A market map is used in business to identify the competition within a specific market,
analyse the products or services which they offer to customers, and identify any gaps in the market.
By completing the market mapping process, it provides entrepreneurs
and businesses with a range of benefits.
For example, an entrepreneur would be able to make a more informed decision
about where to position a potential start-up.
Helping them to avoid oversaturated areas of the market where there is intense competition
and take advantage of any gaps in the market where there is little competition.
Alternatively, it allows existing businesses to consider where they
could potentially reposition their brand or expand their product portfolio.
When completing the market mapping process, the businesses within the
market are analysed against two selected attributes, with price and quality being
two of the most popular attributes which are commonly used to analyse the competition.
However, a business can choose from a wide range of attributes,
dependent on what it considers to be important to their target market.
For example, they could analyse the market based on: the longevity of the products or services,
how luxurious the brands are perceived to be? The health benefits provided,
the quality of customer service offered, the demographics of the target market,
the simplicity of the product or service, and how technologically advanced a product or service is.
So now were starting to develop an understanding of why businesses map the market
and the attributes which are commonly used, let’s look at a simple example of the market
mapping process for the car industry using the attributes of price and quality
with just 5 of the major brands currently in the market.
On your screen now, you can see a market map.
It’s a two-dimensional model, with one vertical axis, going from the bottom
of your screen to the top, representing the quality, ranging from low to high.
And a second axis which is horizontal, going from the left-hand side of your screen to the right,
representing the price a customer is charged.
If a business ever wanted to analyse the market against a different set of attributes,
they can just change them, it’s that simple.
So first up, let’s start at the lower end of the market with Renault and Vauxhall,
who both offer their customers affordable cars with a lower price tag,
but as a result the quality isn’t as high as some of the more premium brands in the market.
Moving up in the car market, we now look at Audi,
who are seen as a more luxurious car brand in comparison to Renault and Vauxhall,
offering customers a good level of quality and as a result, the price of their cars is higher.
Towards the higher end of the market is a fairly new player in Tesla, who are starting
to revolutionise the car industry with their electric vehicles and advanced technology.
And finally, we are going to add Ferrari to this Market Map. Not the type of car that the average
customer purchases, it’s certainly seen as a luxurious car which offers some of the highest
levels of quality, meaning the customers who can afford it, are willing to pay a very high price.
Imagine, if the car industry only consisted of these 5 different car brands and you had just
completed the market mapping process, what have you been able to identify as a result?
You most likely have been able to identify that there are clear gaps in the market for cars
which offer high quality and low price, as well as low quality and high price
as there are no competitors currently mapped in these areas of the market map.
However, to produce and sell high quality cars at a low price might not be a profitable or
sustainable business model, whilst selling low quality cars for a high price is likely
to result in very low customer demand. Other than that, there isn’t really an
overcrowded section in market as it stands with just 5 car brands in play, which is good news
for a business looking to enter the market as they have lots of options open to them.
If however, we now added just five more car brands to the market map,
you can start to see more clearly where the opportunities lie.
The mid to low end of the market is now over saturated by intense competition,
therefore based on this evidence, it would be a better decision for a business to produce
and sell cars with high quality at a mid to high price range to increase their chances of success.
If this market map was completed in full for the car industry, it’s likely that every position on
the map which could be considered as a viable option would be overcrowded as it is a highly
competitive industry with many businesses that have been in operation for many years.
Which shows just how well Tesla have done to breakthrough in recent years.
Now we’ve looked at the reasons for using market mapping in business
and seen a simple example in action, it’s important to be aware of its limitations.
Firstly, a gap in the market doesn’t indicate demand for a new product or service.
Therefore, the market mapping process usually relies on supporting market research
to confirm assumptions and assess demand before the business invests
in the production of a product or service to fill this gap.
In addition to this, the competition in the market is only analysed against two attributes.
This can lead to conclusions being drawn that aren’t accurate or representative of the market,
in fact it could be argued that the market mapping process is oversimplistic.
Crucially, market mapping is often based on opinion rather than fact.
With many entrepreneurs and businesses
completing the process subjectively without supporting statistics and data.
Meaning, it’s crucial that the person completing the market mapping process
has good levels of insight, understanding, and experience in the market which is being analysed
for it to be accurate and useful for business decision making.
For example, you might not agree with how I completed the market map for the car industry and
if a market map is completed with poor accuracy, based purely on opinion rather than being backed
up with data and statistics, this can lead to poor decision making and the business investing into a
product or service to fill a supposed gap in the market where there is no demand from customers.
So that’s it, a quick introduction to the market mapping process. If you’ve found
the video helpful, don’t forget to smash the like button and remember to subscribe to Two
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