Markets, sub-markets and product-markets

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What are markets, sub-markets and product-markets?

1. Introduction

In marketing, understanding the structure of the broader market is fundamental for shaping strategy, allocating resources, and identifying opportunities. You will often see the terms market, sub-market, and product-market used somewhat interchangeably in textbooks, but each concept has its own nuance.

This post aims to clarify these terms by exploring:

  • What a “market” is in modern marketing (going beyond a traditional economic definition),
  • How sub-markets differ in characteristics and scope,
  • How product-markets shape a firm’s approach to “where to compete?”

Unfortunately, the terminology used in this area is somewhat confusing across different textbooks. Between them they sometimes use the terms ‘market’, ‘sub-market’, ‘market segment’ and ‘product-market’ interchangeably. Hopefully the following discussion will help clarify the terms.

Definitions of markets, sub-markets and product-markets

2. What Is a Market?

Traditionally, the term market has been defined in economic terms, as per the following examples:

  • “It is usually understood as an organized process by which buyers and sellers exchange goods and services for money.” (Chin & Guan, 1996)
  • “… we use the term (market) to refer to exchanges between buyers and sellers who communicate with each other about the quality and quantity of the product, what buyers are willing and able to pay for a product, and what the sellers must receive in order to produce or sell a product.” (Mukherjee, 2005)

You will notice that the first definition is quite straightforward and tightly defined as it defines a market simply in terms of the exchange between buyers and sellers. However, the second definition is much broader and is more reflective of a market from a marketing perspective. This second definition also includes the elements of communication (which is marketing promotion), price and profit incentive. Therefore, this second definition is more appropriate for us in the study of marketing.

2. What Is a Market?

2.1 Traditional Economic Definitions vs. Modern Marketing Perspectives

In economics, a market historically refers to an organized process by which buyers and sellers exchange goods or services for money. However, marketing broadens this view, emphasizing the roles of communication, pricing negotiations, and profit incentives. As a result, when marketers refer to a “market,” they tend to focus on:

  • The exchange taking place between buyers and sellers,
  • Consumer needs: The set of needs, wants, and demands that spark these exchanges,
  • Industry structure: The interplay of competing firms and the range of choices available.

Examples of Large Markets

  • Banking Market: Encompasses all financial products/services (credit cards, home loans, deposits, wealth management, etc.).
  • Education Market: Spans everything from K–12 schooling, higher education, online learning platforms, tutoring services, to educational software.
  • Ready-to-Eat Food Market: Includes all on-the-go meal solutions (frozen dinners, packaged snacks, quick-serve meals, meal kits, etc.).

2.2 Key Implications of Market Definitions

  1. Scope of Competition: A well-defined market shows which firms, channels, and consumer needs are relevant.
  2. Strategic Boundaries: Deciding that you operate in “ready-to-eat food” rather than “frozen pizza” alone guides how you perceive opportunities and adjacent product lines.
  3. Resource Allocation: A broad or narrow definition affects where you focus R&D, marketing spend, and operational efforts.

3. What Is a Sub-Market?

3.1 The Concept of a “Market Within a Market”

A sub-market is essentially a smaller or more specialized sector within a larger market. Each sub-market typically has some unique operational characteristics:

  • Unique product features or attributes,
  • Distinct customer groupings or usage contexts,
  • Specialized competitors who may not compete in the broader market,
  • Different price structures or cost factors,
  • Tailored marketing or distribution methods.

For instance, the banking market can be broken into sub-markets such as credit cards, home loans, online savings, and so forth. While a multinational bank might operate in all these areas, a niche online lender might focus only on home loans or student refinancing. Each sub-market thus fosters its own competitive set and marketing strategy.

3.2 Legal and Historical Context

The idea of sub-markets gained prominence in U.S. legal cases like the Brown Shoe Co. v. U.S. (1962). Courts described a sub-market as a “relevant market within a relevant market,” highlighting that sub-markets have unique:

  • Product features,
  • Distinct customer bases,
  • Pricing patterns,
  • Retail or distribution approaches.

From a marketer’s perspective, these sub-markets require tailored strategies, because what works in one sub-market may be ineffective in another.

Note: the “The Brown Shoe case” [Brown Shoe Co. v. U.S. 1962], where a sub-market was referred to as ‘a relevant market within a relevant market’. As part of their deliberations, they indicated that sub-markets were likely to have products with unique characteristics, distinct customers, distinct pricing, and even specialized retailers.

Therefore, a suitable definition for our purposes as students of marketing:

  • A smaller and more defined sector of an overall market, which has a number of differing marketing and structural features, which may include distinct distribution channels, price elasticity, competitive sets, and effective promotional methods.

3.3 Real-World Examples of Sub-Markets

  1. Banking:
    • Credit Cards: Distinct players like American Express, specialized distribution via direct mail, partnerships with department stores.
    • Home Loans: Typically large financial institutions, or niche mortgage brokers, rely on real estate agents and in-person consultations.
    • Online Savings: Operate heavily through digital channels, often appealing to tech-savvy or rate-sensitive customers.
  2. Automotive:
    • Electric Vehicles (EVs): Specialized manufacturers, unique charging infrastructure, early adopters.
    • Luxury Sedans: Prestige-focused brands, premium pricing, specialized dealership experiences.
    • Commercial Trucks: B2B client base, different marketing channels and service networks.
  3. Ready-to-Eat Food:
    • Frozen Meals: Usually sold through grocery channels, featuring brand players like Lean Cuisine or Stouffer’s.
    • Meal Kits: Subscription-based services, direct-to-consumer distribution, emphasize fresh ingredients.
    • Convenience Store Snacks: Quick impulse buys, high brand variety, smaller packaging.

