Understanding the Four Types of Markets

by Sean Ross

2 min read

Every product and service provider should be aware of the market in which their business operates. Different markets operate with different standards – each with unique buyer and seller personas, rules, and guiding outputs. By understanding the basics of each type of market, you may find it easier to find the correct strategy for your product offering.

Consumer Market

If your business is in the consumer market, that means you sell to individuals, families, or other entities for their own personal use. When you sell a product to someone that helps alleviate one of their primal discomforts (such as hunger or need for shelter) or provides them entertainment, then you sell them a consumer good. The consumer market is enormous and flexible. A good that nobody demands at one point may be a must-own years later; think of the demand for smartphones between 1990 and today. Marketing is extremely competitive and often challenging in the consumer market. Final consumers have many demands, may have small budgets, and their tastes or preferences can change quickly. It is important to brand effectively and keep an eye on the competition.

Industrial Market

Some companies have to create and sell the materials and capital equipment that other companies rely on – things like steel beams, chemicals, forklifts, office furniture, and oil. Such companies are often called “suppliers” and comprise the industrial market. Industrial sellers don’t offer final goods and services, at least in the technical economic sense. They offer capital goods. Since their buyers are other businesses or governments, industrial sellers can expect a more predictable (and even rational) buyer behavior, which means easier marketing strategies. Because industrial suppliers often sell in bulk, their buyers can negotiate a lower per-unit price. It can be difficult for an industrial company to enjoy the kinds of markups that sellers in other markets enjoy. A bulk sales strategy also tends to require more inventory space and, by association, higher inventory costs.

Institutional Market

Institutional players are not traditional for-profit businesses. Think of public hospitals, prisons, public schools, government parks, or nonprofits. The institutional market is different than other markets, because revenue is not always the guiding output for an organization. This has its challenges, but it also means that the intense pressure of market competition is not always present for managers, employees, or directors. Many providers and sellers in the institutional space are publicly owned or rigidly regulated, which makes it difficult or impossible to run traditional revenue-expense calculations. If you are an institutional seller, you may have to deal with predetermined budgets or other arbitrary production guidelines.

Reseller Market

Some companies operate by purchasing other final consumer products and then reselling (or, in some cases, leasing) those products to other parties. The reseller is less of a producer and more of a distributor – for example, some entrepreneur notices a discrepancy between supply and demand in a certain market, and so she buys goods from an oversupplied area and sells them in an undersupplied area. The clear advantage that wholesalers have is that they do not have to manufacture the products themselves and manage production channels. However, wholesalers must be excellent marketers and must also know how to negotiate with their suppliers to maintain their margins. Try not to think of market analysis as an academic exercise. Use it to think more strategically. The better you understand the unique dynamics of your market, the better prepared you can be.

References & Resources

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