Market Definition

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name: market-definition description: "Define market boundaries using substitution principle. Use for market sizing, competitive analysis, and strategic positioning."

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Market Definition

Metadata

Name: market-definition

Description: Market boundary definition framework

Triggers: market definition, market boundaries, substitution, TAM SAM SOM

Instructions

Define what constitutes a market using the substitution principle for analysis purposes.

Framework

The Substitution Principle

A market is defined by customer choice between substitute options.

Customer's Choice:
Product A  VS  Product B  VS  Do nothing
IF: Customer can switch between Product A and Product B
AND: Switching is not costly or disruptive
THEN: They are in the SAME market
IF: Customer would NOT switch to Product B
OR: Switching would be costly or disruptive
THEN: They are in DIFFERENT markets

Market Definition Process

1. Identify purpose - Why define this market? 2. List products - What are we analyzing? 3. Identify substitutes - What alternatives exist? 4. Apply substitution test - Would customers switch? 5. Define boundaries - Geography, time, customer type 6. Validate with data - Check assumptions 7. Document clearly - Clear definition statement

Output Format

## Market Definition: [Industry/Product]
Purpose
Why Define This Market: [Analysis reason]
Application: [What will this definition be used for]
Product List
| Product | Current Players | Substitutes | Same Market? |
|---------|----------------|-------------|----------------|
| [Product A] | [List] | [List] | ✅ Yes |
| [Product B] | [List] | [List] | ✅ Yes |
| [Product C] | [List] | [List] | ❌ No |
| [Do Nothing] | [Option] | - | ❌ No |
Substitution Analysis
| Substitution Criterion | Assessment | Finding |
|---------------------|----------------|-----------|
| Price Sensitivity | [High/Med/Low] | [Analysis] |
| Switching Costs | [High/Med/Low] | [Analysis] |
| Functional Equivalence | [Yes/No] | [Analysis] |
| Customer Preference | [Analysis] |
Conclusion: 
[Analysis of which products are in same market]
[Definition of market boundaries]
Market Definition
Scope Statement:
"[Clear statement of what constitutes the market]"
Includes:
[List of products included]
[List of products excluded]
[Geographic boundaries]
[Customer segments]
[Time period considered]
Excludes:
[Products not in this market]
[Adjacent markets]
[Different time periods]
Validation Tests
| Test | Result | Confidence |
|------|--------|--------|-----------|
| Substitution test | ✅ Confirmed | High |
| Pricing check | ✅ Verified | High |
| Share analysis | ⚠️ Needs validation | Medium |
Strategic Implications
1. [Implication 1] - [Analysis]
2. [Implication 2] - [Analysis]
Boundary Map

┌─────────────────────────────────────┐ │ │ │ MARKET X (Product A) │ │ │ │ Includes: │ │ Product A │ │ Product B │ │ Product C │ │ Do Nothing │ │ │ └─────────────────────────────────────┘ ┌───────────────────────────────┐ │ │ │ ADJACENT MARKET Y │ │ Product D │ │ Product E │ │ Product F │ └───────────────────────────────┘

Tips
Be conservative - when in doubt, assume different markets
Consider customer switching costs - both monetary and non-monetary
Test with real customers - don't assume theoretical behavior
Document assumptions clearly - boundaries matter for market sizing
Update regularly - products and markets evolve
Use quantitative thresholds - what defines "significant" switch?
Consider indirect substitutes - new alternatives can emerge

References

Porter, Michael. *Competitive Strategy*. 1980. Chapter 2.

Various industry analysis and market research sources

Be conservative - when in doubt, assume different markets

Consider customer switching costs - both monetary and non-monetary

Test with real customers - don't assume theoretical behavior

Document assumptions clearly - boundaries matter for market sizing

Update regularly - products and markets evolve

Use quantitative thresholds - what defines "significant" switch?

Consider indirect substitutes - new alternatives can emerge

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