A market type is a way a given group of consumers and producers interact, based on the context determined by the readiness of consumers to understand the product, the complexity of the product; how big is the existing market and how much it can potentially expand in the future.
Market Type
Description
Characteristics
Examples
Perfect Competition
A market with many small firms selling identical products.
– Large number of buyers and sellers – Homogeneous products – Perfect information – No barriers to entry or exit
Agricultural markets, stock exchanges
Monopoly
A market dominated by a single seller with no close substitutes.
– Single seller – No close substitutes – High barriers to entry – Price maker (control over prices) – Limited consumer choice
Local utility companies, patents, copyrights
Oligopoly
A market dominated by a few large firms that compete strategically.
– Few large firms – Interdependence – Product differentiation (often) – Strategic behavior – Barriers to entry and exit
Automobile, airline, and telecommunications industries
Monopolistic Competition
A market with many firms selling similar but not identical products.
– Many firms – Differentiated products – Limited market power – Some control over prices – Relatively easy entry and exit
Restaurants, clothing brands, personal care products
Duopoly
A specific type of oligopoly with two dominant firms.
– Two large firms – Interdependence – Strategic behavior – Limited competition – Barriers to entry
Boeing and Airbus in the aircraft manufacturing industry
Monopsony
A market with a single buyer that has significant control over prices and quantities.
– Single buyer – Many sellers – Price maker for inputs – Significant control over quantities purchased
A large retailer purchasing goods from suppliers
Bilateral Monopoly
A market with one seller and one buyer, both with significant market power.
– Single seller and single buyer – Bilateral monopoly power – Negotiation of prices and quantities – Unique and specialized transactions
Understanding the market type will change the way you’ll need to structure the organization, whether or not you’ll need outside funding and how to position your business in the marketplace.
As of 2022, Google Search still represents the strongest business unit within Alphabet, with over $162 billion in revenue, or 57% of the company’s total revenues.
The strength of Google Search primarily depends on the vertical integration that Google has built over the years.
Where Google has an almost monopoly on the search, browser, and operating system market.
These components, together with Google’s advertising machine, created the strongest segment within Google’s business model.
Oligopoly
In this scenario, a few suppliers control the market demand.
Take the car industries, which for decades has been dominated by a few key global players, which pretty much determined the market.
Perfect competition
In this scenario, buyers and sellers are present in equal measure.
The classic example is a restaurant business, in a local neighborhood, competing with many other restaurants across each other.
The restaurant business is a clear example of perfect competition, where it gets harder and harder to differentiate as more and more restaurants offer the same thing.
Monopsony
In this scenario, a single buyer influenced the market demand.
Think of how in the rocket industry, the US government is the primary buyer (even though private contractors recently entered the industry).
Market types in the startup world
Entrepreneur and professor Steve Blank usually defines market types according to four main contexts.
Existing market
In this case, both demand and supply are established.
Meaning there are already various established companies that have developed the market, and therefore also the customer is well-defined.
Thus, a new entrant selling a product won’t have to explain to existing customers what the product is about.
This type of market is typical in industries that have already matured in a way. Thus their structure is based on well-defined companies and customers.
As I’ll explain, in this type of market, bootstrapping (thus growing the company via customer acquisition) might be the norm unless you’re trying to come up with a whole new solution for that existing market.
In the case in which you’re using disruptive technology to enter this existing market, you might need massive bottom-up traction.
Take the case of how OpenAI has used ChatGPT to completely redefine the search market (which had been the same for decades) through conversational interfaces.
Resegmented market
In this scenario, the market exists and it’s also already developed. However, that is dominated by one or a few players.
Thus, for the new entrant, it will be extremely hard to compete against the dominant players.
In this type of market, as we’ll see, niching down (identifying a very small audience to start from) is a very effective strategy.
In fact, the last thing you want to do is to compete against a large company with massive economic resources.
Instead, a smart approach is that of identifying value gaps.