4. What Is a Product-Market?

4.1 Defining “Where to Compete?”

A product-market is typically defined when a firm decides which products it will offer in which markets or sub-markets. You might hear the phrase “where to compete?”—this is about mapping the intersection of product lines and specific market segments or sub-markets. For example:

  • A technology firm might choose to focus on “smart home devices” in the consumer electronics market (home security, voice assistants, thermostats) rather than taking on the entire electronics domain (PCs, smartphones, etc.).
  • A banking institution might define its “product-market” scope as offering credit cards and online savings, but ignoring wealth management or home loans.

4.2 Product/Market Grids

Firms often use a product/market grid to visualize their chosen territory:

  • Rows: The product categories or specific lines (e.g., standard credit cards, premium credit cards, small-business loans, etc.),
  • Columns: The markets or sub-markets they plan to operate in (e.g., consumer banking, small-business banking, wealth clientele).

This grid helps teams see gaps (unserved markets) and ensure alignment of resources. One firm’s product-market definition might be narrower or broader based on its strategic goals.

4.3 Variation in Definition

Each firm has its own perspective on a product-market, influenced by:

  • Core competencies: Technology expertise, brand strength, distribution networks.
  • Strategic vision: Whether they want to target premium or mass-market customers.
  • Competitive landscape: Some product-market combos might already be dominated by entrenched rivals, prompting the firm to focus on a different slice.

5. Common Confusions and How to Avoid Them

5.1 Market vs. Sub-Market vs. Segment

  1. Market: The broad collection of buyers and sellers.
  2. Sub-Market: A defined slice of that larger market based on products or specialized demand.
  3. Market Segment: Groups of consumers within a (sub-)market who share common needs or characteristics.

Tip: Ensure you keep sub-markets (which are product-based categories) distinct from market segments (which are consumer-based groups). Failing to do so often leads to product-oriented thinking instead of consumer-centered segmentation.

5.2 Product-Market Confusion

“Product-market” sometimes gets lumped together with sub-market definitions. The difference is that a product-market specifically identifies both what product or service you are offering and where you’re offering it. In contrast, a sub-market classification (e.g., “credit cards”) doesn’t specify which particular credit card variants or consumer sets you’re targeting within that domain.

5.3 Example to Clarify

If you say:

“We are in the credit card sub-market and have three product-markets: (1) youth starter credit cards, (2) frequent traveler rewards cards, and (3) small-business expense cards.”

  • Sub-market: Credit cards (common product type with unique distribution and competition).
  • Product-market: Specifically chosen product lines (starter cards, traveler rewards, small-business solutions) matched to different segments or usage contexts.

6. Importance of Distinguishing These Concepts

  1. Strategic Clarity: You know the breadth of your market (e.g., all of banking), the sub-markets you operate in (like credit cards), and how your product lines slot in (premium vs. mass-market cards).
  2. Competitive Understanding: Each sub-market might have specialized players. Understanding this helps identify who you’re truly competing with.
  3. Efficient Resource Allocation: Distinguishing sub-markets and product-markets ensures marketing, R&D, and distribution investments are precisely targeted.
  4. Effective Segmentation: By not mixing sub-markets with consumer segments, you can identify real consumer-based segments within each product or sub-market category.

7. Additional Examples Across Industries

7.1 Software Industry

  • Overall Market: Enterprise software
  • Sub-Markets:
    • Customer Relationship Management (CRM)
    • Enterprise Resource Planning (ERP)
    • Project Management Tools
  • Product-Markets:
    • A CRM platform tailored for small businesses,
    • An ERP solution for large manufacturers,
    • A subscription-based project management tool for agile tech startups.

7.2 Retail/Department Stores

  • Overall Market: Retail
  • Sub-Markets:
    • Clothing retail
    • Electronics retail
    • Home furnishings
  • Product-Markets:
    • A chain focusing on “budget clothing for families,”
    • Another chain focusing on “premium brand electronics,”
    • A specialized store for “trendy home décor” in urban areas.

By clarifying these levels, retailers can better decide how to brand each store or department and which consumer segments to cater to.

8. Step-by-Step: How to Classify a Market, Sub-Market, and Product-Market

  1. Identify the Broad Market:
    • Ask, “In which general arena of needs/demands do we operate?” Example: “We’re in the personal transportation market.”
  2. Break Out Sub-Markets:
    • List the product or service categories typically recognized within that arena. E.g., “Ride-sharing,” “Automotive sales,” “Bike sharing,” “Public transport passes,” etc.
  3. Define Your Product-Market Scope:
    • Among those sub-markets, where do you plan to offer your product(s)? Are you focusing on “electric bike sharing in major cities” or “budget-friendly secondhand car sales in suburban areas”?
  4. Drill Down to Consumer Segments:
    • Identify the consumer groups within the chosen sub-market who share similar purchase motivations, usage behaviors, or psychographic traits.
  5. Check for Confusion:
    • If you find that your “segments” are just different product categories, you may be incorrectly mixing sub-markets with market segments.

9. Key Points

Markets are the broad space of exchange between buyers and sellers, sub-markets are more narrowly defined product categories within that space with unique competitive dynamics, and product-markets represent specific decisions a firm makes about which products to offer to which part of the market.

Understanding these distinctions helps avoid the pitfall of conflating product types with genuine consumer segments. By clarifying whether you’re discussing a market (like banking), a sub-market (like credit cards), or a product-market (“premium rewards cards for frequent travelers”), you lay a stronger foundation for strategic positioning, resource allocation, and the all-important segmentation process.

In short, you set yourself up to deliver precise marketing strategies that resonate with the right consumers—because you’re not just labeling products; you’re aligning them with actual market structures and consumer needs.

For more information, please review Examples of Sub-Markets and Product-Markets and Understanding Markets.