Concept 3 of 5

How to Define a Product Market and Identify Customer Alternatives

3 questions test this

A product market is the set of customers and alternatives relevant to a particular buying decision. Defining it helps a team decide whose problem to study, which competitors to investigate and what to count in a market estimate.

A technology category alone rarely provides that boundary. “Maintenance software” includes products for very different buyers and tasks. A more useful definition explains who needs help, what they are trying to achieve and how they address the problem today.

Describe the customer and the buying situation

Consider a fictional product for grocery chains managing refrigeration repairs. The maintenance manager chooses the service, engineers use it and a central team approves spending. Stores are the proposed billing unit, but individual stores may not make the buying decision.

That distinction affects research and market sizing. Counting stores estimates potential usage or revenue units, while counting chains estimates the number of sales relationships. Both can matter, but they answer different questions.

Write a first boundary using the customer group, the problem, the geography and relevant operating constraints. Add exclusions where they affect the product, such as equipment types the service cannot support.

Use three dimensions to expose hidden choices

Derek Abell's business definition framework considers customer groups, customer functions and technologies. The diagram applies those dimensions to the maintenance example.

Three dimensions of a market definitionCustomer groupsGrocery chains operatingten or more storesCustomer functionsPrepare repairs that reducerepeat visits and stock lossTechnologiesSoftware, sensor dataand existing engineer workflows
Changing the customer group, the job or the means of delivering it changes the market boundary. These are example choices, not requirements for every maintenance product.

Do not let the technology dimension hide substitutes. An engineer using a phone and a parts catalogue may solve enough of the problem to make new software unnecessary. Customer interviews should investigate actual work, including manual steps and decisions to tolerate the problem.

Compare broad and narrow definitions

Possible definitionWhat it helps investigateWhat remains unclear
Maintenance softwareA broad supplier landscapeWhich buyers and jobs matter?
Refrigeration repair preparationA particular operational problemWho pays and in which setting?
Regional grocery chains with repeat repair visitsA potential priority segmentIs the problem frequent and worth solving?

Start broadly enough to see substitutes, then narrow the target where needs, access and economics support doing so. A narrow segment can make research and distribution more focused. It can also be too small or costly to reach.

Check the boundary against evidence

Review recent buying decisions, lost deals and customer workarounds. Ask what triggered the purchase, who controlled the budget and what the buyer compared. A competitor outside the software category may still matter if customers spend the same budget on it.

For an exercise, write a market definition and list five organisations that fit it. Explain why two plausible organisations fall outside it. Then identify the buyer, user, billing unit and three alternatives for one organisation.

If those details remain uncertain, record them as research questions. Use the resulting boundary when estimating market size, so the estimate counts the customers and units the product could actually serve.

Use the competitive analysis template to record the alternatives relevant to this market boundary.

Where each syllabus puts it

The Pragmatic Framework connects market definition with choosing target segments and assessing whether they can support the business. In the Product Strategy Practitioner course, this boundary also supplies the customer population for market sizing and competitive analysis.

3 questions test this concept

A team reports that seventy per cent of the market has a particular problem. What is the first question to ask?

  • AHow was the survey distributed?
  • BWhich market, since pervasiveness is a proportion and needs a named denominator. Widen the definition and the same problem becomes marginal, narrow it and a niche annoyance becomes the defining need.
  • CWhat is the confidence interval on the seventy per cent?
  • DHow many competitors already solve it?
Check whether it stuck.

One per page, with a worked explanation.

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Related material
Book
Crossing the Chasm, On choosing a beachhead segment and serving it completely.
Book
Playing to Win, On where to play as an explicit choice with things ruled out.
Book
Business Model Generation, On customer segments alongside channels and revenue streams.
Template
Competitive analysis, One row for each competitor covering the segment they serve, their positioning claim, entry price, what their customers praise, what those customers still ask for, and where you are the better fit. Every claim carries a source and the date it was checked.