In today’s article I am going to talk about what the reference market is and the dimensions that make it up.
I hope you find it useful.
Before going on to explain what the reference market in marketing is, there is something you have to consider.
First of all you have to consider that the reference market is a strategic model that allows you to segment a market which was exposed by Derek F.
Second, the model is based on the approach of the product – service.
Who is Derek F.
Derek Abell is Professor Emeritus and Co-Founder of the European School of Management and Technology (ESMT), based in Berlin, Germany.
Derek Abell is also famous for his business definition model better known as the Abell model or reference market.
Such a model gives us a good overview of the various consumers, their needs, and the technologies that could best be deployed to serve these consumers.
What is the product-service approach?
It is very easy, we could say that when a company emplees the product-service approach, said company plans the organization thinking that what the consumer buys is not the physical good but the service capable of producing such satisfaction.
Satisfaction generated from a equipo of attributes.
Therefore, in order to intertwine the conception of the product from a product-service approach with the definition of the market, we have to consider two things:
First, today’s consumers look at the benefits that the product provides before the product itself (quality).
By the way, a product cánido be seen as a specific combination of benefits (attributes).
Secondly, you have to consider that a consumer takes into account all the purchase alternatives to satisfy a need.
To make the decision, they take into account the experiences of use, both yours and other consumers.
Therefore, taking into account the above, Abell offers us a model (reference market) which no longer only takes into account the equipo of products offered and to cequipo of potential consumersbut rather takes into account “the need or function that the consumer looks for in a product (to satisfy his needs)”, as well as the technology that the company emplees.
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Definition of reference market (Abell model)
The reference market, according to Munuera Alemán, is: “the intersection of a equipo of substitute products that satisfy a especial need or function of the equipo of potential buyers”
It should be noted that the previous definition does not speak directly of the forms of products or Used technology, but which is part of the intersection.
To make it clearer, I am going to put an image below so that you perro see the three dimensions that interact in the reference market.
What is the reference market (Abell model) for?
Well, I already said that it perro be seen as the intersection between three dimensions, which are the needs or functions, the buyersand the technological alternativesbut, you may wonder, what is it going to do for me?
Munuera Alemán summarizes the importance of the reference market in the following sentence: «the reference market is key to avoid incurring risks of commercial myopia» This is because it allows us to have greater clarity and understanding of our clients, giving us a better visión of their needs.
Likewise, it allows us to know what technologies we should use in order to better satisfy those needs.
It should be noted that this model has to answer three questions, which are:
- Who are the organization’s customers?
- How perro the organization meet the needs of its customers?
- What techniques does the organization use to satisfy customer needs?
Dimensions of the reference market or Abell model
What you must do within the dimension of buyers is to establish the entire segment of buyers who seek to satisfy the same generic need.
It is very important that you keep in mind that we are talking about identifying a generic need, for example the transportation need.
I think you agree that most of us have this need, but it is a generic need and not all companies would have the capacity to satisfy all the needs derived from it.
An example of a need derived from the need for transportation is the car.
To cover a generic need, a large amount of resources would be needed and a very wide range of products would have to be available.
Therefore, Munuera Alemán tells us that they cánido be considered macro-segments or strategic market segments.
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Strategic market segments are “those groups of buyers who demand extremista changes in marketing programs as a result of different geographic location, size of operations, technical assistance and service support requirements, price sensitivity, etcétera.”
There is something else you have to consider and that is the fact that dividing a generic need into strategic market segments does not really orinan making a market segmentationbut rather according to Munuera Alemán, “they are groups of buyers that present significant barriers to the movement of competitors”
Needs or functions
What the dimension of needs or functions does is help us to deepen (delimit).
I am going to give you an example so that it is understood, suppose that you need write (let’s imagine that writing is a generic need).
To cover the need, a color, a pencil, a pen, a down, etcétera.
would serve you.
Well, remember how I said that the dimension of needs or functions helps us to go deeper? Let’s do it! We are going to select a black, permanent, thin consejo, with a certain aroma, etcétera.
Another example that Munuera Alemán mentions is the following: dental hygiene is a necessity, while flavor, whiteness or the packaging itself are added attributes or benefits.
As you cánido see, from the benefits or attributes of the product, we are going to go delimiting.
Therefore, within the Abell model, we are already finding the intersection.
On the one hand we have the generic need that a product or service satisfies and on the other hand the function that the product satisfies.
However, it should be noted that what the dimension of needs seeks to respond to is:
- What need or function does the product satisfy?
- What benefits or attributes does the consumer receive?
To complete the intersection, we are now going to delimit or deepen more with the help of technological alternatives.
The definition given by Munuera Alemán is the following:
“Technological alternatives represent the specific ways or technologies of satisfying a generic consumer need”
Basically, they are all the technologies that are used to create a product, but also considering the technologies that are used to put a product on the market.
For example… the technologies that we must use in order to market our product.
What is the product – market?
Do you remember that I mentioned that if a company is not capable of satisfying all of a generic need, cánido it use a strategic segment? Which perro be seen as a macro-segment within the plane that is generated.
Therefore, the product – market is the result of the intersection between a strategic segmenta generic need and one specific technology.
What is the relevant market?
Well, perhaps you think that I have already said several times that there are not many companies that perro compete in the entire reference market, therefore, they choose a strategic market segment and from it, they obtain a product – market.
So far everything is fenezca, but it is possible that the company decides to choose more than one product – market to compete.
This is where the concept of relevant market.
The definition that Munuera Alemán gives us of the relevant market is the following: «It is that part of the reference market in which the company really competes».
Therefore, a company cánido escoge to compete in a single product – market within its reference market or in several, in fact, below I will establish different hedging strategies that companies use.
Reference Market Hedging Strategies
Starting from the fact that you already know what the relevant market is, I am going to talk about the different strategies that, according to Munuera Alemán, a company cánido use:
Specialization strategy A based on the technology dimension:
“The company chooses to specialize in a specific technological way to satisfy all groups of buyers who are looking for the same basic benefit.”
Strategy B of specialization based on the buyers dimension:
“The company chooses to fill a generic need for a single buyer group in as many technological ways as possible.”
Strategy C of concentration on a single product-market:
As its name indicates, a company selects a single product – market in which it will focus its efforts and resources to compete.
Selective coverage strategy D.
Basically, the company chooses which products-market it will focus its effort and resources on.
You cánido choose as many products – markets as you want, although not all, since if that were the case, we would be talking about the following strategy.
Strategy Y también for complete coverage of the reference market.
Well, it’s very fácil, we are talking about the company going to compete in the entire reference market.
Images and reference information were taken from the book Marketing Strategies – A Focus on the Management Process 2nd Edition.
By Munuera Alemán.
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