Academic journal article Journal of Small Business Management

Market Definition in Technology-Based Industry: A Comparative Study of Small versus Non-Small Companies

Academic journal article Journal of Small Business Management

Market Definition in Technology-Based Industry: A Comparative Study of Small versus Non-Small Companies

Article excerpt

Although market definition is a foundation for selection of a business strategy, it is often misunderstand or neglected by management. Many companies rely on intuitive, cursory, or incomplete analyses in market selection decisions. Firms may limit market definitions to strictly a product application or customer basis. As a result, businesses are frequently defined by accident rather than design (Abell and Hammond 1979).

Market definition impacts strategic (e.g., new product development) and tactical (e.g., advertising) planning in firms, small and large. A study noted that a clear definition of what business a company was in, was one of the two areas of highest impact to senior management (Rule 1987).(1)

Market definition challenges are heightened in industries characterized by unusually high levels of technological and market uncertainty (Moriarty and Kosnik 1989). Multinational companies as well as fledgling entrepreneurs struggle with this crucial business decision. Consider this comment from the vice president of business development for a 30-person, $56 million annual sales computer software firm: "Industries are not always well defined. Companies often 'invent' new markets; sometimes knowingly, sometimes by accident."


Market definitions should be consistent with a firm's overall philosophy and built on three fundamental elements which are briefly discussed next: customer needs, competition, and technology (see Abell 1980, Porter 1980). Surrounding this focal core is the job scope of the individual defining the market.(2)

Firms are not limited to solitary views of the market. Companies can benefit by accepting multiple market definitions suitable for particular strategic or tactical tasks (Day 1981). Market definitions can be conceptualized to: (1) satisfy customer needs (i.e., internal market definitions), (2) respond to competitive pressures (i.e., external market definitions), or (3) both.(3)

Technology consists of product, process, and management components (Capon and Glazer 1987). Technology also contributes to market definition and redefinition, especially in established industries (Jelinek 1984). When firms move toward the maturity phase of the industry life cycle (e.g., computers, electronics, etc.), marketing efforts within the firm increases in importance. Successful high-tech firms do not have to abandon their technological edge to become marketing-driven. An integrated strategy including both business disciplines is highly desirable.


This study compares and contrasts important market definitions used in small and large U.S. high-tech companies. Market definition terminology used in this study can be found in table 1. A dichotomy by firm size -- small versus non-small (medium and large companies) -- can yield business insights for entrepreneurs as well as Fortune 500 executives. Three research questions (RQs) are posed to assess the approaches that firms use to define markets. They are:

RQ1 Do executives in small technology-based firms differ significantly from marketing executives in non-small firms with respect to the usage of types of: (a) internal market definitions, and (b) external/competitive market definitions?

RQ2 Do perceptual differences exist between small company executives and marketing executives in non-small companies in their use of technologies?

RQ3 Do small firms differ significantly from non-small firms with respect to the impact of job scope issues (i.e., level of management, responsibility, and joint decision making) on market definition?

The first two-part query considers customer-oriented and competitive-driven market definitions. RQ1A tests five levels of internal market definition: corporate, division, Small Business Unit, product line, and product/brand. Seven types of external market definitions are evaluated in RQ1B: diversified, industry, industry sector, strategic groups, generic-market, product-market, and Standard Industrial Classification (SIC) codes. …

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