One of the most important research and analysis requirements is to identify the ‘market category’ in which the ventures ‘product’ competes, along with other brands. This is a significant challenge, not alone at start-up /emerging stage, but also an ongoing basis for established entrepreneurs.
Markets develop, consumer needs change and competitor brands evolve. Any or all of which create the challenge – are you competing in the right market category?
A market category is created by a common customer need and aggregate buying power, which in turn, typically spawns (many) product solutions – each of which form into differing groups, offering alternative ways to satisfy the customer need. In the dynamic that is a market, these alternatives evolve into ‘product type markets’- big and small, growing and declining- each with its set of competing ‘brands’. According to research by McKinsey & Co the top three brands in each product type market get 70% of the sales opportunities. Entrepreneurs must know their ‘market category’ in order to create and continually re-invent the top-three brand positioning, needed to achieve sustainable competitive advantage and success.
A good starting point to mapping a product’s market category is to review the markets' competing, but existing products. Rarely does a new venture have an entire market to itself, regardless of the innovative quality of its product. Customer needs are seldom created by new products. Rather, new products provide new ways of meeting existing needs. For example, Sony’s Walk Man Music Cassette Player - a very innovative consumer product- met the needs of customers who wished to listen to music - while on the move!
This relationship between customer needs and varied product solutions is the basis for the concept of the market category. Market categories are created by needs, buying power, and products to satisfy needs. If a need is present, the overwhelming odds are that there are already some products around to satisfy that need. Thus, such products become a source of competition. For each customer need, there are typically several products available to satisfy that need. A ‘generic class’ groups all these products into one category, and each product in the generic class provides an alternative way of satisfying the need. Each alternative product can then be grouped into the different product types or forms. Finally, each product type has one or more similar brands (i.e., different company offerings) competing with each other.
For airline passengers a generic need, or interest, is in being entertained during the flight. The generic class of products available to satisfy this need is termed by the industry as ‘In Flight Entertainment (IFE)’ which basically comprises entertainment content (movies, music, short programmes, etc) and an audio-visual system to see and listen to it. The generic product market (IFE) has four different product-type markets, each satisfying the passenger need in alternatives ways: single channel, multi-channel, on-demand and real-time entertainment.
Each IFE product-type market has its competing brands. To build an edge over competitors, each company offers a somewhat unique brand, to position itself in the minds of the product-type market.
In-Flight Entertainment ‘Product –Market Categories’
IT DEFINES THE COMPETITION ZONE
Market categories, product type-markets and competing brands comprise the competitive market arena. Each company and its brand is competing for business in this arena, taking on both similar and dissimilar brands of other product types when competing for a share of sales. In the ‘IFE’ market arena, for example; the hand-held on-demand entertainment console is really competing with other in-seat on-demand entertainment systems, as well as all other types of entertainment systems like multi-channel and real-time.
Understanding this larger arena is not just important for a new start-up/emerging venture. It is also very important to track changes in categories, product-type markets and competitor brand positions on an on-going basis. The obvious benefits of this lie in pre-empting threats to the business from missing competitor moves and not responding to changing customer needs. Tracking changes in the market arena also yield opportunities to create new markets and growth for the venture. Coke Cola missed the change in the ‘thirst’ market category. They continued to see the market in their own ‘brown liquid’ product-type market terms. New entrepreneurial competitors looked at the category differently and saw opportunity to meet the thirst need in new ways:
- Snapple created the ‘fruit-flavoured teas’ product-type market and won the no.1 brand position within the market.
- Gatorade created the ‘sports drinks’ market
- Nestle created the ‘designer water’ market
- Red Bull created the ‘novelty drink’ market
The task of defining the market category and constituent product-type markets is challenging, because more than one market category and product type classification is possible. Ultimately, management must decide what product-market structure makes the most strategic sense for the company. Outcomes to that definition of product-market structure leads to; strong, sustainable brand position; identification of new market opportunities and knowing the entrenched competitors who will not easily yield their positions in these markets.