So, all the possible ways in which you can add value in the market that the dominant player can’t.
For instance, a search player like DuckDuckGo has entered the market by targeting users interested in privacy.
Which a player like Google can’t focus on, as its whole business model is based on tracking users to sell ads.
Other answer engines like Perplexity AI, Neeva, and You.com are using the same strategy to enter the search market.
This bottom-up disruption can be very powerful, as a niche can organically turn into the future dominant market!
New market
Here competitors do not exist and it’s very hard to define the customer.
In this case, a major effort goes into developing the market in the first place.
For instance, a master in developing new markets has been Apple, that thourhg its business platform strategy has created the most valuable business ecosystem in the world.
Market development is a growth-centric strategy that businesses use to identify or develop new market segments for existing products. Companies utilize the market development strategy to discover new potential buyers of their products or services.
As it requires a combination of bottom-up product adoption, which entails also the commercial viability of the technology, combined with distribution, to enhance the amplification of the new product to gain enough traction to create a whole new market!
Creating and dominating new markets is the dream of most tech businesses, and yet, only a few are really capable of this achievement.
Most companies instead can do well in all other types of markets.
Clone market
In this type of market, due to geographical or cultural barriers, a business model can be cloned and transposed.
Take the case of how Baidu of the early days copied and pasted the playbook of Google.
Or perhaps how, these days, China’s BYD is copying and pasting Tesla’s playbook!
Defining your market type
There are many other ways we can categorize the kind of market we are in.
But it’s important to start with a simple exercise in mind, to understand the territory in which you’re operating.
For that matter the market type will determine:
The time to market for our product/service and whether you can test quickly and cheaply.
The market readiness to accept our product/service and thus the way you’ll need to structure our organization to market that product.
Positioning.
Let’s look at each of those based on the market type.
Time to market: how long will it take to launch?
Market types influence also the time to market because if you’re operating on an existing, defined market, with defined demand and existing players, in most cases the product you’re trying to build might comprise technology, know-how and its components that might be easily available.
In that case, the time to market might be relatively short, thus it’s possible to build a product/service with little financial resources.
And based on it, we can answer the following:
Do we need venture capital or external funding?
In a new market or resegmented market(and in some cases in a clone market) the company you’re trying to build might actually need external funding, be it government funding, venture capital, a product development roadmap within a larger organization or as a joint venture.
The primary reason is it’s very hard to get any feedback from the market, as there are no well-defined customers in the first place.
Think of companies, that as of now are trying to build a viable business in the blockchain forming industry. Those companies, in most cases, will need funding, as the technology and application might be sounding but not ready yet to be marketed.
Can we talk to potential customers?
In the opposite scenario, where there is an existing market with well-defined rules, customers and competitors, and where the product you’re trying to build is not complex, or technologically advanced, you can demo it quickly to potential customers, thus you better bootstrap it.
The general concept of Bootstrapping connects to “a self-starting process that is supposed to proceed without external input.” In business, Bootstrapping means financing the growth of the company from the available cash flows produced by a viable business model. Bootstrapping requires the mastery of the key customers driving growth.
Experimental process: can we get ahead of feasibility?
Imagine the case the product will be ready in a few years, are we still sure it makes sense to test it in the first place?
The market might change quickly, and what works today might not work in the future. Indeed, timing is extremely important and running tests on products that might be ready in a few years might be a waste.
Does it mean you won’t need testing before launch? You do need to test whether there is at least interest from the market or to figure whether the product you developed is the right commercial use case (among the potential applications it can have).
Indeed, among the greatest failures for new products are lack of interest from potential customers, poor distribution and inability to generate excitement around a potential new product (demand generation).
Therefore, while testing a product before starting the development is great for those products who are not creating new industries in the first place (think of a product that improves 2x compared to existing alternatives).
For those products who are creating whole new industries, it becomes harder to use an experimental process where it’s possible to gather feedback from existing customers (there are no existing customers).
