Academic journal article Journal of International Business Research

Cognitive Gap between Producers and Consumers in the Process of New Product Market Formation

Academic journal article Journal of International Business Research

Cognitive Gap between Producers and Consumers in the Process of New Product Market Formation

Article excerpt

In this paper, I explored the factors influencing product market dynamics from the perspective of differing knowledge structures of producers and consumers. In the first part, I defined a product market as a socially constructed knowledge structures that are shared among market actors (Rosa et al. 1999). Then, I identified two factors that influence the formation of product markets: the competitive arena perceived by producers, and consumers' knowledge with regard to product classification.

In the second section, I reviewed previous researches to understand the elements that influence these two factors. Previous research on consumers' perceptions of category structure imply that the boundaries of product markets are related to substitutability with regard to product usage. In contrast, from the producers' perspective, a shift in the competitive arena after the appearance of "the dominant design" of products has been pointed out as a factor influencing product market boundaries (Abernathy and Utterback, 1978).

Finally, using articles in newspapers and magazines as data, I conducted a study on the Japanese soft drink market, focusing on the formation of the "bottled green tea" category. The results revealed a change in the competitive arena for producers, which could be a source of potential threats as well as opportunities.

WHAT IS A PRODUCT MARKET?

The market environment, which surrounds producers and consumers, includes a myriad of boundaries, within which lies the "product market." We can recall similar sets of products that constitute certain product markets such as "automobile," "camping equipment," or "bottled green tea" markets. These product market boundaries help market actors define the values of goods traded within the market and help to establish a fundamental order for the purpose of coordinating trade between producers and consumers. It is based on these boundaries that producers perceive their competitive setting when they formulate a strategy, and consumers form a consideration set in their purchasing situations.

In traditional marketing research, the existence of product categories has not been questioned. (Rosa et al. 1999) While research has implicitly assumed the existence of product markets in addition to the fact that these markets have boundaries, the arbitrariness and dynamic changes in the boundaries was never a central issue of discussion. This is partly because product markets are fundamental coordinates (McCracken 1986) to interpret a chaotic and uncertain world. Once a product market is formed, the existence of market boundaries seems like a given condition for market actors--a condition that influences their perception and action. As a result, it affects the performance of firms. For instance, when manufacturers generally use the share of a market as one of the important criteria to evaluate the performance of their products, they assume certain boundaries of the product market. The recognized market environment depends on the boundaries of the "competitive arena," that is, the product market.

In summary, facets of strategic decision-making, such as the definition of a business, assessment of opportunities and threats, and the allocation of resources, are strongly influenced by the range of the product market. (Day, Shocker and Srivastava 1979) This gives rise to the following question: What are the determinants of the boundaries of a product market?

PRODUCT MARKET AS THE EXTERNAL ENVIRONMENT FOR MARKET ACTORS

Traditionally, "industry structure analysis," which assumes given and external market boundaries and analyzes the market structure affecting the performance of each company, has been a prominent approach, especially in the consideration of competitive strategy. (Porter 1980, Hofer and Schendel 1978) The purpose of this analysis is to explain the gaps in performance between different industries or companies on the basis of the intensity within the market, based on the structure-conduct-performance (S C P model) in industrial economics, which argues that the "structure" of a market determines the "conduct" of each company and consequently affects the companies' "performance. …

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