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A Hierarchy of Markets

 

Disciplines > MarketingUnderstanding Markets > A Hierarchy of Markets

Population | Potential | Available | Target | Served | Core | See also

 

Markets are defined by their boundaries, what is in and what is outside the market, and markets may be found within markets. In understanding your market, a whole set of nested markets may be analyzed to ensure these are appropriate and to make decisions about the contents of each market.

 

Population

Potential

Available

Target

Served

Core

 

Population

The largest possible market is the entire population of the world. Of course no company can serve everyone (although some, such as Coca-Cola, make a pretty good effort at this).

Potential market

The potential market is everyone who could use the products and services that you provide. If you sell food and drink, this market is close to the population. If you sell specialist machine tools, then your potential market is much smaller, although still global.

A common problem in identifying markets is that companies miss the potential market, for example in not considering customers overseas or people who may put the products to different uses as compared with traditional customers.

Available market

The available market is that which you can reach, or where it is cost-effective to reach. A typical example of non-available markets are those in foreign countries where different languages and customs barriers make these too difficult to serve. Retail stores are usually constrained to local people and passing traffic.

Other factors can limit market availability for example fresh food which does not travel well will limit the geography which can be served.

Small companies have traditionally had very limited available markets, due simply to limited marketing budgets. The advent of the internet has been very helpful here as any website is available around the world.

Target market

The target market is that which a company seeks to serve and is a subset of the available market. Selection of this market is a key task as there can be significant costs in reaching potential customers.

A good target market is one which will be sufficiently profitable, and where:

  • Potential customers will want to buy our products and services.
  • They will spend enough money to cover our marketing costs to them as well as production and shipment costs.
  • The overall profit margin makes it worth our while to market to them.
  • There is not a preferable target market elsewhere.

Served market

Within the target market, there is a served market of actual customers who have already bought products and services. With real customers, you can get to understand them far more than the target market, getting feedback on their experience of learning and using the product as well as any associated experience, from buying to disposal.

When you have actual customers you can conduct a more detailed research process, asking them all kinds of questions and even going out to watch them use your products in their natural environments. Such close observation can be extremely valuable for improving future products and services.

Core market

When a customer has bought from you, this hopefully results in them buying the same thing again, buying other things and recommending you to their friends.

Understanding these factors can help you identify your core market of valuable customers who are most profitable and who should probably be nurtured more than the occasional buyer.

See also

Three Market Environments

 

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