In some of these scenarios, venture capitalists, governments or organizations with massive budgets are betting on the future. For instance, if you take a company like Alphabet, within it has an investment arm, placing bets on how the future might look like.
Whether the market will like it, it’s not an issue. The primary issue is whether it will work; if it will create a new market and how big that might be.
Google (now Alphabet) primarily makes money through advertising. The Google search engine, while free, is monetized with paid advertising. In 2021 Google’s advertising generated over $209 billion (beyond Google Search, this comprises YouTube Ads and the Network Members Sites) compared to $257 billion in net sales. Advertising represented over 81% of net sales, followed by Google Cloud ($19 billion) and Google’s other revenue streams (Google Play, Pixel phones, and YouTube Premium).
Market readiness: are we still talking enterprise?
When building up a valuable business there are several steps to take, depending on the stage your company is at and the complexity of the product and how ready is the market to accept that product.
Some of the questions you want to answer when dealing with market readiness are about the kind of organization structure you need to build a successful company based on the customer type.
In that case, you need to understand whether you’ll need to deal with a large enterprise customer, or you can push the product already as a consumer product.
In short, in a new market, there might be a few key customers, before the market expands and reaches its peak. And as it does you might be able to move from enterprise product to consumer product.
But in between, you will need to understand the market type to structure your organization.
Are we investing in marketing and automation?
In general, if a product can be launched on a large existing market, it can work well as a consumer product. Thus, at the organizational level, it makes more sense to structure the organization around marketing and product development to build a large customer base (consumer product/platform/service).
Do we need salespeople instead?
If in a market there are a few clients, mostly made of complex organizations or large businesses, in that case, you better structure your organization with competent salespeople, able to close deals and product development instead will be about a tailored product, customized to clients’ need (enterprise product/platform/service).
Positioning: broad, niche or microniche?
In most cases, when a new brand is getting built the more it starts from a niche (unless you have massive budgets to burn) the better it will be able to grow organically.
That’s because none knows your company, and before it can scale, it needs an experimental stage, where it can gather feedback from a larger and larger audience.
However, positioning can be also defined by market types. A complex product in a new market will need to be defined by providing as much value as possible to a microniche, or a small set of customers.
A product launching on an existing market, which has well-defined demand, consumers and understanding of the product offered can be also tackled broadly.
The exception to all rules
In late 2019, Elon Musk launched the Cubertruck, which redefines the whole concept of the truck, not only from a functional standpoint but from a cultural standpoint.
If you are Elon Musk you can do that. And in any case, also Tesla is leveraging on existing know-how and distribution.
Thus, also in this exception, there are three key points to account for:
Demand generation: Elon Musk is a celebrity, able to tap on a massive audience, and he’s built a name for launching breakthrough products.
Tapping on existing know-how: While Tesla is redefining the concept of what a truck means (this is more cultural than functional), it is also tapping on existing facilities and know-how. In short, it has lower feasibility issues than, say, a company launching such a product from scratch.
Tapping on existing distribution: Elon Musk also leverages an existing customer base eager to get hold of the next Tesla cool car.
Key takeaways
Market types tell us the structure of the interactions between a group of consumers and producers, what’s the balance between those and if they are well defined in the first place.
Market types can be classified in various ways. In classic economics, we have four types of markets (monopoly, oligopoly, perfect competition, monopsony). In the startup world, we can also redefine them according to the definition of potential customers (new markets, resegmented markets, existing markets, and clone markets).
Market types will help us understand what kind of organization we are going to build based on time to market, the type of customer we’ll deal with and whether we’ll need external funding or we can bootstrap the business. Market types will also help in defining the positioning of our brand.
Key Highlights of Market Types and Their Significance:
Market Type Definition: A market type refers to how consumers and producers interact within a given context. It’s determined by factors like consumers’ readiness to understand the product, the complexity of the product, the size of the existing market, and its potential for future expansion.
