Market Dynamics

Each of the four market environments requires its own organizational structure and set of behaviors.  Furthermore, each must follow a unique strategic style if the company is to survive, succeed, and excel.  In short, what will work for Coca-Cola will spell disaster for amazon.com, and vice versa. 

The following figure illustrates these dynamics


Let's look at these dynamics in more detail, one market environment at a time.

Kingdoms and Dominated Markets
Here the dynamics are set up by the struggle to keep margins at a high enough level to provide all the rewards expected by all company stakeholders.  In companies that operate successfully in kingdom markets, we often hear the words "maintaining traditional growth and profit percentages."  Because margins are significant, demand is high, the and the company controls a large portion of market share, the stakes are high for companies that dominate.  Power is often exercised by purchasing successful (or new) competitors.

Battlegrounds and Closed Markets
Businesses that compete in a battleground environment eventually go through consolidation into a few very powerful players who share most or all of the market.  The most important dynamic here is that this market is essentially closed to all other comers.  Anyone trying to get in will be considered a much lesser, or niche player, and the handful of giant competitors will determine how much of a dent is made in their customer base.

Entrance into battleground markets is almost impossible.  It can be done - the Fox network is one such success - but only with the expenditure of enormous financial or political capital.  The cost of developing the many required points of distribution is usually so great that few attempt to enter in a significant way.

In many battleground markets, margins become very small as the battle wears on.  The principal criterion for success thus often becomes increased volume.

Jungles and Contested Markets
Jungle dynamics are based on pricing and product differentiation.  Because margins get gradually eaten away as competition continues, alliances of all kinds are created to maintain market share - and they are often quickly dissolved for the same reasons.

Just when a company may think that it has secured a certain group of customers, another player may appear (often from another country) with a slightly different product or a significant price reduction.

The key word here is turbulence.  Change may come from technology, new products, a new set of alliances, significant price cuts, government intervention, or many other sources.

Several years ago, one 3M vice president said that simply to survive in a jungle market (in this case, the market for floppy disks and hardware), it was necessary to develop 100% new products every four years.  Not surprisingly, 3M amputated that part of the company and formed a separate one called Imation.  Imation created its own separate culture, one designed specifically to survive in a jungle market. 

Frontiers and Open Markets
In a frontier market environment, products are new and unknown and have no significant customer base.  Anyone can enter; there are no dues to pay and no real competitors if the product or service is truly new.  Here the dynamic focuses on finding customers and becoming known and valued.  This is very different dynamic from defending territory that has already been gained.  Another common focus is developing a funding base to support the development of the market.  (This activity can easily become all-consuming.)

Innovativeness is the norm here.  There usually is not a major effort at keeping costs down; indeed, if the field and/or product is valued by Wall Street, funds become readily available through the issuance of an IPO.

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Four Types of MarketsTransforming a Kingdom Mentality As little as two decades ago, a large number of American companies operated in kingdom environments.  Most of those environments are gone, transformed into  battlegrounds or jungles by the pressures of globalization, technology, increased efficiency, and the ever-increasing demands for improved quality and low prices. Read More Making the Right Match It has, I hope, become clear by now that in order to successfully market any product or service, a company must first identify which of the four market environments the product will be sold in.  Then it needs to adapt (or create) a marketing strategy to suit that environment. Read More Product Life Cycles Yet another crucial dynamic involves the life of each particular product or service.  Each starts out in the frontier as something new to the world and, thus, more or less proprietary.  As it becomes better known and more widely accepted, however, it turns slowly (and sometimes not so slowly) into a commodity.  In other words, it has gone through the crucible of business consolidations that lead to low margins and high volume.  A good example is personal computers.  These were essentially new products until the late 1980's, but are now commodity items with few differences between brands. Read More Product Evolution and Market Flow No one product or industry remains in a single market environment forever.  Like any other dynamic system, the market for any product or service is always in some flux.  Read More Market Dynamics Each of the four market environments requires its own organizational structure and set of behaviors. Furthermore, each must follow a unique strategic style if the company is to survive, succeed, and excel.  In short, what will work for Coca-Cola will spell disaster for amazon.com, and vice versa.  Read More Some Real World Examples One way to better understand these four market environments is to look at some companies that routinely do business in them. Read More Four Market Archetypes Each of today's organizations operates in one or more of these four distinctly different market environments: the kingdom, the battleground, the jungle, and the frontier. Read More