Defining the Market

Market demand measurement calls for a clear understanding of the market involved. The term market has acquired many meanings over the years. In its original meaning, a market is a physical place where buyers and sellers gather to exchange goods and services. Medieval towns had market squares where sellers brought their goods and buyers shopped for goods. Markets still dominate retailing in the Third World and remain in many towns, but most of today's buying and selling occurs in shopping areas.

To an economist, a market describes all the buyers and sellers who transact over some good or service. Thus the soft-drink market consists of sellers such as Coea-Cola, Pepsi-Cola, Tango and Lilt and all the consumers who buy soft drinks. The economist's interest is the structure, conduct and performance of each market.

To a marketer, a market is the set of all actual and potential buyers of a product or service. A market is the set of buyers and an industry is the set of sellers. The size of a market hinges on the number of buyers who might exist for a particular market offer. Potential buyers for something have three characteristics; interest, income and access.

Consider the consumer market for Finnish Tunturi exercise cycles. To assess its market, Tunturi must first estimate the number of consumers who have a potential interest in owning an exercise bike. To do this, the company could population

Potential market population

Potential market

A. Total market

Potential market

Availably market

1 A

Qualified available n

Served market Penetrated market

' ...

B. Potential market

A. Total market

B. Potential market

Figure 8.4

Levels oC market definition contact a random sample of consumers and ask the following question: 'Do you have an interest in buying and owning an exercise bike?' If one person out of ten says yes. Tunturi can assume that 10 per cent of the total number of consumers would constitute the potential market for exercise hikes. The potential market is the set of consumers who profess some level of interest in a particular product or service.

Consumer interest alone is not enough to define the exercise hike market. Potential consumers must have enough income to afford the product. They must he able to answer yes to the following question: 'Would you pay Fmkl ,000 for an exercise hike?' The higher the price, the lower the number of people who can answer yes to this question. Thus market size depends on both interest and income.

Access barriers further reduce exercise hike market size. If Tunturi has no distributors for its products in some areas, potential consumers in those areas are not available as customers. The available market is the set of consumers who have interest, income and access to a particular product or service.

Tunturi might restrict sales to certain groups. Excessive repetitive exercise can damage young children, so sale of exercise hikes to anyone under 12 years of age may be discouraged. The remaining adults make up the qualified available market - the set of consumers who have interest, income, access and qualifications for the product or service.

Tunturi now has the choice of going after the whole qualified available market or concentrating on selected segments. Tunturi's served market is the part of the qualified available market it decides to pursue. For example, Tunturi may decide to concentrate its marketing and distribution efforts in northern Europe, where the winter nights are cold and long. This becomes its served market.

Tunturi and its competitors will end up selling a certain number of exercise hikes in their served market. The penetrated market is the set of consumers who have already bought exercise bikes.

Figure 8.4 brings all these market ideas together using hypothetical numbers. The bar on the left of the figure shows the ratio of the potential market - all interested persons - to the total population. Here the potential market is 10 per cent. The bar on the right shows several possible breakdowns of the potential market.

potential market The set ofconsumers 'who profess sonic level of interest in a particular product or service.

available market The set o/consumers voho have interest, income and access to a panivuliir produce or scrvice.

qualified available market

The set ofconsumers izho have interest, income, access and qualificationsfor a particular product or served market (target market)

The pan of the qualified available market that the company decides Co pursue.

penetrated market The set of consul? !crs who have already bought a particular product or service.

The available market - those who have interest, income and access - is 40 per cent of the potential market. The qualified available market - those who can meet the legal requirements — is 50 per cent of the available market (or 20 per cent of the potential market). Tunturi concentrates its efforts on 50 per cent of the qualified available market - the served market, which is 10 per cent of the potential market. Finally, Tunturi and its competitors have already penetrated 50 per cent of the served market (or 5 per cent of the potential market).

These market definitions are a useful tool for marketing planning- If Tunturi is unsatisfied with current sales, it can take a number of actions. It can expand to other available markets in Europe or elsewhere. It can lower its price to expand the size of the potential market. It can try to attract a larger percentage of buyers from its served market through stronger promotion or distribution efforts to current target consumers. Or it can try to expand the potential market by increasing its advertising to convert non-interested consumers into interested consumers. Concern over heart diseases means that many middle-aged people who have avoided exercise for years are being encouraged to do more. Perhaps Tunturi can work through the health industry to attract these.

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  • Melanie Scherer
    What is qualified available market?
    8 years ago

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