Markets, industries, and the customer's alternatives
Define your market through the choices customers actually consider, including substitutes and no change.
Define a market from the customer's perspective and distinguish direct competitors, substitutes, and the option of doing nothing.
Overview
Harbor Rooms rents meeting space to small businesses. Its owner wants to lower prices because bookings have slowed. Before changing the price, she needs to learn what customers choose instead.
A nearby meeting venue is one possibility. Customers might also use their own office, meet online, or postpone the meeting. Each choice suggests a different reason for losing a booking.
All businesses, interviews, and figures in this lesson are fictional teaching examples.
Recall Lesson 007: What benefit did Summit Training's customers want beyond attending a workshop? Answer before continuing; the debrief returns to it.
Markets and industries
An industry groups businesses that provide similar products or services, such as commercial cleaning or furniture manufacturing. It helps you understand suppliers, production methods, and firms with similar operations.
For practical business decisions, define a market around a group of customers, a need, and the options they can realistically choose. Customers may compare providers across several industries. The SBA explicitly recommends considering indirect competitors and notes that several industries can serve the same market. Source: SBA.
Harbor could describe its market as small local teams arranging a half-day planning session. This gives the owner a starting point for investigating buyers, budgets, location, privacy, and whether people need to meet physically.
“All business meetings” would be too broad for deciding what this venue should offer. “People who want Harbor's rooms” would exclude the alternatives the owner needs to understand.
A useful market definition states who is choosing, the result they need, and the circumstances that limit their choices. Treat that definition as a hypothesis to check with customers. It is a working tool for this course, not a formal legal market definition.
Three kinds of alternative
| Alternative | Meaning | Harbor example |
|---|---|---|
| Direct competitor | Another provider with a similar offering for the same customer need | Another venue renting equipped meeting rooms |
| Substitute | A different way to achieve a similar result | A video meeting or an available office room |
| No change | Keep the current approach or postpone action | Delay the planning session until next quarter |
These labels depend on the decision. A hotel renting a meeting room can be a direct competitor even though its main business is lodging. An office room may be both a substitute and the customer's existing approach.
“Doing nothing” means taking no new action. It can involve tolerating inconvenience or continuing unpaid internal work. It does not necessarily mean the customer has no problem or incurs no cost.
Availability matters. A room an hour away may be irrelevant to a team with a tight schedule. Video may work for a routine update but fail a customer's need for hands-on collaboration. Include alternatives customers would seriously consider in the specific situation.
Worked example
Harbor asks ten recent prospects what they actually did after declining its $180 half-day room:
- Six held the meeting online to avoid travel.
- Two used a free room at their own office.
- One booked a competing venue with easier parking.
- One postponed because the project had no approved budget.
Eight of ten used substitutes: six online plus two in an office. That is 8 ÷ 10 = 80% of these interviewed prospects. One chose a direct competitor and one postponed.
This small, selected group does not establish the pattern across the whole market. It does give the owner useful questions to investigate before cutting prices.
A lower price may not overcome travel time, available office space, or a missing budget. Harbor could investigate teams that need an in-person session but lack suitable space, and test whether convenient access matters more than a discount.
The owner should ask about a recent decision: which options the team considered, who approved spending, what it chose, and why. Check behavior and circumstances rather than relying only on “Would you buy this?” answers. Record what remains uncertain.
Exercise
Allow 6–8 minutes. ClearFloor, an established equipment maker, rents floor-cleaning machines to warehouses for $600 per month. Warehouse managers want floors cleaned reliably before the morning shift.
ClearFloor reviews 20 recent lost opportunities. Six prospects rented a rival machine, eight hired a cleaning service, four continued cleaning manually with existing employees, and two deferred any change because spending was frozen.
Its product director proposes developing a faster machine. The sales team reports that several prospects lacked employees available to operate any machine at night. The sample may not represent all warehouse customers.
- Write a market definition from the buyer's perspective. Include the customer, desired result, and one important circumstance.
- Classify the four reported choices. Explain any overlap between a substitute and no change.
- Calculate the share choosing a cleaning service. State what that percentage does and does not tell you.
- Recommend what ClearFloor should investigate before approving development. Give two questions to ask lost prospects.
Answer
A useful definition is warehouse managers seeking reliable floor cleaning before the morning shift, under their staffing and budget constraints. It leaves room for equipment, contracted labor, and internal work as competing approaches.
The rival rental is direct competition. A cleaning service is a substitute because the buyer purchases completed cleaning rather than equipment access. Manual cleaning is another substitute and, for these prospects, also the current approach. The spending freeze explains the two explicit deferrals.
Eight out of twenty chose a cleaning service: 8 ÷ 20 = 0.40, or 40%. That is a share of this lost-opportunity sample. It is neither ClearFloor's market share nor proof that 40% of all warehouses prefer outsourcing.
Investigate whether staffing prevents purchase and which customers actually need greater machine speed. A faster machine might help a staffed warehouse but leave an unstaffed buyer's problem unresolved.
Ask, “How did you get the floors cleaned after deciding against our rental?” and “What made that approach workable, and what problems remained?” Follow up on staffing, operating hours, budget, and other options considered.
A reasonable recommendation is to gather that evidence before approving development. ClearFloor might improve equipment, add an operated service through a partner, or focus on warehouses with suitable staff. The supplied facts do not establish which option would be profitable.
Recall answer: Summit's customers wanted fewer reporting errors and less rework. That result could come from live instruction, recorded courses, or internal coaching.
Applying this lesson
For a business you manage or might start, list the customer's realistic choices before deciding what to improve. Include similar offers, different approaches, and no change. Use actual buying decisions to revise the list.
Next: Strategy as a set of choices. We will use this view of customers and alternatives to decide whom a business should serve and how it should compete.
Sources
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