Importance of Understanding Market Type:
Organizational Structure: Understanding the market type influences how you structure your organization.
Funding Needs: It determines whether external funding (venture capital, government funding, etc.) is needed or if bootstrapping is feasible.
Positioning: Market type influences how you position your business in the marketplace.
Time to Market: It affects the time it takes to launch a product or service.
Market Readiness: It informs the approach to marketing, automation, sales, and customer engagement.
Classic Economics Market Types:
Monopoly: A single supplier dominates the market, influencing market demand. Google’s dominance in the search market is an example.
Oligopoly: A few suppliers control the market demand. The automobile industry, dominated by key global players, is an example.
Perfect Competition: Many buyers and sellers exist, often offering similar products. The restaurant industry exemplifies perfect competition.
Monopsony: A single buyer influences market demand, as seen in the rocket industry with the US government’s role.
Market Types in the Startup World:
Existing Market: Both demand and supply are established, with defined customers. Common in mature industries, where product improvements or new solutions are needed.
Resegmented Market: The market exists but is dominated by a few players. Niche strategies and identifying value gaps are effective in this scenario.
New Market: No competitors exist, and the market needs development. Requires bottom-up product adoption, technological viability, and distribution.
Clone Market: Market models can be transposed due to geographical or cultural barriers.
Factors Influenced by Market Type:
Time to Market: Depending on the market type, time to market for a product or service may vary.
Funding Needs: New and resegmented markets may require external funding, while existing markets could be bootstrapped.
Experimental Process: Experimental testing and feasibility are influenced by the product’s readiness and market type.
Market Readiness: Market type affects whether the product can be marketed as a consumer or enterprise product.
Positioning: Market type guides whether to focus on a broad audience, niche, or micro-niche.
Exception: Elon Musk’s Cybertruck launch is an exception due to his celebrity status, leveraging existing know-how and distribution.
Key Takeaways:
Market types define interactions between consumers and producers.
They can be classified based on classic economics or startup contexts.
Market types impact organizational structure, funding needs, positioning, time to market, market readiness, and more.
A total addressable market or TAM is the available market for a product or service. That is a metric usually leveraged by startups to understand the business potential of an industry. Typically, a large addressable market is appealing to venture capitalists willing to back startups with extensive growth potential.
A microniche is a subset of potential customers within a niche. In the era of dominating digital super-platforms, identifying a microniche can kick off the strategy of digital businesses to prevent competition against large platforms. As the microniche becomes a niche, then a market, scale becomes an option.
In simple terms, market validation is the process of showing a concept to a prospective buyer and collecting feedback to determine whether it is worth persisting with. To that end, market validation requires the business to conduct multiple customer interviews before it has made a significant investment of time or money. A transitional business model is an example of market validation that helps the company secure the needed capital while having a market reality check. It helps shape the long-term vision and a scalable business model.
Market orientation is an approach to business where the company focuses more on the behaviors, wants, and needs of customers in its market. A company will first target a niche market to prove a commercial use case. And from there, it will create options to scale.
In a tech-driven business world, companies can move toward market expansion by creating options to scale via niches. Thus leveraging transitional business models to scale further and take advantage of non-linear competition, where today’s niches become tomorrow’s legacy players.
Digital and tech business models can be classified according to four levels of transformation into digitally-enabled, digitally-enhanced, tech or platform business models, and business platforms/ecosystems.
A platform business model generates value by enabling interactions between people, groups, and users by leveraging network effects. Platform business models usually comprise two sides: supply and demand. Kicking off the interactions between those two sides is one of the crucial elements for a platform business model success.
Business scaling is the process of transformation of a business as the product is validated by wider and wider market segments. Business scaling is about creating traction for a product that fits a small market segment. As the product is validated it becomes critical to build a viable business model. And as the product is offered at wider and wider market segments, it’s important to align product, business model, and organizational design, to enable wider and wider scale.
