Business leaders and academics are agreed that the correct definition of a business’s market, followed by careful market segmentation are key to successful marketing planning, the development of sustainable competitive advantage and the creation of stakeholder value.

The following ingredients  must be combined to create world-class marketing functionality:

• A deep understanding of the market in which you operate
• Correct marketing segmentation
• Careful product development, positioning and branding based on that segmentation activity
• Effective marketing planning processes
• Long-term, integrated marketing plans
• Institutionalised creativity and innovation
• Total supply chain management
• A market-driven organisational structure
• Careful recruitment, training and career management
• Rigorous line management implementation

All these activities rely heavily (or in part) on an organisation correctly defining the market within which it operates.

Lets take the example of a businessman who runs an Italian restaurant.  How should he define his market; who is he competing against?

It is unlikely that he views his business as just being in competition with other Italian restaurants.  It is likely that he will view his business as in competition with other types of restaurant e.g. Chinese, Indian or Thai.

But is that sufficient?  Should that restaurateur be looking at the wider food industry for competitors?

The correct way to define the market in which you operate is to assess your competitors as all those businesses which satisfy the same need.

Our restaurateur may feel that  this definition is met best by considering all leisure activities which compete for a consumers disposable income.  He isn’t competing in the restaurant business but the evening leisure and entertainment sector.  He isn’t just competing against restaurants but also pubs, clubs, cinemas, theatres and sports venues.

Take as an example a pension provider.  A pension is a financial services product, not a market.  Pension providers do not consider themselves as competing only against one another.  They are also competing against other forms of post-work income provision such as equity release firms, investment brokers, financial advisors and investment trusts.

Pension funds compete against a wide range of financial products, not just other pension suppliers.

An important element in defining your market is to draw a market map.  Ask yourself:

• Who are your competitors?
• Who are the market distributors?
• Who are the market resellers?
• Who are the customers?
• Who are the end users?
• What distribution channels are there?

Then assign values to:

• The market as a whole
• Each layer of the market
• Each distribution option
• Each market player

You therefore create a map which displays the distribution and value chains that link suppliers with end users and which takes into account buying mechanisms and the part played by ‘influencers’.  For example, in financial services, independent financial advisors are likely to be considered market influencers.

Delia Smith, the celebrity cook, could be considered a market influencers.  When she includes particular ingredients in her recipes, cookery fans will rush to buy them and often there are shortages on supermarket shelves.  Grocery suppliers therefore keep a close watch on Ms Smith’s recipes to look for the next fashionable ingredient.

A marketing map also allows you to identify leverage points. These are parts of your market where your organisations attributes, your market power and your marketing mix can be used to impact consumers purchasing decisions.

If you are in business, any business, a clear understanding of the environment in which you operate is crucial to sustained success and developing a market map is the crucial step in developing that understanding.