningful addition to your growth. As one analyst put it: “If you currently retain 70 per cent of your customers and you start a program to improve that to 80 per cent, you‘ll add an additional 10 per cent to your growth rate.”

The following case illustrates how one company dealt with customer loyalty against formidable competitors with about equal access to the market.