Developing a successful business strategy is about finding the proper niche, where to launch an initial version of your product to create a feedback loop and improve fast while making sure not to run out of money. And from there create options to scale to adjacent niches.
Business model innovation is about increasing the success of an organization with existing products and technologies by crafting a compelling value proposition able to propel a new business model to scale up customers and create a lasting competitive advantage. And it all starts by mastering the key customers.
The innovation loop is a methodology/framework derived from the Bell Labs, which produced innovation at scale throughout the 20th century. They learned how to leverage a hybrid innovation management model based on science, invention, engineering, and manufacturing at scale. By leveraging individual genius, creativity, and small/large groups.
According to how well defined is the problem and how well defined the domain, we have four main types of innovations: basic research (problem and domain or not well defined); breakthrough innovation (domain is not well defined, the problem is well defined); sustaining innovation (both problem and domain are well defined); and disruptive innovation (domain is well defined, the problem is not well defined).
That is a process that requires a continuous feedback loop to develop a valuable product and build a viable business model. Continuous innovation is a mindset where products and services are designed and delivered to tune them around the customers’ problem and not the technical solution of its founders.
Disruptive innovation as a term was first described by Clayton M. Christensen, an American academic and business consultant whom The Economist called “the most influential management thinker of his time.” Disruptive innovation describes the process by which a product or service takes hold at the bottom of a market and eventually displaces established competitors, products, firms, or alliances.
In a business world driven by technology and digitalization, competition is much more fluid, as innovation becomes a bottom-up approach that can come from anywhere. Thus, making it much harder to define the boundaries of existing markets. Therefore, a proper business competition analysis looks at customer, technology, distribution, and financial model overlaps. While at the same time looking at future potential intersections among industries that in the short-term seem unrelated.
Technological modeling is a discipline to provide the basis for companies to sustain innovation, thus developing incremental products. While also looking at breakthrough innovative products that can pave the way for long-term success. In a sort of Barbell Strategy, technological modeling suggests having a two-sided approach, on the one hand, to keep sustaining continuous innovation as a core part of the business model. On the other hand, it places bets on future developments that have the potential to break through and take a leap forward.
Sociologist E.M Rogers developed the Diffusion of Innovation Theory in 1962 with the premise that with enough time, tech products are adopted by wider society as a whole. People adopting those technologies are divided according to their psychologic profiles in five groups: innovators, early adopters, early majority, late majority, and laggards.
In the TED talk entitled “creative problem-solving in the face of extreme limits” Navi Radjou defined frugal innovation as “the ability to create more economic and social value using fewer resources. Frugal innovation is not about making do; it’s about making things better.” Indian people call it Jugaad, a Hindi word that means finding inexpensive solutions based on existing scarce resources to solve problems smartly.
A consumer brand company like Procter & Gamble (P&G) defines “Constructive Disruption” as: a willingness to change, adapt, and create new trends and technologies that will shape our industry for the future. According to P&G, it moves around four pillars: lean innovation, brand building, supply chain, and digitalization & data analytics.
In the FourWeekMBA growth matrix, you can apply growth for existing customers by tackling the same problems (gain mode). Or by tackling existing problems, for new customers (expand mode). Or by tackling new problems for existing customers (extend mode). Or perhaps by tackling whole new problems for new customers (reinvent mode).
An innovation funnel is a tool or process ensuring only the best ideas are executed. In a metaphorical sense, the funnel screens innovative ideas for viability so that only the best products, processes, or business models are launched to the market. An innovation funnel provides a framework for the screening and testing of innovative ideas for viability.
Tim Brown, Executive Chair of IDEO, defined design thinking as “a human-centered approach to innovation that draws from the designer’s toolkit to integrate the needs of people, the possibilities of technology, and the requirements for business success.” Therefore, desirability, feasibility, and viability are balanced to solve critical problems.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
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